Weird Tax Deductions

[mermaid]

Disc jockeys typically don't make much money and save even less. A few years ago, one approached Wyoming CPA Mike Lovelett for some free advice.

"I've got this problem, and I'm really starting to get nervous about it," the DJ said. "Several years ago, I was going to owe some tax, so I put an extra deduction on my tax return."

Well, reasoned Lovelett, managing director of Lovelett, Skogen & Associates in Casper, it couldn't be that bad. Then the DJ explained: "I put my dog on as a dependent." The radio personality had deducted his dog Red all these years, allowing him to escape owing the IRS on those particular returns.

But, unfortunately for the DJ and all other pet owners, claiming a dog or cat or any other furry family member is definitely disallowed by the tax laws.

And then there's:
·  Sex and the city: Then there was the client who approached Manhattan CPA Marc Albaum about a very personal tax matter. "He had made some money being a sperm donor and wanted to know if he could take a depletion allowance," Albaum recalls. "I told him he really needed to be an oil well or something like that."

·  Playing with fire: Herb Wakeford, a CPA in Raleigh, N.C., recalls a Pittsburgh furniture-store owner who, after years of trying unsuccessfully to sell his business, hired an arsonist to torch the place. The insurance company paid off to the tune of $500,000, which the owner dutifully reported on his income tax return. However, along with taking the proper deductions for the building, its contents and the usual business expenses, he also deducted a $10,000 "consulting fee" he had paid the arsonist. An IRS audit two years later landed them both in jail. The IRS disallowed the "consulting fee" and slapped on $6,500 in additional taxes, penalties and interest.

·  What, not the Barcalounger? Then there was the client who insisted on deducting the cost of his television and cable service, against his accountant's advice. "His reasoning was that he was a Spanish teacher at school, and the only reason he bought the TV and had the cable was for the Spanish channels so he could be able to teach his students better," Howard says. "I told him, 'Well now, not too many people out there can deduct the cost of their TV and cable, but if you can get away with it, knock yourself out.'"

·  Fun with livestock, Part I: Back when the Society of Louisiana CPAs manned a tax hot line, few inquiries stumped them. But Al Suffrin, SLCPA's communications and public relations director, recalls one that did: "We took a call from an ostrich farmer in St. Tammany Parish who called in to find out how to go about depreciating an ostrich," he says. Strange as it sounds, you can depreciate an ostrich or any other livestock, as long as it's used for breeding.
·  Fun with livestock, Part II: Which brings us to the tale of the crusty old Texas rancher who insisted upon accompanying his CPA, Raymond Lott of Lott, Vernon & Company of Killeen, to the rancher's first tax audit. When the rancher's tax depreciation schedule listed 15 or 20 animals as breeding stock, the no-nonsense young IRS agent challenged the old cowboy. "I presume you breed these animals?" she asked pointedly. Without hesitation, the rancher replied, "Nope," sending his CPA into mild tachycardia. After a sufficient pause, the rancher finished the popular Texas joke, "I've got a bull for that."

 
·  Sic him, Fido: Sometimes deductions seem so logical they just have to be legal. "I had a guy come in one time wanting to know if he could deduct the cost of his dog food. His reasoning was that his dog was security for his house, therefore the dog food became a security expense," Howard says. "I kind of liked that one. The IRS loves that stuff."

And finally:

He works in mysterious ways
And when all other loopholes seem closed, sometimes only a higher power can help.

One fine February, a rookie tax accountant completed a slam-dunk return for one of the firm's old and trusted clients and turned it in to his boss, says Mary Anne Petesch, a CPA with Hagen Kurth Perman and Co. of Seattle. There followed several loud whoops of laughter from the partner's office.

It seems the client had accidentally lost his dentures when they fell in the toilet and had claimed them on his taxes as an act-of-God casualty loss.