Outrageous Tax Deductions Approved by the IRS
Getting creative at tax time is something many people do, pushing the limits on deductions to reduce their tax bill. The goal is to receive the maximum amount of deductions without getting a knock on the door from Uncle Sam. You may be surprised at what the IRS allows tax filers to deduct - everything from music lessons to organic foods.
If your deduction seems like a stretch, your tax practitioner should be informed and savvy enough to scour previous tax court cases or IRS filings in order to back up your claim. Of course, accurate record keeping to back up your deductions is required - make sure to keep receipts for medical expenses, donations, or business expenses. If your deduction is denied, you could face back taxes, plus interest and penalties.
Here are some ten unusual deductions approved by the IRS.
South Carolina scrap yard owners in 2001 wrote off $300 for the cost of cat food as a business expense, claiming the food attracted wild cats to the business to scare off snakes and rats. The deduction was approved.
To treat severe allergies to chemically contaminated food, a Chicago couple in 1971 could eat only pricey organic food as prescribed by three different doctors. The pair deducted as a medical expense the difference in price between the organic food and regular food treated with chemicals. The U.S. Tax Court allowed the $3,000 deduction.
In 1944, the U.S. Tax Court said a taxpayer from Cleveland could write off almost $1,000 for costs related to sending his daughter to a boarding school in Tucson, Arizona. The five-year-old girl suffered from chronic bronchitis, sinusitis and asthma, and was sent to the school in the warmer weather for her health — on doctor’s orders. Her health improved and the deduction was considered a medical expense.
A Wisconsin bodybuilder deducted almost $14,000 from 1999 to 2001 for the cost of three body oils — including a tanning product — that helped his career. The U.S. Tax Court allowed the business expense write-off because the oils were primarily marketed in bodybuilding magazines, instead of sold to the public.
In 1962, the IRS ruled that a taxpayer could deduct the costs of a clarinet and clarinet lessons for his son because an orthodontist recommended playing the instrument as a way to treat his severe overbite.
An exotic dancer in 1988 wrote off about $2,000 for the depreciation of her breast implants, arguing to the U.S. Tax Court that the implants were a “stage prop” that boosted her earnings substantially. Before the implants, she made up to $750 a week. After, her earnings in a 20-week period were $70,000, or about $3,500 a week. The U.S. Tax Court ruled that her implants — size 56N after a second surgery — were for work rather than a personal benefit, and allowed the deduction.
Cat Food, Part 2
A woman used her own money to care for feral cats that she fostered in her home for a charity that specialized in the neutering of wild cats. She spent more than $12,000 of her own money paying for vet bills, food and other items.
The Tax Court ruled that she can claim a charitable deduction for her expenses, but limited her write-off because she didn’t meet the substantiation rules, failing to procure a contemporaneous written acknowledgment from the charity each time she spent $250 or more on the charity’s behest. With the proper documentation, she could have deducted all the costs she incurred for the organization.
Fees paid to a sitter to enable a parent to get out of the house and do volunteer work for a charity are deductible as charitable contributions even though the money didn't go directly to the charity, according to the Tax Court. The court expressly rejected a contrary IRS revenue ruling.
A taxpayer with emphysema put in a pool after his doctor told him to develop an exercise regime. He swam in it twice a day and improved his breathing capacity. Turns out he swam in the pool more than his family did. The Tax Court allowed him to deduct the cost of the pool (to the extent the cost exceeded the amount it added to the value of the property) as a medical expense because its primary purpose was for medical care. Also, the cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area are treated as medical expenses.
Rather than drive five to seven hours to check on their rental condo or be tied to the only daily commercial flight available, a couple bought their own plane. The Tax Court allowed them to deduct their condo-related trips on the aircraft, including the cost of fuel and depreciation for the portion of time used for business-related purposes, even though these costs increased their overall rental loss on the condo.
There is such a thing as going to far with unique deductions. Here are five instances when odd deductions were denied by the IRS.
Writing off your life: One taxpayer with a real estate business calculated the value of his life, time and expertise to his business, coming up with $1.75 million. He then tried to amortize that amount as a business expense, but the IRS said no.
Deducting crime costs: The owner of a failing furniture store paid someone to burn down his store. As he should, he reported the insurance he received as income to the IRS. But he went one step too far and deducted what he paid the arsonist as a consulting fee — and admitted that during the IRS audit. Oops!
Dress for success: A businessman tried to write off the cost of a mink coat for his wife to wear to business functions. It wasn’t allowed.
Groceries as medicine: A diabetic on a restrictive diet tried to deduct the costs of lettuce, tomatoes, artificial sweeteners and reduced-salt foods as medical expenses. The IRS denied the claim.
Super Bowl gambling loss $2: That's not a misprint. One client wanted to file for a gambling loss on a $2 bet on the Super Bowl. While gambling losses can be deducted by following instructions from the IRS, $2 leaves a bit to be desired. Better luck next year.