3 Unusual Tax Deduction Cases to Discuss with Clientsby
When I chat with clients about revised tax rules, I’m careful not to tell them more than they would want to know about those changes.
To enliven those conversations, I sprinkle them with what I call “tax tidbits.” Some include amusing court decisions, while others offer strategies that trim taxes.
The shorter ones usually take under 30 seconds to tell, so I use them for brief chats. I save the meatier ones for lengthier conversations and talks with retirees, homeowners, self-employed persons and investors.
My creditors beam when I tell them some audience members will decide it would be prudent to seek my advice before they implement one or more of those strategies.
Intrigued? Want to try what I do when you schmooze or give talks? What follows are representative tidbits that were well received.
Which court decision is at the top of my list of humorous cases? It’s the Tax Court’s decision to rebuff the IRS when the agency disallowed a writeoff claimed by Cynthia Hess, a topless dancer who experienced an uplift in earnings after she paid for breast implants that enlarged her bust size to 56N.
Unfortunately for Cynthia, her story fell flat with IRS officials, who characterized the outlays in question as nondeductible personal expenses. However, she persuaded a sympathetic judge, who happened to be female, that for someone like her, the enhancement resulted in business assets, and implants are necessary “stage props.” As a consequence, the court approved her request.
On a different note, individuals who volunteer to perform chores for religious and educational institutions and other charitable organizations qualify for tax breaks. Their itemized deductions include what they spend to cover unreimbursed out-of-pocket outlays, although the IRS’s generosity isn’t unlimited.
According to one of the agency’s more restrictive rulings, charitable contributions paid in lieu of fines imposed by government agencies or courts aren’t deductible as business expenses or charitable donations.
Virtue is its own reward, says the IRS. It was backed by a Tax Court decision that barred a charitable deduction for the amount by which the cost of kosher food exceeds that of non-kosher items.
Also, the IRS did not allow additional alimony deductions for a generous ex-husband who voluntarily made payments to his ex-wife in excess of the ceiling set by the divorce decree. His reward will be in whatever kind of life is yet to come. Not on April 15th.
However, the Tax Court readily upheld the IRS’s imposition of a negligence penalty where payments to his children for home repairs were written off by, of all people, a tax attorney.
Look for more tidbits in subsequent columns.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 275 and counting).