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Tax Court Rules on Deducting "Vanity" Payments

Feb 22nd 2019
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Talking about taxes with clients
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In three previous columns, I explained how I use “tax tidbits” to enliven conversations when talking taxes with clients or speaking to groups like retirees. The tidbits discuss amusing court decisions and tactics that trim taxes. I mentioned several that interested clients and audiences.

Below are additional tidbits:

No tax break for dismissed employees who receive severance pay from employers. Severance payments count as reportable income, just like regular salaries; they aren’t tax-free gifts.

Author’s payments to “vanity” publisher (one of those outfits that publishes at the author’s expense, which is the reverse of the usual publisher-pays-author arrangement) to get a book published aren’t deductible as business expenses. They’re nondeductible hobby expenses, says a Tax Court decision siding with the IRS.

The Tax Court agreed with the IRS that no casualty-loss deduction should be allowed for damages to a person’s lifestyle due to suspension of his driving license.

While the Tax Cuts and Jobs Act abolished the 50 percent deduction for entertainment expenses, such as tickets to sporting events, it didn’t end it for business meals. How do things sort out when those events include meals—for instance, beverages and hot dogs? The IRS okays a write-off for the meals, provided the charge for noshing is separately stated from the charge for the tickets..

Married couples can’t switch from joint to separate returns after the filing deadline expires, but they can switch from separate to joint returns within three years after the deadline.

Need a copy of an old tax return, but unable to find it? Use IRS Form 4506 (Request for Copy of Tax Return to obtain it. Go to irs.gov or call 800-TAX-FORM.

As for audit odds, it makes no difference whether you file early, late or in between. All returns, regardless of when filed, go through IRS computers that evaluate them for audit potential.

Some taxpayers think they’re excused from filling out Form 1040 because that would violate their Fifth Amendment rights. Predictably, this argument continues to get exactly nowhere with the courts.

There are charitable deductions of 14 cents per mile for volunteers who use their cars to perform chores for schools, churches and other charitable organizations. Remember to also deduct parking fees and tolls.

Make sure that mailings to the IRS bear the proper amount of postage and show a full return address. Otherwise, you could be hit with a hefty, nondeductible late-filing penalty.

Estate planning isn’t something you can put off until a more convenient time. For instance, if the purchase of insurance is delayed, you may become uninsurable in the meantime.

Finally, there's no relief from a negligence penalty merely because you used a paid preparer. The IRS wants proof that you selected a competent preparer and provided all the necessary information.

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). 

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