While Americans are entitled to take every legitimate deduction to manage their taxes, the Internal Revenue Service (IRS) limits your creativity. Here are some examples of deductions from the IRS that were permitted and some that were too creative.¹
Creative Deductions that Passed Muster
Usually, a child’s school-related costs are not deductible. However, one taxpayer was allowed to deduct the cost of travel, room, and board as a medical expense for sending a child with respiratory problems to a school in Arizona.
Pet food typically doesn’t qualify as a write-off, except when a business owner successfully argued that it was a legitimate expense to feed a cat protecting their inventory from vermin.
Does your child have an overbite? If so, you may find that the IRS is okay with a medical deduction for the cost of a clarinet (and lessons) to correct it.
A deduction for a swimming pool won’t float with the IRS, except if you have emphysema and are under doctor’s orders to improve breathing capacity through exercise. The deduction, however, was limited to the cost that exceeded the increase in property value. And yes, ongoing maintenance costs are deductible as medical expenses.
Deductions that Were Too Creative
The cost of a mink coat that a business owner bought for his wife to wear to entertain clients was denied even though he claimed it was an integral part of dinner conversation and provided entertainment value.
Despite having dry skin, one taxpayer was denied a deduction for bath oil as a medical expense.
Losses associated with theft may be deductible, but one taxpayer went too far in deducting the loss of memories when her photos and other life souvenirs were discarded by her landlord.
One business owner reported an insurance payment as income but then deducted the cost of the arsonist as a “consulting fee.”
Don’t expect taxpayers to pay for enhancements to self-image. Just ask the ballerina who tried to deduct a tummy tuck or the woman who tried to write off her Botox expenses.
It’s easy to get creative with deductions, especially when you want to save money. However, it’s important to be mindful of the IRS's limits and not engage in questionable activities when filing your taxes. Doing so can help protect you from additional costs due to audits or other legal proceedings with the IRS. With proper tax planning and attention to detail, you can minimize your tax liability and pay the minimum legal amount required.
To help ensure that all legitimate ways of reducing taxable income are taken advantage of, consider working with an experienced professional tax service who understands these laws inside out and can maximize your benefits. That way, you save more and have one less thing to worry about too.
At Dominion Wealth Management, we leverage years of expertise in tax preparation to help our clients save time and money. To take advantage of a knowledge-based approach and maximum savings, call us today to schedule an appointment.
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Sources:
1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
2. FMG Suite, 2023.
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