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Entries in Tax Deductions (7)

Friday
Feb012013

Clarinets? Safaris? Tax Season's Weirdest Deductions

iStockphoto/Thinkstock(NEW YORK) -- The U.S. tax code runs more than 73,000 pages, and Bob Meighan, vice president of customer advocacy for TurboTax, says 10,000 of them have been added in just the past five years.

"It's growing," Meighan says.

Being so large, the tax code includes several peculiar but permissible deductions.  This year's catalog of odd deductibles, compiled by TurboTax, includes the following:

Conventions in Bermuda

You and your fellow conventioneers can wiggle your pinkies in the pink sand and deduct your travel costs without having to justify to the IRS why Bermuda was the place you had to go.  The same holds true for other Caribbean nations, including Barbados and Grenada.  Meetings held in Canada, Mexico or in a U.S. possession also qualify.

Clarinets

TurboTax says taxpayers can thank the orthodontists for this one.  If your doctor prescribes playing the clarinet as the solution to your child's overbite, then the instrument and any necessary lessons are deductible.

The Costs of a Suspect's Defense (If Related to His/Her Business)

Somebody on trial for shoplifting, say, might permissibly deduct his lawyer bills on the argument that they were incurred to protect the criminal's source of income, e.g., shoplifting.

Deadbeat Debts


If you lend money to a friend and the friend stiffs you, you're in luck, at least for IRS purposes.  You can write off the debt, TurboTax says.  Deadbeat personal loans, however, are different from deadbeat business loans: A personal loan gone bad must be 100 percent uncollectible for it to qualify.

Swimming Pools

Your doctor must prescribe it for your health, Meighan says, but if he or she does, then your swimming pool is deductible, to the extent its cost exceeds the value that it adds to your home.

Getting Thin

In 2002, according to TurboTax, the IRS ruled that obesity is a medical disease requiring treatment and, further, that such treatments are deductible.  If the treatment's cost exceeds 7.5 percent of your adjusted gross income, it qualifies.

Safaris

Trips necessary to one's business, Meighan says, are deductible.  Let's suppose you run a petting zoo outside Chicago, and that what is being petted is a zebra.  You go on a safari to Kenya (or to wherever else, outside Chicago, zebra live).  To the extent the safari relates to your zoo, Meighan says, it's deductible -- maybe you're learning more about the animal's habitat, so you can better re-create.  In a kind of "two-for," there's a further deduction the proprietor can claim: animal depreciation.  That zebra isn't going to live forever.  As it ages, its decrease in value can be deducted.

Copyright 2013 ABC News Radio

Monday
Apr162012

Seven Tax Deductions That Set Off Alarms

Comstock/Thinkstock(NEW YORK) -- With only one day before the Internal Revenue Service's April 17 deadline, here's a look at a range of common and uncommon tax loopholes that, depending on your career, border on gray to you, but to auditors can come across as flashing red lights:

Guard Dogs

If you have certified guard dogs for your business, they may be deductible.  Philadelphia tax attorney Kelly Phillips Erb said they can't be "junkyard dogs" to be deductible.

Similarly, private jets that are purchased for security reasons could be deductible for corporations, and not just if they offer convenience or comfort, Erb said.

Gambling

Casual gamblers may not realize they can deduct their gambling losses as professional gamblers do.  There are some things to note, however, said Erb. 

First, you may deduct gambling losses only if you itemize deductions, which Erb said is only a third of tax filers.

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos, cash winnings and the fair market value of prizes like cars and trips.

Second, the amount of losses you deduct can't exceed the amount of gambling income reported on your return.  That rule doesn't apply to professional gamblers.

"If it's your real job and you lose money, then you can deduct those losses," she said.  "But if you're just a casual gambler, you're out of luck if you always lose."

Home Office Costs

"You could find a million things for home offices that people can wrongly think they can deduct," Erb said.  But unless your home office is your primary place of business, auditors will take note if you deduct for related costs.

Many people treat their kitchen table or living room as their home office or home office storage area, but it's often not a primary place of work.

"If you choose to work from home because you want to, that doesn't create a home office," Erb said.

