Six Outrageous Deductions
Here’s a clue: You’re not getting a refund for neutering your dog.
Just when you think you’ve seen and heard it all, in walks a client with an absolutely ludicrous tax deduction. And since you’re likely in the midst of yet another busy season, we decided to call on two of the state’s tax experts—Kelley Hare, CPA, MST, tax partner with Porte Brown Chicago and Michael Armour, CPA, CFP of Bird Armour LLC in Springfield, Ill.—to share a few of their favorites.
1. Babies & Fur Babies
The stork’s joyful home visit and your pet’s joyless vet visit both have something in common— they fall into the “not a chance” category.
Hare explains that, “We have people who come in and say ‘I’m pregnant, so I have a dependent,’” adding that it’s not unusual for clients to think of their pets as children as well, therefore requesting deductions for veterinary bills and other expenses—including neutering.
To be considered an exemption or to itemize a medical expense, Hare stresses that the deduction has to be associated with a human being who has a valid Social Security number they can produce at any given moment.
On an interesting side note, if you relocate for a job, you can deduct moving expenses incurred for pets. Pets are classified as personal effects in this case. Armour ran into this situation when a client wanted to hire a pet transfer agency to ship an animal to Alaska. Upon further research, this expense was identified as an appropriate write-off. “I was a little surprised myself,” he admits.
More on child and dependent care credits.
2. You Win Some, You Lose Some
You gambled. You won big. And then you lost… even bigger.
Unfortunately, the IRS doesn’t weigh losses as they do winnings, says Hare. Just because clients have to pay up for big jackpots doesn’t mean they can then write off losses.
She explains that IRS guidelines relating to gambling income and losses are pretty stringent, and it’s important that tax professionals advise clients about the ins and outs of tracking how money is spent.
“Gambling losses can be deducted to the extent that they have gambling winnings,” she says. “If a person won $5k and can substantiate that they lost $5k, then they can deduct those losses from their winnings. Alternatively, if they lost $10k and won $5k, they can only deduct half of the losses.”
In another kinda-sorta related instance, Armour rejected a client request to deduct mileage associated with taking an 86-year-old aunt to the casino every week—a seemingly valid consideration given the fact that she was a “professional gambler,” right? Oh, so wrong.
To claim mileage, the expense must be associated with a legitimate business activity, and the claimer must be able to prove professional association with the business or trade.
More on IRS rules governing gambling income and losses.
3. Can I Deduct My Ex?
“My ex owes me back child support and hasn’t paid, so I can take that off right?” Wrong, says Armour. That client will have to take the matter up with the courts.
Breaking up is certainly hard to do—and it’s even harder when it comes to tax returns. In another instance, one of Armour’s clients asked to claim the previous year’s tax bill expense as a bad debt, simply because it had been filed jointly with her former husband. It goes without saying that claiming bad debt requires a valid loan agreement—whether with a person or business—and proof that the debt could not be collected by normal means. Bad matrimonial decisions, unfortunately, do not apply.
More on rules governing deductions for divorced and separated couples.
4. My Spa Treatments Make Me Work Better
There are uniform expenses and then there are Armani suit and salon haircut expenses. And while all are paid for with the intent of looking the part at work, they simply can’t be and aren’t treated the same way, says Hare. Day at the spa? Leave it off your tax deductions—please!
To clarify where lines are drawn, the IRS stipulates that claiming a deduction for buying clothing requires that the purchase be mandatory for a job and unsuitable for everyday wear. For instance, buying a suit for a corporate presentation wouldn’t qualify because the suit could be worn on other occasions. But if you’re required to wear a shirt brandishing the company logo and it’s not paid for by your employer, then that counts as a deductible expense.
More on IRS rules governing miscellaneous deductions, including work clothes and uniforms.
5. But I Didn’t Mean to Drive Drunk!
Bad behavior is, well, bad behavior. So if your client gets a DUI and has to appear in court three times, he shouldn’t expect to get his lost wages reimbursed. Sadly, for one of Armour’s clients, the logic of the principle just didn’t play. “If you are a cash-basis taxpayer, there really isn’t an instance where you can claim lost wages,” he explains. “You can’t deduct income against something you don’t have.”
Guidelines on taxable and nontaxable income.
6. What’s My Blood Worth?
Armour remembers a client who wanted to deduct the value of blood given in a blood drive. Weird? Well, yes.
“While it is a medical procedure to give blood,” he explains, “it’s like valuing a service and claiming a deduction. You can’t do that.”
That’s not to say medical expenses can’t be deducted. The IRS allows for specific doctor prescribed and referred activities, including clinic visits, medical procedures that impact health and well-being, hospital stays, and more.
Detailed IRS rules governing medical and dental expenses.