8 OUTLANDISH TAX DEDUCTIONS TO SKIP IN 2014
(Each year. Columnist for Bankrate.com, Jay MacDonald, asks Marty Abo to contribute to his annual article “Bankrate’s Crazy Tax Deductions”. Bankrate.com is the largest personal finance site on the Internet with some 4 million readers. Since we’re so engulfed in our busy season, Abo and Company thanks Jay for providing us this entertainment. You can also check him out at http://www.bankrate.com/finance/taxes/outlandish-tax-deductions-to-skip-in-2014-1.aspx. )
Duck and cover, fellow taxpayers: It's time once again for Bankrate's ninth installment of the year's craziest real-life tax deductions, harvested from the numerically numbed cerebral cortexes of some of the best -- and best humored -- certified public accountants in the land.
Previous wooly write-offs to board the crazy tax express included a spatula-buying trip to Brazil, a tricked-out Amish buggy, ostrich breeding, breast augmentation, a meditation yurt, numerous evening escorts and enough bogus guard dogs to take over Manhattan. In fact, there was even that guy who mistakenly tried to claim all of New York City as his dependent!
Tempting, right? Which is precisely why we always include this disclaimer: Do not try this at home. Serious consequences may result from underreporting, filing a false or erroneous claim, or otherwise attempting to make up your own personal tax rules.
All aboard? Here come this year's eight outlandish tax deductions.
1. Take my wife. Please.
Every so often, an accountant will stumble upon a tax deduction that is perfectly legal but involves, well, let's call it a crisis of conscience.
Just such a moment came for the jocular Marty Abo, a CPA in Mount Laurel, N.J., when his client presented him with a rarely seen deduction.
"Here's this guy who should be able to include in his deductible medical expenses legal fees he paid to institutionalize his wife for treatment for mental illness," Abo says.
While the client could not include medical expense fees for the management of a guardianship estate or for conducting his wife's affairs while she is undergoing treatment, Abo concluded that, indeed, the lawyer fees involved to lock his wife up were tax deductible.
As it turned out, the amount the client spent did not exceed the required 7.5 percent of adjusted gross income, so no tax deduction was claimed.
"I tried to keep that one quiet, not wanting to give other husbands any ideas," Abo says. "After 259 dog years of marriage, what do I know?"
2. I thought that storm looked a little shifty
It's safe to say that nothing in recent memory hit New Jersey harder than Superstorm Sandy.
The deadliest and most destructive storm of the 2012 hurricane season lumbered ashore near Atlantic City two days before Halloween, leaving at least 125 dead and a $62 billion repair bill in its wake to become the second-costliest U.S. hurricane behind Katrina.
Each tax season, Christopher Arunkumar, a CPA with Breakpoint Assurance Company in Princeton, N.J., volunteers to spend a few hours fielding tax questions on a local TV call-in show. After Superstorm Sandy, several callers asked him to assess their chances of reeling in some federal recovery dough through some very sketchy tax deductions.
"One woman called in asking if she could take a tax deduction for some expensive trees around the house that she lost during Superstorm Sandy," he says. "Another caller whose barbecue grill flew away in the storm wanted to know if he could take it as a theft loss."
His answer in both cases? N-O.
3. Then again, Killer doesn't eat much
No edition of crazy tax deductions would be complete without at least one attempt to pass Fido off as a legitimate business expense, or worse.
Over the years, taxpayers have tried everything. One guy claimed his canine as a ferocious -- and portable -- business security system. Another tried "pest exterminator." A third attempted to write off man's best friend as an independent contractor for pulling a wagon for his landscaping business. Yet another tried to deduct day-care expenses for her pampered pooch. And one down-on-his-luck DJ even claimed his dog as a dependent -- for years!
Rest assured, if it walks on more than two legs, the IRS is wise to every shaggy dog story in the book.
Howard Rosen, a principal with Conner Ash CPAs in St. Louis, remembers one canine proposition that really lacked teeth.
"A client wanted to deduct the cost of her 'guard dog' and its care for her in-home art collection," he says. "When I asked if she had a picture of the 'guard dog,' she showed me a photo of her Pomeranian. Needless to say, we didn't take the deduction."