Clothing

Ted Schwartz, president and chief investment officer of Capstone Investment Financial Group and ABC News personal finance columnist, said he once had a client who was a professional wrestler who tried to deduct formal clothing he wore for interviews or other public appearances.  His reasoning was that he would never wear suits unless for work.

"I told him, 'if you have a wrestling uniform, that's an expense,' but clothing is not," Schwartz said.

Erb has a friend who works at a high-end retail store and is required to wear acceptable, nice clothing.  She wanted to deduct for the costs, which were significant on her budget, because said she said she would not wear that clothing of her own volition.

"She would never wear that clothing outside of work, but the IRS doesn't care," she said.

Legal Expenses

Certain personal legal expenses could be deductible to a degree, said Erb.

"Sometimes you can write off legal expenses if they are related to producing income," she said.

Writing off tax services from a divorce attorney could be deductible.  Writing off legal services related to a custody battle would probably not be.

Travel and Entertainment

Writing off travel and entertainment expenses is considered "low-hanging fruit" for auditors.

Mixing business with pleasure usually means a meal or trip is not deductible, said Erb.

"I've had a lot of folks who try to claim related expenses, which is where the fraud tends to be," she said.

Diet and Fitness Costs

While health and diet expenses that are prescribed by a physician can be deductible, advice from a doctor will not support an expense you try to write off.

"Dieters will say their doctor instructed them to lose weight," Erb said.  "Or they try to deduct a club membership because the doctor said to exercise more.  Those are only deductible if they are prescribed.  Not if a doctor just told them to do something."

Copyright 2012 ABC News Radio

Friday
Apr132012

Artist Cuts Up Cash for Tax Deduction

Chad Person(LOS ANGELES) -- When it comes to paying federal taxes, artist Chad Person takes penny pinching to a whole new level.

The California-based designer is cutting up dollar bills -- actual, paper dollars -- to create collages of military weaponry, and then deducting those dollars from his taxable income. As materials for his business, the sliced and diced dollars are exempt from some taxes, thereby lowering Person’s overall tax rate.

“Rather than buying $200 of paint today, I withdrew $200 and chopped it up and turned it into paint essentially,” Person said, describing his collages. “It greatly reduces my liability.”

While Person refused to disclose how much the crafty deduction is saving him, he said it was a “fair amount.”

Though having an extra chunk of change every year is a nice byproduct, Person said his more important goal is “taking money literally right off the table from the military industrial complex.”

The less money he pays in taxes, Person said, the less funding the government has for bombs and tanks.

“If I slice up a hundred dollars to make an image, or a thousand, or just five, I am taking it out of the IRS coffers,” Person wrote on his web site, which showcases his dollar bill art. Although he acknowledges “it might have been just enough to halt the purchase of one box of ammunition.”

So far Person has created about 60 to 70 “currency on canvas” collages as part of his “TaxCut” collection, which he began about four years ago as a form of anti-war protest. From tanks and fighter jets to missiles and assault ships, each mosaic intricately depicts a piece of military machinery using nothing but cash and archival glue on canvas.

One such image could take anywhere from a few dollars to $15,000, Person said. For some pieces he uses a mere 1/200th of the dollar bill because some of the textures he wants are only found on a tiny section of the dollar.

Cutting up cash, as Person does for his collages, is technically against the law. According to the Secret Service, “defacing” dollar bills is punishable by a small fine and up to six months in prison, but offenders are rarely prosecuted.

“I can’t see that anyone should be concerned,” Person said about his apparent unlawfulness. “I’m an artist making a commentary that should certainly be protected under free speech. I can’t imagine people thinking it would be worth the expense of putting me behind bars for six months.”

Copyright 2012 ABC News Radio

Thursday
Mar152012

Bizarre Tax Claims: Man Claims Politician as a Deduction

Comstock/Thinkstock(MINNEAPOLIS) -- Elected officials are on the public payroll, but claiming a politician as a tax deduction on your 1040 because you pay their salary will not go over well with tax authorities.  That’s just one example of actual tax deductions attempted by U.S. citizens.

