June 15, 2009

Strange… But True Small Business Tax Deductions

The 2009 tax season may have come to an end. But now that all the dust has settled and those tax returns have been spent, its time to begin thinking about 2010…

To get you started, take a look at these strange, but true attempts individuals have made to reduce their tax burdens. And yes, many of these people actually got away with it!

Animals being used as tax deductions

  • One man claimed his dog as a dependent. Another tried to write off dog food for his “home security system,” while a third individual tried to claim his pet as a “landscaping subcontractor.” 

  • A South Carolina couple who owned a junkyard was allowed to write off $300 for the cost of the cat food they set out to attract wild cats. It turns out these cats were providing a valuable business service: they got rid of the snakes and rats on the property, making the place safer for customers. 

  • An ostrich farmer in St. Tammany Parish wanted to know how he would go about depreciating an ostrich. It may sound bizarre but by law one can depreciate an ostrich or any other livestock if it is used for breeding.

Business travel

  • In 1981, a Virginia company, sponsored a “Super Bowl Sales Seminar” where it flew 120 people including customers and employees along with their families to New Orleans. They paid for airfare, hotel rooms, game tickets and even included an outing to the French Quarter. The company claimed a $103,000 deduction as an advertising cost for a tax savings of $45,000. The IRS ultimately determined that the expenses were not legitimate and rejected the deduction (Hmmm… I wonder why)

  • O. Carlyle Brock, president of the Sanitary Farms Dairy in Erie, Pa., tried to write off the cost of a six-month hunting trip in Africa with his wife. Brock claimed that the trip was a legitimate business expense. After he and his wife returned, the dairy ran an advertising campaign around the theme of wild animals. Customers were served game dinners, they shared films of the hunt and displayed heads and skins from hunts in their own museum for the public. They even donated a tiger from the Africa trip to the Erie zoo and held a “name-the-tiger” contest. The IRS ruled the trip was a legitimate expense.

  • Rather than drive five to seven hours to check on their rental condo or be limited to commercial flights, a couple decided to purchases their own plane. The Tax Court allowed them to deduct their condo-related trips on the aircraft, including the cost of fuel and depreciation for the portion of time used for business-related purposes.

 Business as usual?

  • The owner of several rental properties hired his live-in girlfriend to manage them. Her duties included locating furniture, overseeing repairs, and running his home. The IRS let him deduct $2,500 of the $9,000 he paid her. The rest was not allowed since it was deemed for nondeductible personal services.

  • As a promotion, a gas station owner gave his customers free beer instead of trading stamps. The IRS allowed the write-off as a legitimate business expense.

  • An Arizona man sought a home office deduction for the toilet paper he bought for his house.

  • A professional bodybuilder tried to deduct high-protein buffalo meat, protein shakes and various kinds of body oils from 1999 to 2001 as business expenses. The tax court ruled that his food consumption was “inherently personal” and therefore not a legitimate deduction. But the oils he used to help him look better during competitions were considered a legitimate use for his business and thus deductible.

 How to you file this one?

  • A Pittsburgh furniture-store owner hired an arsonist to burn his failing business down after years of trying unsuccessfully to sell it. The store-owner’s plan was not only to collect the $500,000 in insurance money, but also to deduct the $10,000 “consulting fee” he had paid the arsonist! An IRS audit two years later brought them both to jail.

Here are some strange, but legitimate tax deductions that you may not know about:

  • If you are changing jobs and meet the requirements, you can deduct the cost of moving your dog, cat or other pet from your old residence to your new one.

  • Business conventions held in Bermuda are deductible without having to show that there was a special reason for the meeting to be held there. Other countries in the Caribbean region qualify, also, including Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, and Trinidad and Tobago. Meetings held in Canada, Mexico and all U.S. possessions also receive this favorable tax treatment.

  • If you attend a professional seminar while on “vacation,” then travel becomes a potential deduction.

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