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Saint Paul, MN, United States, 2011/01/20 - These top 10 strange tax deductions claimed by taxpayers don't typically hold up with the IRS, but may still be debated due to individual circumstances and complex tax laws. Just be careful. It could delay a refund or result in penalties.
The Minnesota Society of Certified Public Accountants (MNCPA) surveyed its CPA members about some of the strangest tax deductions that taxpayers have proposed claiming.
“The proposed deductions get high marks for creativity,” said Minnesota Society of Certified Public Accountants Chair Jim Eichten. “However, the items making the list likely would have raised red flags with the IRS and state revenue departments, potentially delaying refunds and possibly resulting in penalties.”
Federal tax law changes will impact many taxpayers for 2010, especially anyone who has a life or work situation that goes beyond the norm of W2s and standard deductions. “Deductible expenses aren’t as simple as checking a box. Now more than ever, it’s important to get tax advice from a certified public accountant, someone who studies tax law year-round and knows your unique situation,” added Eichten.
Given the complexity of individual circumstances and tax law, some of these deductions may have passed muster in an IRS audit. However, in most cases, these items are not normal deductions.
1. Entertainment expense? An over-the-road truck driver wanted to deduct the cost of female companionship while traveling.
CPA advises: No, unless she is employed to drive the truck.
2. Contracted services? The cost of a tattoo on the client’s derriere.
CPA advises: No, even if it is advertising-related, it’s difficult to make the case based on where it’s located.
3. Protection services? All the expenses associated with a dog, because it served as the owner’s security system.
CPA advises: No, the only legitimate pet deductions are limited to people who make their living as breeders.
4. A home office? A corporate executive wanted to deduct 60 percent of the exec’s home as an office, when almost no business activity occurred at the home.
CPA advises: No, because the home is not used for a legitimate business.
5. Dependent? A woman wanted to claim her spouse as a dependent.
Tax advice: No, only children under the age of 18 and adults with severe disabilities can be claimed as dependents. A taxpayer's spouse is never the taxpayer's dependent. But the taxpayer may be entitled to an exemption for the spouse under certain circumstances.
6. Entertainment expense? A realtor who sells lake property wanted to deduct the full cost of a personal pontoon boat.
Tax advice: No, although the realtor could deduct reasonable costs for entertaining prospective clients on the boat such as food and fuel.
7. Business expense? A doctor wanted to deduct his hair styling costs, including hair dye.
Tax advice: No, maintaining one’s appearance is not tax deductible except in some rare cases such as performers.
8. Business expense? A woman in sales wanted to write off the cost of hair care, manicures and jewelry because she needed to look good.
Tax advice: No, again looking good does not qualify as a tax deduction.
9. Cost of living? A client thought it was acceptable to claim personal living expenses including utilities, auto insurance and gas.
Tax advice: No, you can’t deduct personal living expenses, only expenses legitimately connected with running a home-based business.
10. Charitable donation? A client wanted to take a substantial deduction for used designer suits donated to a charity.
Tax advice: No, charitable donations must be itemized. For big-ticket donations like this, the IRS wouldexpect to see a qualified appraisal of the goods donated.
The Minnesota Society of Certified Public Accountants (MNCPA) serves the public interest by advancing the highest standards of ethics and practice within the CPA profession. MNCPA (mncpa.org) delivers on that promise by offering extensive continuing professional education and resources; advocating for members and the public with regulatory agencies and boards; and mentoring and encouraging the CPAs and business leaders of tomorrow. Founded in 1904, MNCPA’s 9,400 members work in public accounting, business, industry, government and education.