The Minnesota Society of Certified Public Accountants has just released its second annual list of strange tax deductions.  The deductions were removed by a CPA after they advised the taxpayer that leaving them on a tax return would trigger a letter from the IRS.

Here is the MNCPA's list of strange and unacceptable deductions for 2011:

-- Questionable Dependents: One woman wanted to include the months she was pregnant in 2011, even though she relinquished rights upon the child’s birth; another taxpayer wanted to claim his elected official because he “pays his salary.”  Yet another taxpayer wanted to claim a former spouse.

-- Disallowed Charitable Donations:
The market value of whole blood that the taxpayer donated; a $100,000 deduction for burning down an old cabin; gambling losses; private school tuition; raffle tickets.

-- "Fido" as a Business Expense: Pets proved popular with taxpayers wanting to deduct everything from pet food to vet bills.

-- Inflated Mileage Calculations: A handyman proposed to take a $25,000 mileage deduction, even though he had only $10,000 in revenue.  He justified it by saying he drove 50,000 business miles in one year.

-- Creative Medical Expenses: A rental house in Arizona for the taxpayer’s health; an in-ground swimming pool without a doctor’s order; a spouse’s drug habit; breast implants and tummy tucks.

-- Unscrupulous Business Travel and Entertainment Deductions: A personal luxury car; three country club memberships; a motor home and the full cost of a wedding.

-- An attorney’s fees for a divorce were considered an "investment" by the former spouse.

Copyright 2012 ABC News Radio

Monday
Jan232012

Top 8 Overlooked Tax Deductions

iStockphoto/Thinkstock(NEW YORK) -- "Every year taxpayers are leaving money on the table by not claiming all the credits and deductions to which they are entitled," says Kathy Pickering, executive director of The Tax Institute at H&R Block. By some estimates, taxpayers unnecessarily forfeit more than $1 billion every year. To be sure you're not one of them, don't overlook these credits and deductions:

1. Hobby Losses

You may be able to claim hobby-related expenses as deductions, says Mark Luscombe, principal analyst for tax and accounting for Riverwoods Illinois-based CCH. Let's say you're into model railroading, and that last year you bought $400 worth of miniature mountains, trees and gandy dancers. You can deduct some or all of that, plus some or all of the $250 you spent to attend the Little Railroaders of America convention. How much depends on whether your hobby qualifies as a business (it has to have showed a profit in three of five consecutive years). Even if fails to qualify, expenses still can be deducted up to the amount of hobby income.

2. Credit for Dependent Care

Most people think of this credit as applying only to, say, costs of daycare for children whose parents must work outside the home. But it also can apply to the cost of a child's day camp or to after-school programs and babysitting, provided these are related to the parents' need to work, says CCH's Mark Luscombe. But remember: You cannot claim the credit unless you have the proper documentation. You'll need the Social Security numbers of the people providing daycare, or the tax ID number of, say, the summer camp.

3. Animal Rescue

If your charity takes the form of rescuing animals, a 2011 tax court decision is good news for you, says Larchmont, N.Y., tax attorney Julian Block. Jan Van Dusen of Oakland had claimed a deduction of $12,068 for money spent to rescues of feral cats. The IRS at first denied her claim, arguing in part that the expenses were personal because she kept the cats at home. But Van Dusen prevailed. Jonathan Lovvorn, senior vice president of the Humane Society of the United States, says the case establishes that you can claim deductions for rescued animals cared for in your home, provided you can distinguish between expenses on them and expenses for your personal pets (keep separate receipts). You should also get a letter from an authorized non-profit confirming your home charity is under their auspices.

4. Forfeited Bonuses

Let's say your employer gave you, at the time you were hired, a signing bonus contingent on your staying with the firm two years. Or perhaps, as a salesperson, you were given bonuses with the same proviso. If you didn't stay the minimum time and were forced to forfeit, you can deduct the bonuses, says Eric Lammert, a tax research specialist with the National Association for Tax Professionals. If the total forfeited is under $3,000, you can claim them as an itemized deduction. If it's more, you have a choice, he says: you can either take it as an itemized deduction or you can go back to the year you reported them as income, and re-run your return for that year minus that income, whichever is more advantageous to you.

