The Minnesota Society of CPA’s (MNCPA) released their annual list of outrageous tax deductions. The MNCPA surveyed member CPA’s for their most outrageous deductions clients tried to claim on their individual tax returns. Below is the MNCPA list and a few of our own.
- Questionable dependents: Attempting to claim “Fido” as a dependent is popular amongst clients with pets. One CPA reported a woman tried to claim her unborn child as a dependent.
- A daughter’s wedding: Sure, weddings are entertaining. But deducting the full cost as an entertainment expense does not make for a good relationship with the IRS.
- The cost of speeding tickets: Even if it’s because you were late for a business meeting, speeding tickets are fines and therefore, not deductible on your tax return.
- Misinterpretations of charitable donation: Charity can take on many forms. But for one CPA’s client, a vehicle that was impounded by the police was not deemed a qualifying deduction.
- Hobbies: The IRS does not allow deductions for hobby expenses. One client learned that when he attempted to take deductions on his horse ranch.
- Keeping up appearances: While some professions may require a certain appearance, the cost of haircuts, plastic surgery, massages and salon expenses are generally not deductible.
- Creative investments: The loss on the sale of a personal house, while unfortunate, does not qualify as an investment by the IRS.
- Expansive home office expenses: Deductions on a home office are limited to the portion of the home dedicated to the business. Clients have attempted to do more though, from the cost of groceries to the mortgage.
- Boats: Want smooth sailing on your tax return? Then you should not deduct your boat as a “water computer,” as one CPA had to inform their client.
- Hunting trips because you “talk business”: That weekend of hunting with friends is generally not deductible, no matter how often you talk about your boss.
As a Portland CPA for over 25 years, I’ve run into a few outrageous tax deductions of my own:
1. The client who took their family to Disneyland and wanted to deduct it as an investment expense. After all they had discussed their stock portfolio.
2. Another client that wanted a Child Care Credit for the dues they paid for their children’s sports teams.
3. My personal favorite “outrageous tax deduction”: the client who recently purchased a farm (they were also duck hunters). The following year they insisted on deducting a $2000 shot gun. When told that was not a deductible farm expense, they began calling it: “a varmint control device”.
As stated by MNCPA : Taxes are complicated. Each situation is unique and depends on the facts and circumstances involved. Consult a CPA for information on what may be allowable tax deduction for your specific situation.