The Sixteenth Amendment of the U.S. Constitution gave Congress the power to “lay and collect taxes on income, from whatever source derived, without apportionment among the states…” The result of this amendment was a broad income tax and the “celebration” of tax season.
The deadline to file income taxes this year has been pushed back to Monday, April 18th due to the observance of Emancipation Day in Washington D.C. on April 15th. If you are expecting a refund the earlier you file the better. On average the IRS pays out more than $3.6 billion in fraudulent refunds a year and it takes on average 312 days to resolve tax related theft cases. In other words, try to beat the criminals to your refund!
If you are making a tax payment and still can’t get it together by April 18th, make sure you file for an extension and make an estimated payment so you’re not hit with a late filing fee or a late-payment penalty. That will buy you an additional 6 months and extend your filing until October 15th. Maybe it’s not the most celebrated time of the year but we can still get a good chuckle out of the more outrageous income tax deductions that have succeeded and failed over the years.
Typically, pets that you own are not considered dependents and their medical expenses cannot be written off. However, in a landmark court case, a California woman was able to deduct 90 percent of the $12,000 in deductions she claimed for the 70 cats she fostered. Since the woman was working with a legitimate charity with 501(c)(3) tax status, she was therefore able to deduct these expenses.
You’ve heard of junkyard dogs, but how about junkyard cats? In another feline-related tax case, the owners of a junkyard claimed a deduction for the money spent to put out bowls of pet food to attract stray cats. The couple argued that the cats were used to ward off snakes and rats that were living in the junkyard, making the junkyard safer for customers and providing a useful business service. The couple took the case to court and won! The IRS agreed that the cats kept the property safer for customers and the pet food was a legitimate business expense.
Believe it or not, there’s even an infamous case where breast implants were claimed as a business expense! The majority of breast augmentations are cosmetic in nature, therefore, there is no deduction for tax purposes. Implants after a mastectomy, however, are generally tax deductible since this is considered part of medical treatment. It was an exotic dancer with the stage name of “Chesty Love” who tried to deduct her $2,088 breast implants. The IRS rejected her claim and she sued the IRS in U.S. Tax Court. She was able to prove that the breast implants that left her with a size 56FF allowed her to make more money than she otherwise would have. Not sure what’s more shocking, the decision by the tax court to allow the deduction or the size 56FF!
After a Pittsburgh businessman collected $500,000 in an insurance claim following the destruction of his furniture business by a fire, he decided to deduct the $10,000 paid to an arsonist as a “consulting fee.” He probably should have consulted with an attorney before admitting this to the IRS during an audit. He didn’t need that tax deduction after the insurance company reclaimed the proceeds and he was charged with insurance fraud.
In 2008, a man in New York City, made regular deposits at his local sperm bank. He tried to offset his income with a deduction. Not sure if the deduction was related to “labor” or “depletion.” Either way I give it an A for creativity. He took it all the way to the US First Circuit Court of Appeals but lost.
Most jobs call for you to look the part. Uniforms are a necessity for some jobs. Business attire is a requirement for most office jobs. Although business attire often comes with a high cost, because you can wear these outfits outside of the work place, you generally cannot deduct your work clothes as a business expense. Actress Dinah Shore tested that argument during the 1950s when she claimed the cost of formal dresses she wore on her variety show. Dinah claimed that she couldn’t possibly wear them for personal reasons because they were so tight she couldn’t actually sit down in them. The IRS didn’t believe her so they sent a representative to judge which dresses really were too tight to sit down in before they allowed the deduction.
The deductibility of your expenses might make perfect sense to you, but remember the IRS will be the final judge, so it’s always best to run your situation by a CPA before you go ahead and take that deduction.
Trish Anderson is a certified public accountant with more than 20 years of business and accounting experience in public accounting, wealth management, asset based lending, government auditing, corporate accounting and auditing and not-for-profit accounting and auditing. She offers Concierge Accounting Services to individuals and small businesses including individual tax planning and preparation, family office services, and elder care, small business and HOA accounting, debt advising and angel investing. Trish’s office is located at 301 Sea Island Road, Ste. 3, and she can be reached by phone at 912.634.5300, or feel free to visit her website at trishandersoncpa.com.
