Deductions that really worked
Admit it: As you've struggled with your tax return, trying to come up with extra deductions to pump up your refund or reduce what you owe, you've taken a few flights of fancy. "Can I claim a deduction for all those blood donations at the Red Cross?" Nope. "How about a charitable contribution for all the time I donate to the church?" Again, no. "Can I count the wedding gift for my boss's daughter as an employee business expense?" Come on!
[h=1]14 extraordinary tax deductions[/h]There's no doubt the US Tax Code can be dizzyingly complex. It might explain these wacky, yet legitimate, deductions that have been allowed by the IRS.
Sex change
A man diagnosed with gender-identity disorder spent almost $22,000 in out-of-pocket medical costs for multiple procedures, including hormone therapy, sexual-reassignment surgeries and breast augmentation, in order to become a woman. This transgender taxpayer wanted to deduct those costs.
Significant other
A man hired his live-in girlfriend to manage several of his rental properties. Her duties included finding furniture, overseeing repairs and running his personal household. The Tax Court let him deduct as a business expense $2,500 of the $9,000 he paid her but disallowed the cost of her housekeeping chores as nondeductible personal services.
Airplane
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.
Cat food
A couple who owned a junkyard were allowed to write off the cost of cat food they set out to attract wild cats. They argued that the feral felines did more than just eat; they also took care of snakes and rats on the property, making the place safer for customers. When the case reached the Tax Court, IRS lawyers conceded that the cost was deductible.
Cat food, part two
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 veterinary bills, food and other items.
Body oil
A professional bodybuilder used body oil to make his muscles glisten under the lights during his competitions. The Tax Court ruled that he could deduct the cost of the oil as a business expense. Lest it be seen as a softie, though, the court nixed deductions for buffalo meat and special vitamin supplements to enhance strength and muscle development.
Breast augmentation
In an effort to get bigger tips, an exotic dancer with the stage name Chesty Love decided to get implants to increase her bra size to 56FF. The IRS challenged her deduction, saying the operation was cosmetic surgery. Still, a Tax Court judge allowed her to claim a depreciation deduction for her new "assets," equating her enhanced breasts to a stage prop. Alas, the operation later proved to be a problem for Love. She tripped, rupturing one of her implants. That caused a severe infection, and the implants had to be removed.
Payments for wrongdoing
An insurance company sued two doctors for insurance fraud. The doctors admitted liability and agreed to reimburse the insurer for the losses it sustained, and the insurance company agreed to release a claim for restitution in a pending criminal case. The IRS ruled that the repayments were deductible, provided that the doctors originally included the money in their incomes in prior years. But to demonstrate that crime doesn't pay fully, the IRS said the repaid funds were a miscellaneous itemized deduction, allowed only to the extent that it exceeded 2% of the doctors' adjusted gross incomes.
Wrecking the car while drunk
A reveler drank too much at a party and had the good sense to arrange a ride home. A few hours later, after slowing down his drinking, he thought he was OK to drive. Unfortunately, the vehicle he was operating slid off the road and rolled over. The cops arrested him for drunken driving because his blood alcohol content was just over the legal limit. Because of the arrest, his insurer refused to pay for the damage to his car. Yet the Tax Court let him deduct the cost of the damage as a casualty loss because, it said, he had tried to act reasonably. Had he driven straight home from the party with a high blood alcohol level, the court would have disallowed the deduction because his actions would have constituted gross negligence.
Free beer
In a novel promotion, a service-station owner gave his customers free beer. Proving that alcohol and gasoline do mix -- for tax purposes -- the Tax Court allowed the write-off as a business expense.
Making movies
A lawyer faced a challenge from the IRS when she sought to deduct losses sustained during the six years she worked on making the documentary film, "Smile Til It Hurts: The Up With People Story." The IRS claimed the long series of annual losses indicated that her filmmaking activities were a hobby, pointing out that since her husband once was a member of the musical group Up With People, the project was a sort of high-cost home movie.
Furthermore, at one point during the hearings, the judge reviewing the case suggested that documentary filmmaking is by nature not-for-profit -- a musing that got the film industry (and its lawyers) concerned about the tax treatment of their industry as whole. A number of well-known filmmakers filed friend-of-court rulings to say, in essence, that you can make money with documentaries.
Babysitting fees
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 doesn't go directly to the charity, according to the Tax Court. The court expressly rejected a contrary IRS revenue ruling.
Landscaping
A sole proprietor who regularly met clients in his home office was allowed to deduct part of the costs of landscaping the property, on the grounds that it was a part of the home being used for business, according to the Tax Court. The court also allowed a deduction for part of the costs of lawn care and driveway repairs.
Swimming pool
A taxpayer with emphysema put in a pool after his doctor told him to develop an exercise regimen. He swam in it twice a day and improved his breathing capacity. 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 medical care. (The man swam in the pool more than his family did.) The cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area were also treated as medical expenses.
