Wacky Tax Deductions


NEW YORK (MainStreet) — Would you try to deduct your dog as a burglar alarm for your home office? How about cosmetic surgery for breast implants?

Those are two of the wackier deductions taxpayers have proposed to take on their federal returns. But what's even wackier is that, while the first deduction was denied by the IRS, the second was not. The IRS has ruled repeatedly that puppy chow, vet visits and other costs associated with keeping a dog can't be written off as business expenses on the basis that the dog provides security.

It tried to do the same with an exotic dancer who wanted to deduct the cost of her breast implants, but the federal tax court said the ersatz chest was a legitimate cost related to her work.

There are just a few of the oddball tax deductions that CPAs see clients trying to wangle, including one who wanted to write off a home media room as a videoconferencing center. The taxpayer in that case decided on the advice of his tax preparer not to try to claim the deduction. Most off-beat tax deductions meet similar fates when they run up against cautious accountants.

But some persistent taxpayers give up only after the IRS formally tells them the deductions won't fly. And a small number are willing to pursue the matter all the way to tax court. There, still more zany tax deductions fall by the wayside. But a few manage to receive the stamp of approval of the tax court judges.

For instance, one guy wrote off payments to his girlfriend, claiming she was helping him manage his rental property and coordinate his personal household. The tax court said he could deduct a portion of the payments as an expense against rental income. The part of the payments that was judged to be for housekeeping, however, was ruled a personal expense and non-deductible.

Trying to write off payments to friends and family as a business expense is a common theme of unusual deductions. It can work, but only if the relative or friend is actually doing something to earn the money. That's what one Minnesota taxpayer learned after trying the IRS rejected his attempt to get a credit for wages supposedly paid to an infant.

The same thing goes for pets. Some pet-related expenses, such as the cost of moving your pet when you relocate for work, are almost always deductible according to IRS rules. But pet owners often get carried away and try to deduct pet food, vet bills and other costs as business expenses when the pet isn't actually contributing anything to the business.


For instance, a guard dog has to actually be guarding something for it to have much chance of serving as a deduction. The determination of deductibility will depend on factors like the dog itself -- Doberman Pinscher or miniature dachshund? -- as well as the work being done -- patrolling a pawn shop overnight, or fetching your slippers?

Clearly, determining which deductions will work and which won't is a slippery business. And no case was more slippery than that of a professional body builder who attempted to convince the court his body oil was a business expense worthy of deduction. In that case, the court decided that having a shiny physique was critical to the bodybuilder's profession, so body oil was a deductible expense.

Trying to claim an out-of-the-ordinary deduction can easily be more trouble than it's worth. The exotic dancer who took her case to tax court and won was rewarded with a measly $2,000 in deductions for depreciating her implanted assets. Then again, she did win. So if you have a weird-sounding tax deduction, don't be afraid to at least suggest it to your tax preparer and possibly even see if it will fly on a return. After all, weirder things have happened.

--Written by Mark Henricks

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