4. See also: Adam, Eve and apple
Charitable donations are a great way to help others and lower your tax bill. That said, the IRS has rules that must be followed to claim a tax deduction for your generosity. You must make your donation to a qualified charitable organization and not an individual. You must itemize your donated items on Schedule A. Written receipts are often required.
Like Adam and Eve in the Garden of Eden, however, some taxpayers can't resist the lure of forbidden fruit, as one San Francisco CPA, who requested anonymity, found out.
"One client deducted food she donated to her local food bank every year, but last year, she didn't list that donation," the CPA says. "When I inquired, she said that she was getting too old to pick the apples from her trees."
The client explained that she'd decided instead to call the food bank and ask them to do the picking for her. They politely declined.
"I had always assumed she was donating groceries," the accountant says.
5. Embezzlement 101
Arunkumar was working the phone banks on a local TV call-in show when one particularly irate caller dialed in to ask, "How can I stop my employer from taking money from my salary?"
While not exactly a tax question, Arunkumar was happy to help. As her tale unfolded, however, he could hardly believe his ears.
"It turns out she was a former bank employee who had embezzled $30,000 from her employer, had been incarcerated a couple of years and recently gotten out," he says. "Her current employer was garnishing her wages to pay state-ordered restitution, and she wanted it stopped."
"What did I tell her? Well, you have to be politically correct, so I told her, 'Listen. Did you take the money?' She said yes. 'So if you took the money, don't you have to return it?' She said yes. 'So that's what they're doing; they're taking it from your paycheck,'" he explained.
"But I'm not able to live because they're taking too much money!" she said.
Arunkumar politely explained that she had no recourse. After she hung up, he still couldn't believe she'd called in.
"She even gave her first and last name!" he says.
6. The flags and cones should be a tipoff
Hilarity ensues when taxpayers attempt to deduct the services of call girls. Some attempt to write their wrongs off as T&E, or travel and entertainment, expenses, others as consultant fees. We've even featured one client who dropped the whole idea when his accountant demanded that the lady in question fill out a contractor Form 1099 to support his "business expense."
Tom Parr, a partner in Parr & Jones CPAs in St. Louis, couldn't resist sharing a nod and a wink with the IRS one particular time.
"I used the phrase 'escort service' as a deduction on a return. I couldn't resist," Parr says. "The company moved houses and structures and hired cars with lights and flags to go before and follow the transports as escorts."
7. Toupee or not toupee
Taxpayers will earnestly defend the most outlandish tax deductions in their futile attempts to claim everything from cosmetic surgery, breast augmentation and tattoos to such high-ticket must-haves as basketball courts and lap pools.
Joe Marchbein, a principal with Jack P. Fitter, CPA in St. Louis, recalls one hair-raising whopper that topped them all.
"When reviewing a return, noted in the work papers in the Schedule C expenses were payments for the client to buy a toupee and have it cleaned," he says.
When Marchbein flagged the entry, the preparer explained that the client, a dentist whose patients include a lot of children, had a wide scar on his head and was balding. The toupee covered the scar.
"When I inquired as to why this allowed the payments to be deductible, the preparer commented that the children would scream and cry if they saw the scar, and thus the hairpiece was needed to prevent any screaming," he says.
Marchbein blew the lid off this cover story when he pointed out that the dentist also wore the hairpiece outside of work, and therefore its purchase and cleaning expenses were not deductible.
8. Answer: Yes, but I'm a handful
New parenthood is an exciting, exhausting time: new hours to eat and sleep, new sounds throughout the house -- and of course, that attractive new $3,900 dependent exemption on your federal income tax return.
Gail Rosen, a CPA in Martinsville, N.J., recalls one proud new dad who was a little too eager to reap the financial rewards of fatherhood.
"A client had twins on Jan. 7 and was aggravated when I told him he can't take his children as dependents in the prior tax year," she says. "He then argued with me that life starts at conception and he should be able to write them off."
Having been denied not one but two dependent exemptions because of that whole childbirth technicality, the exhausted new dad gamely proposed plan B.
"My client was sitting here going over his books for hours and he finally turned to me and asked, 'Can I take you as a dependent?'"
Rosen suggested he take a nap instead.