Dry clean­ing, danc­ing and a Har­ley with ape hang­ers

Antelope Valley Press - - BUSINESS - Michelle Sin­gle­tary Color of Money SINGLETARY­[email protected]­POST.COM

WASH­ING­TON — Peo­ple try to claim the darnedest tax de­duc­tions.

Yes, your pet Chi­huahua has a fe­ro­cious bark. But, no, you can’t claim that Coco is a guard dog for your home-based busi­ness and, thus, a le­git­i­mate tax de­duc­tion.

You might feel that your cat or dog is a de­pen­dent, but you can’t deduct ex­penses for the fam­ily pet. You may, how­ever, qual­ify for a med­i­cal de­duc­tion for a ser­vice an­i­mal.

As tax sea­son gets un­der­way, I asked ac­coun­tants about the out­landish de­duc­tions they’ve seen peo­ple try to claim.

Lawrence Pon, a cer­ti­fied pub­lic ac­coun­tant (CPA) based in Red­wood City, Cal­i­for­nia, has prob­a­bly kept many clients from be­ing au­dited.

“A client in­jured his wrists, so the doc­tor told him to keep his wrists el­e­vated,” Pon said. “He asked me if he pur­chased a Har­ley with those high han­dle­bars, can he deduct that as a med­i­cal ex­pense? I told him to show me the pre­scrip­tion from the doc­tor.”

Peo­ple also get quite cre­ative with the med­i­cal ex­pense de­duc­tion, Pon said.

The IRS says that “pay­ments to par­tic­i­pate in a weight-loss pro­gram for a spe­cific dis­ease di­ag­nosed by a physi­cian, in­clud­ing obe­sity” can be de­ducted. For the 2019 tax year, you can deduct only the share of med­i­cal and den­tal ex­penses that was more than 7.5% of your ad­justed gross in­come.

But for­get about try­ing to deduct ball­room dance lessons be­cause they help you lose weight.

Peo­ple of­ten push the lim­its of de­duc­tion cred­i­bil­ity when it comes to busi­ness ex­penses.

For ex­am­ple, a friend of mine went to a mul­ti­level mar­ket­ing pre­sen­ta­tion where the pro­moter claimed he was writ­ing off all of his home ex­penses be­cause he ti­tled his per­sonal res­i­dence in the name of his busi­ness. He was shar­ing this tip as a way the would-be en­trepreneur­s could re­duce their tax bills.

How­ever, just be­cause the busi­ness holds the ti­tle to your prin­ci­pal res­i­dence does not make the in­sur­ance, util­i­ties and other such costs de­ductible, said G. Scott Haislet, a Cal­i­for­nia-based CPA and at­tor­ney.

A per­sonal home is treated as a res­i­dence re­gard­less of who holds the ti­tle, said Gina DeRosa, a CPA based in Tor­rance, Cal­i­for­nia.

“Titling a res­i­dence in the name of a busi­ness does not turn per­sonal, nond­e­ductible ex­penses into busi­ness ex­penses,” DeRosa said. “If the prop­erty is con­verted to 100% of­fice space with no per­sonal use, ex­penses could be de­ductible.”

Pon pointed out that putting your per­sonal res­i­dence in the name of your busi­ness can ac­tu­ally cost you a le­git­i­mate tax break.

If your busi­ness sells your house, it would not qual­ify for the ex­emp­tion of $250,000 (sin­gle) or $500,000 (mar­ried cou­ple fil­ing jointly) from the sale of a prin­ci­pal res­i­dence, he said.

The same pro­moter told folks that if they were trav­el­ing for plea­sure and struck up a con­ver­sa­tion with their flight seat­mate in an ef­fort to re­cruit the per­son for busi­ness, that could be con­sid­ered a busi­ness meet­ing — and the air­fare and travel ex­penses would then be de­ductible.

“Busi­ness travel has long been a mis­un­der­stood part of the tax code,” said IRS spokesman Eric Smith. “Nor­mally, a trip be­comes de­ductible only if the pri­mary pur­pose is busi­ness-re­lated. Do­ing a mi­nor busi­ness thing while on va­ca­tion doesn’t in­stantly trans­form what is re­ally a va­ca­tion into a busi­ness trip.”

DeRosa said that if the pur­pose of the trip was to re­cruit for the busi­ness, it might be de­ductible. “But it is un­likely that any­one books a plane trip in hopes of re­cruit­ing busi­ness,” she said. Guide­lines for busi­ness travel are in IRS pub­li­ca­tion 463.

And what about the suits or busi­ness at­tire you have to wear for work? Or the dry-clean­ing bills for those work clothes?

All the CPAs said such de­duc­tions are not al­lowed. How­ever, the cost of uni­forms, cos­tumes or pro­tec­tive cloth­ing could be de­ductible.

“The test for de­ductibil­ity for cloth­ing is whether it is spe­cial­ized and can’t gen­er­ally be used for ev­ery­day wear,” Haislet said. “Just be­cause some­body does not like to wear suits or other busi­ness at­tire and would not buy or wear such at­tire but for em­ploy­ment [pur­poses] does not make it de­ductible for tax pur­poses.”

You may feel fi­nan­cially fool­ish that you aren’t be­ing as imag­i­na­tive as tax-de­duc­tion brag­garts — es­pe­cially if they are get­ting away with some shady stuff. But if caught, they could be hit with a hefty tax bill, plus penal­ties. And that makes them the fools.

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