Taxpayers who stretch their deductions risk fines and penalties.
Deductions help taxpayers pay less in income taxes, so it stands to reason that some people may try to stretch their imagination somewhat and claim a deduction that is not quite what it seems to be. The Internal Revenue Service has strict guidelines as to what taxpayers can claim, but when taxpayers read between the lines of the tax code, they may be able to come up with some crazy deductions. Occasionally, the final decision of questionable deductions is not decided until the claim is argued in front of a judge.
Medical Expenses
Medical expenses are a legal deduction for all taxpayers. Problems start when a taxpayer attempts to deduct the cost of a procedure or activity that has nothing to do with your work or is not a scientifically proven treatment for your illness. A stripper once claimed a breast enlargement surgery as a deduction on her taxes because she thought she would get more tips. The IRS allowed the deduction because it was related to her profession. People have claimed dancing lessons as deductions saying that dancing was helping their varicose veins. The IRS disallows these deductions because dancing is not an approved treatment for the condition. A man legally deducted the cost of his sex-change operation and hormone treatment because the Tax Court said that the operation treated the man's disease. The same court disallowed the deduction for breast augmentations surgery because it was considered cosmetic surgery in this instance.
Business Expenses
Business expenses can be an approved deduction as long as it they are qualified expenses. If the purchase of an item is necessary for your line of work or you can show that owning the item increases your revenue, you can claim it as a deduction. Pro bodybuilders are allowed to deduct the cost of the body oil that they use during competition, but they cannot deduct vitamin supplements and certain diets because it cannot be proven that they work and increase their revenue. A junkyard was able to claim the food that they fed to feral cats as a business expense because the cats were also eating mice, rats and snakes at the junkyard, which made it a safer place for the owners and customers. Businesses are allowed to deduct the cost of any contract labor as long as the labor is legal. One business owner's $10,000 contract labor deduction was denied when it was discovered that the payment was made to an arsonist the man hired to burn down his business.
Travel Expenses
Business people often claim travel expenses as legal deductions. As long as they can prove that the travel is necessary for their business, the IRS will allow it. For example, the owners of a dairy farm deducted the expense of an African safari from their taxes. The IRS allowed the deduction because most of the trip's activities revolved around animals. A businessman who took clients to the Superbowl had his deduction disallowed because the IRS said that it was too extravagant for a business meeting and the businessman could not prove the trip was necessary for his business.
Vehicle Expenses
Taxpayers can legitimately deduct reasonable vehicle expenses and depreciation. Problems arise when taxpayers decide for themselves what reasonable expenses are. Sometimes it is not clear how the IRS determines what reasonable expenses are. A traveling salesman's mileage deduction was disallowed because it was determined that to he would have had to drive 17 to 18 hours a day, every day to accumulate the number of miles he was claiming in a year. A couple's purchase of an airplane and the expenses that came with it was allowed because purchase of the plain kept them from driving up to seven hours to check on their property.
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