Admit it: As you've struggled with your tax return, trying to come up with extra deductions to pump up your refund or reduce what you owe, you've taken a few flights of fancy. "Can I claim a deduction for all those blood donations at the Red Cross?" Nope. "How about a charitable contribution for all the time I donate to the church?" Again, no. "Can I count the wedding gift for my boss's daughter as an employee business expense?" Come on!
[h=1]14 extraordinary tax deductions[/h]There's no doubt the US Tax Code can be dizzyingly complex. It might explain these wacky, yet legitimate, deductions that have been allowed by the IRS.
Sex change
A man diagnosed with gender-identity disorder spent almost $22,000 in out-of-pocket medical costs for multiple procedures, including hormone therapy, sexual-reassignment surgeries and breast augmentation, in order to become a woman. This transgender taxpayer wanted to deduct those costs.
Significant other
A man hired his live-in girlfriend to manage several of his rental properties. Her duties included finding furniture, overseeing repairs and running his personal household. The Tax Court let him deduct as a business expense $2,500 of the $9,000 he paid her but disallowed the cost of her housekeeping chores as nondeductible personal services.
Airplane
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.
Cat food
A couple who owned a junkyard were allowed to write off the cost of cat food they set out to attract wild cats. They argued that the feral felines did more than just eat; they also took care of snakes and rats on the property, making the place safer for customers. When the case reached the Tax Court, IRS lawyers conceded that the cost was deductible.
Cat food, part two
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 veterinary bills, food and other items.
Body oil
A professional bodybuilder used body oil to make his muscles glisten under the lights during his competitions. The Tax Court ruled that he could deduct the cost of the oil as a business expense. Lest it be seen as a softie, though, the court nixed deductions for buffalo meat and special vitamin supplements to enhance strength and muscle development.
Breast augmentation
In an effort to get bigger tips, an exotic dancer with the stage name Chesty Love decided to get implants to increase her bra size to 56FF. The IRS challenged her deduction, saying the operation was cosmetic surgery. Still, a Tax Court judge allowed her to claim a depreciation deduction for her new "assets," equating her enhanced breasts to a stage prop. Alas, the operation later proved to be a problem for Love. She tripped, rupturing one of her implants. That caused a severe infection, and the implants had to be removed.
Payments for wrongdoing
An insurance company sued two doctors for insurance fraud. The doctors admitted liability and agreed to reimburse the insurer for the losses it sustained, and the insurance company agreed to release a claim for restitution in a pending criminal case. The IRS ruled that the repayments were deductible, provided that the doctors originally included the money in their incomes in prior years. But to demonstrate that crime doesn't pay fully, the IRS said the repaid funds were a miscellaneous itemized deduction, allowed only to the extent that it exceeded 2% of the doctors' adjusted gross incomes.
Wrecking the car while drunk
A reveler drank too much at a party and had the good sense to arrange a ride home. A few hours later, after slowing down his drinking, he thought he was OK to drive. Unfortunately, the vehicle he was operating slid off the road and rolled over. The cops arrested him for drunken driving because his blood alcohol content was just over the legal limit. Because of the arrest, his insurer refused to pay for the damage to his car. Yet the Tax Court let him deduct the cost of the damage as a casualty loss because, it said, he had tried to act reasonably. Had he driven straight home from the party with a high blood alcohol level, the court would have disallowed the deduction because his actions would have constituted gross negligence.
Free beer
In a novel promotion, a service-station owner gave his customers free beer. Proving that alcohol and gasoline do mix -- for tax purposes -- the Tax Court allowed the write-off as a business expense.
Making movies
A lawyer faced a challenge from the IRS when she sought to deduct losses sustained during the six years she worked on making the documentary film, "Smile Til It Hurts: The Up With People Story." The IRS claimed the long series of annual losses indicated that her filmmaking activities were a hobby, pointing out that since her husband once was a member of the musical group Up With People, the project was a sort of high-cost home movie.
Furthermore, at one point during the hearings, the judge reviewing the case suggested that documentary filmmaking is by nature not-for-profit -- a musing that got the film industry (and its lawyers) concerned about the tax treatment of their industry as whole. A number of well-known filmmakers filed friend-of-court rulings to say, in essence, that you can make money with documentaries.
Babysitting fees
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 doesn't go directly to the charity, according to the Tax Court. The court expressly rejected a contrary IRS revenue ruling.
Landscaping
A sole proprietor who regularly met clients in his home office was allowed to deduct part of the costs of landscaping the property, on the grounds that it was a part of the home being used for business, according to the Tax Court. The court also allowed a deduction for part of the costs of lawn care and driveway repairs.
Swimming pool
A taxpayer with emphysema put in a pool after his doctor told him to develop an exercise regimen. He swam in it twice a day and improved his breathing capacity. 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 medical care. (The man swam in the pool more than his family did.) The cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area were also treated as medical expenses.
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