No, your husband is not deductible ... and other IRS tales
Claiming the cat spa or ugly suit? Amazingly, the IRS sometimes says yes.
When it comes to tax write-offs, there's no end to people's creativity.
Everyone knows the Internal Revenue Service won't allow you to claim a trip to the day spa as "preventive medicine" or your dry cleaning bills as a business expense. But consider the woman who wanted a charitable deduction for donating her husband (that's how she phrased it on the form). The tax analyst was left to assume she meant that his time had been given to a cause - which is nice, but not deductible.
For all the cautionary tales, there are missed opportunities, too: Only about one-third of taxpayers itemize their deductions. H&R Block estimates that the average person loses $400 in overlooked tax breaks every year.
So as Thursday's deadline approaches for filing your return, go ahead - dare to dream. Tax preparers will thank you, because without their help, you'll have difficulty discerning which weird ideas actually pass muster and which are just outlandish.
Here's a quick quiz. How many of the following expenses can be written off: (a) your dog, (b) your suit, (c) a business trip paid for entirely in cash. You're probably expecting (d) all (or none) of the above, but here's an even more annoying answer: (e) It depends. (You'll have to keep reading if you really want to know.) Many have tried but few have succeeded in deducting pet expenses. "If you've got a real business that requires a guard dog, you're cool, but if IRS [agents] actually meet that guard dog and the dog goes and licks them in the face, you have blown the deduction," says Eva Rosenberg, an expert in Las Vegas who calls herself the Tax Mama.
Boarding your pet while you're away on business does not count as a business deduction. On the other hand, H&R Block reports, if you relocate for business and it costs extra to move the pet, that's legit. And a write-off for pet food was allowed in order to attract wild cats to a scrap yard to keep away the snakes.
Now, how about that wardrobe? If you have to wear suits to work, you can't deduct them as a business expense. But it's a different story for uniforms and other clothes that you can't reasonably be expected to wear in any situation but your job.
"I had one guy who had a lime green suit that he used for some promotion [for his business]," says Michael Cobb, spokesman for the tax committee of the National Association of Black Accountants in Washington. "The IRS tried to disallow the deduction and his argument was, 'I'm not going to wear this lime green suit out in public!' ... We won, because nobody would ever wear anything like that."
Mr. Cobb also attended an audit with a woman who had deducted $5,000 worth of donated clothes. As a lawyer who frequently buys designer brands and then gives them away in good condition, she had her argument prepared.
"She was saying, 'I wear expensive clothes; I don't wear polyester,' " Cobb recalls. "I was trying to keep a straight face, because ... the guy had on a polyester jacket." If the IRS official took offense, he didn't show it: He granted 80 percent of her claim.
Determining the fair market value of donated items is notoriously tricky. Bill and Hillary Clinton were taken to task for valuing used underwear at about $2 apiece on a tax return.
One tool to avoid the guesswork is ItsDeductible, a database showing the deduction value of thousands of donated items - everything from bug zappers to pet-toothcare products.
The software also leaves space on its forms for people to write in their own estimates for the value of "custom items," says cofounder Carey Rademacher.
These have included an animal-warning device for a car bumper, a cat spa ("what that is, I don't know," Ms. Rademacher quips), a 100-gallon fish aquarium, and, yes, a husband. Citing privacy rules, Rademacher wouldn't tell what value the wife had assigned to him.
Writing off personal trips because everyone you meet is a potential client is a no-no. But if it's a true business trip, you don't necessarily need receipts.
One of Ms. Rosenberg's clients spent $50,000 in cash on business travel. Rosenberg came up with a different kind of paper trail: "He happens to send me postcards from every city ... so I could prove how many cities he'd been in. I could use TV guides and newspaper clippings to show what he's been up to, and the contracts show that he isn't being reimbursed for these things."
The precedent is the "Cohan Rule," named after vaudeville star George M. Cohan, who couldn't be expected to lug around records for the IRS in his trunk.
Every year the IRS warns people about the Dirty Dozen tax schemes. They range from hiding money in offshore accounts to claims that African-Americans are owed a refund for slavery reparations.
"Don't be fooled," said IRS Commissioner Mark Everson in a statement on the website last month. "There is no secret way to escape paying taxes."
In 2003, there were approximately 1,800 tax-fraud investigations, Rademacher says. Granted, that total represents a tiny percentage of the more than 200 million tax returns filed, but of the 770 people indicted, 80 percent went to jail for an average of 28 months.
Some stretches in deductive reasoning, however, result more from wishful thinking than from deliberate deceit.
With the proliferation of Internet tip sites, people read plenty of material about taxes. But "typically somebody will read the first sentence of a [tax] rule and get the rule half right," Cobb says.
He had to burst a lot of people's bubbles in December, when they called about glossy auto brochures proclaiming they could buy a sport-utility vehicle and deduct up to $100,000.
In reality, he told them, the deduction applies only to the value of vehicles over 6,000 pounds that are also used for business.
Cobb did once save someone on the verge of being deliberately duped.
Two men came into his office, one a bus driver who earned $50,000 a year, the other a member of what seemed to Cobb to be a "cult," though technically, it was a charity.
The latter was trying to convince the former that if he gave the group his salary, he wouldn't have to pay any taxes.
Cobb simply told them the facts - that charitable deductions were capped at 50 percent of the donor's income. "You could see the cult guy getting agitated, because he wanted me to validate what he was saying," he recalls.
But there are no limits to the charitableness of Cobb himself, who finishes the story this way: "You see all kinds. People are searching."