5. Points, Old & New

Jeff Schnepper, author of How to Pay Zero Taxes, says many taxpayers who've refinanced a mortgage don't appreciate that they can deduct old points as well as new. Any points you pay to refinance your home, he says, can be deducted over the life of the new loan on a monthly basis. But you can also deduct, in the year of a new refinancing, all unamortized points from an old refinancing. His example: You refinanced on June 1, 2010. You then refinanced again a year later. On your 2011 return you can deduct any points remaining from the 2010 loan.

6. Job-Hunting Expenses

If you're out of work and searching for a new job, says Jeff Schnepper, any search-related expenses are deductible, including postage and phone bills. If you find a job but have to move to take it, you may also be eligible to deduct some of your moving expenses, provided your new job is at least 50 miles farther from home than your old job. But you can only write off the expense if the job you're seeking is in the same field as the job you last had. Says Eric Lammert of the National Association of Tax Professionals, "Today, lots of people are getting laid off and going into a different profession. But expenses related to a job search in a new profession are not deductible, only ones related to your search for a job like the one you had." What was Congress' intent here? "I don't know what Congress had in mind when they drafted that," he says, "maybe keeping the slaves in their places?"

7. Energy Conservation/Hybrid Vehicle Credits

Kathy Pickering, executive director of the Tax Institute at H&R Block, says the tax credit for hybrid vehicles has expired. Taxpayers may still, however, claim a credit for 2011 purchases of plug-in electric drive vehicles, such as the Chevy Volt or Nissan Leaf. Although state and federal credits for certain energy-conservation home improvements expired Dec. 31, tax expert Brent Hunsberger says credits may still be claimed for certain devices under the Residential Energy Efficiency Property Credit. The list includes heat pumps, home electricity-generating solar and wind systems and fuel cells. Installation and preparation costs are covered, he says, and only the credit for fuel cells is capped.

8. Tax Prep

This last one isn't a deduction, but it can save you money. You can get your tax return done for free through the IRS Free File program, designed for taxpayers who file electronically by the IRS in partnership with some 15 private software developers. It's open to anybody with an adjusted gross income of $57,000 or under. That's about 70 percent of all taxpayers, according to the IRS. For more information, go to irs.gov/freefile. Seniors, military and the poor may also be eligible for free tax prep provided at libraries, military bases, shopping malls and other sites by Volunteer Income Tax Assistance. To find the location nearest you, call 800-906-9887.

Copyright 2012 ABC News Radio

Wednesday
Apr062011

Tax Tip: Deducting for Charitable Donations

Brand X Pictures/Thinkstock(NEW YORK) -- Giving money to your favorite charity qualifies as a tax deduction, but "the key is if you make a charitable contribution, get a receipt or make sure your bank account shows who you've made a charitable contribution to," says Eric Smith with the IRS.

The money must go to a registered nonprofit group, religious organization or charity.

Have you donated clothing to organizations like Goodwill or the Salvation Army?

"If you can keep a list of -- 'Okay, there were four pair of pants and two shirts and the pants are valued at $3 and the shirts are at $2.'  That would be really good documentation to be able to provide."

Expenses involved in charitable work may also be deductible.

Copyright 2011 ABC News Radio

Sunday
Oct242010

Fall: A Good Time to Check Retirement Savings Process

Photo Courtesy - Getty Images(NEW YORK) -- You still have several months to maximize your retirement and investment portfolio before you sit down to tackle your taxes.  Experts say now is a good time to look at the process and see how you can have a better retirement.

Kimberly Palmer of U.S. News and World Report says there are plenty of ways to improve your portfolio, such as maximizing your 401K plan by ramping up contributions to it.  Palmer says several one-time tax deductions run out at the end of this year.  For example, improving the energy efficiency of your home could bring back up to 30 percent of your investment.  Upgrades such as new heating, ventilation and air conditioning systems, insulation and energy efficient windows all fall under that program. 

Copyright 2010 ABC News Radio







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