20 Crazy-Sounding Tax Deductions That Are Actually Legit
It's human nature to want to keep money in your pocket rather than give it to Uncle Sam, which is why people and businesses come up with all manner of potential deductions as tax filing season rolls around. From trying to write off breast enhancement to deducting the cost of at-home petting zoos, tax professionals have heard it all. Here are some of the most unusual, unexpected, or lavish deductions tax preparers have encountered over the years.
Early in Donna Merrill's career, the small-business tax expert had a client who wanted to write off a petting zoo for a home-based direct sales business. The justification? Frequent home meetings with clients whose kids could be entertained by the animals. Merrill, founder of Business Untangled, asked a tax pro who told her to "position the deduction strategically on the tax return with very visible notes to be seen upfront." The advice worked. The deduction has been accepted by the IRS for many years.
When you already have one car as a business vehicle you claim as a write-off, you can't deduct a second one on your taxes, says Emil Abedian, partner at CPA firm Abedian + Totlian. That didn't stop one client, an attorney. "He claimed the purchase of a Tesla for 'research reasons,'" Abedian said. "He wanted to experiment with the car to see how the autopilot worked ... to potentially open up a case against Tesla." It could be a legitimate deduction if the car is never operated for personal use. This write-off request just occurred, so Abedian hasn't yet learned whether it will face challenges from the IRS.
As over-the-top as this deduction sounds, it can be a legitimate expense for businesses, said Cindy Vander Schueren, CPA and founder of Making Coins Count. "You may be able to claim the cost of renting a private jet as long as it is reasonably expected to generate income," Vander Schueren said. For example, if it's used to mingle with potential investors. "I've had one client claim about one private jet rental a month each year." An exec using the jet for a family vacation? No.
If you think $40,000 monthly housing tabs are reserved for the likes of J-Lo or Beyonce, think again. Vander Schueren had a business client deducting that for a lavish home provided as promised to the company's CEO. "The entire [cost of the] home is deducted as corporate housing because the CEO's ordinary place of residence is in a different city and part of his contract stipulates that the company cover his housing in the new city, as he is not willing to relocate his family," Vander Schueren said.
Appearance is a factor in the entertainment industry, so it stands to reason that some cosmetic surgery would be viewed as legitimate write-offs by the IRS. The main criteria is that the surgery can be expected to generate income, Vander Schueren said. "The cosmetic surgery must be required as a condition of employment and unsuitable for everyday use," Vander Schueren said. "The most famous case of breast implants being claimed as a deduction was an exotic dancer who made the case that bigger breast would generate bigger tips."
Enhancing appearance could be deductible in less extreme circumstances than plastic surgery. Jacques Beausoleil, quality lead at Bench Accounting, has had clients seek to write off grooming expenses. "If you're a public speaker and a well-kept appearance is key to how you make a living, this could be considered a business expense," he said. Vander Schueren's clients have successfully deducted hair dye, but before trying the same, "be sure it is expected to generate income or become part of your brand."
Even boudoir photographers must conduct research for their work. And reading Playboy magazine is part of that research. Though this write-off underwent the scrutiny of an audit by the IRS, Merrill, said, in the end it was deemed a valid business expense.
Many people are familiar with deducting moving expenses when relocating for a new job. Far fewer filers realize it's also possible to deduct the cost of moving pets with you, Vander Schueren said. "That means you can deduct the cost of buying a carrier, sedatives, doggy hotel, and flying costs."
Costs associated with getting in shape? As it turns out, this too can be legitimate. "The cost of just about any remedy to drop a few pounds, lower cholesterol, improve heart health, and basically anything a doctor signs off on is deductible," Vander Schueren said. "The key is for the activity or product to be prescribed by a medical physician, not self-prescribed."
Using a clarinet to remedy an orthodontics issue is apparently a real form of treatment, and one that meets the approval of the IRS when it comes to tax deductions. Samuel Hicks, a CPA with Stern, Kory, Sreden & Morgan, said one of the quirkiest tax breaks he's come across is tied to a 1962 ruling from the IRS that allows deductions for the cost of a clarinet and lessons for playing it. "The only requirement is that an orthodontist should recommend the playing as a part of orthodontic treatment," Hicks said.
Early in his career, CPA Vincent Porter, of Porter & Co., had a client who did webcam work. "You can use your imagination as to what the nature of the webcam work was exactly," Porter said. The client's profession made for some interesting deductions: the cost of sex toys, vibrators, lingerie, and lubricant used for her job. "Technically they were necessary," Porter said. (The IRS allows for writing off clothing if a job requires special garb such as a uniform not suitable for everyday wear.)
Parking tickets are frustrating for the best of us — a waste of hard-earned money. But if you get a parking ticket when operating a vehicle used to earn money, and the ticket is on a private lot, the expense can be written off, said Beausoleil, who has had clients take advantage.
We all love man's best friend, but who knew they could be tax deductible? TurboTax Live CPA Miguel Burgos had a truck driver client who trained his pet to be a guard dog and wanted to write off the expenses. "Since truck driving was his business and he carried the dog within his business premises, he was able to claim some of his guard dog's expenses," Burgos said. "Especially when he had to spend the night on the road all over the country throughout the year."
Most of us just have to live with annoying and pricey ATM fees. But if a business owner decides the best way to pay themselves is to take cash withdrawals out of an ATM that charges fees, those fees are tax deductible, Beausoleil said. "Any transaction fees you have on a business bank account are all completely deductible," he said.
It may seem like a page out of a Hollywood movie script, but it's not unusual for businesses to be victims of ransom demands from cybercriminals. Hackers steal everything from customer lists to company secrets that can be sold to competitors. Whatever amount of ransom ends up being paid as part of such an incident is tax deductible, Vander Schueren said, "but be sure to keep all proof of the incident."
While this deduction might seem like a bit of a stretch, it turns out that if you use services such as Spotify in the office to provide entertainment for people while they wait, or in a store where customers shop, it's legitimately deductible, Beausoleil said.
A now famous case let one taxpayer write off expenses associated with a drunken-driving charge. The man apparently had too much to drink during a social outing, waited for some time before getting in his car but still had an accident and was arrested. His car was also damaged, and his insurer declined to pay for repairs, so the man laid out the money himself and tried to deduct the cost. The IRS balked initially, but the tax court allowed the deduction.
While business travel expenses in the United States are commonly deductible, trying to claim travel outside of North America can be trickier. The exception: "You can expense travel to Bermuda, Costa Rica, and the Bahamas without providing a reason as to why the business was held outside of the U.S.," Vander Schueren said. The countries are considered part of the "North America area" and have information agreements in place with the United States.
Paying your significant other to work for you may very well be legitimately deductible. In yet another filing that tested IRS limits, a taxpayer paid his live-in girlfriend to do everything from find furniture to supervise repairs at various properties. The IRS initially balked at writing off the salary. The resulting clash ended with a court saying $2,500 of the $9,000 he paid her was a business expense, but paying for her housekeeping chores was nondeductible.
This deduction isn't easy to get past the IRS, but if a family member fails to pay you back after you've loaned them money, you can write off the loan. "You'll have to make sure you have a promissory note with a detailed repayment plan and a reasonable interest rate," Vander Schueren said.
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