Some call it “Creative Accounting 101”. Others call it an “audit magnet”. Either way, we’re talking about tax deductions. What’s legit? And what’s just over the line? The Massachusetts Society of CPA’s rounded up accountants who dished the dirt about what they’ve seen their clients try to pull off. Let's call it the craziest of the crazies.
One mentions a gas station owner who gave his customers free beer and tried to write it off as a business expense on his taxes. The incident ended up in tax court, but in the end, the IRS accepted it as a legitimate business expense. Drum roll: Here you go, a round up of what you should NOT try at home ! Please note: names have been eliminated to protect the innocent. And the idiotic. "True Stories of the Accountant Patrol":
“I was preparing a tax return for a state trooper who was trying to deduct everything under the sun. He had listed haircuts as a deduction. I asked him why he thought haircuts were deductible. He replied that his hair had to be cut short as a requirement of his job. I responded that your employer probably requires daily bathing too, but you can’t deduct the soap.”
“I had a client who insisted on deducting the cost of his wedding. He could not understand why this was not deductible. I could not understand where he expected to record it. As a charitable donation? Like he was nice enough to marry her? He had the worst record keeping for his rental property, but had every solitary receipt for the wedding.”
“I had a client try to claim a business expense for his Valentine’s Day dinner with his girlfriend. He claimed they talked business throughout the dinner. Must have been very romantic -- he was a building supply sales representative.”
“The best attempts I’ve seen are claiming business deductions for the cost of a “girlfriend” when married. I suppose this was to hide the expenses, but it was a bit too personal for my taste — hotels, gifts and ‘outfits.’ Nice!”
“A member of my church wanted to confirm that he would be able to take a tax deduction for his donation of sperm to a sperm bank. He was about to have prostate surgery, and he feared he might be impotent afterward, so he wanted to preserve his sperm for future generations. His reasoning was that the gift of his sperm was such a value to humankind that he should surely be able to take a tax deduction for it.”
“A self-employed real estate professional had thousands of dollars in dues and subscriptions one year. When we reviewed the details of the account, the client was trying to deduct some personal subscriptions to adult magazines. We convinced the client to treat those items as a non-deductible, personal expense.”
“One client told us that he was planning on selling an $80,000 Ferrari (that his company had recently purchased) to his wife for $10,000, and then account for the $70,000 loss on the company’s records. Certainly creative!”
Don’t Cry Over Missed Deductions
All kidding aside, don’t forget about the legitimate deductions you can take. A CPA was on the phone with a client and all of a sudden, a baby cried in the background. The CPA asked, “Did you forget to tell me something?” They had. Thank goodness babies cry. Get those deductions whenever you can.
RULES OF THUMB?
If you’re wondering what’s a good rule of thumb as to what you might be able to push by the Tax Man-- legally? Here are some suggestions:
"Does it have a greater than 60% chance that it be upheld/sustained under an audit? If it is too good to be true it probably is."
- Phil Pacino, CPA at Greene Rubin Miller & Pacino
"Why am I doing this?"
- Allen G. Katz, CPA at Levine, Katz, Nannis + Solomon, P.C.
“Unfortunately, it’s not always that simple, everyone wants to minimize the taxes they pay, but no one wants to end up being prosecuted by the IRS. Use your common sense when you’re attempting to deduct certain expenses.”
-Theordore Flynn, CEO, Massachusetts Society of Certified Public Accountants
What is the craziest thing you've deducted? What's your rules of thumb? Let us know, we want to hear about it! (And we promise we won't tell the IRS!)