Beer, toys, and other weird tax deductions people try to claim
With the April 15 tax deadline closing in, let’s discuss deductions.
I’ve attended my fair share of multilevel marketing presentations where some “expert” claims you can turn a vacation into a deduction by scheduling a quick business meeting.
Nope, not true.
A trip becomes deductible only if the purpose is primarily business-related. Conducting a minor business meeting while on vacation doesn’t instantly transform what is really a vacation into a business trip, according to the IRS.
I’m always amused by what people try to deduct, so I asked a tax professional about the wackiest things she’s seen. Alison Flores, manager of the Tax Institute at H&R Block, highlighted some of the most creative and oddly legitimate attempts.
1. Beer taste testing
A client asked whether he could deduct the cost of different beers he’d taste-tested.
This person had found a way to monetize his peer-review process.
As it turned out, he had a blog and did make self-employment income, “so we had to determine which beer drinking was related to the blogging and which was just personal expenses,” Flores said.
This was a yes for deductibility. It was an ordinary and necessary business expense.
But Flores cautioned recreational beer drinkers not to try this on their tax returns.
“If you are doing it for fun, going out with the guys to drink beer and watch basketball, that’s personal and doesn’t look like a business,” she said. “There is a small fraction of people drinking beer who can deduct their beer.”
2. TikTok toys
The mother of a TikTok star wanted to take a deduction for the toys that her child plays with off-camera because they are occasionally seen in the backdrop of her videos, Flores said.
“The toys looked like personal use,” she said. “It did not seem like a business expense.”
So, it was a no on the toy deduction.
3. Feeding the business mascot
People try to claim the darnedest deductions to reduce their tax bills, especially for business expenses.
In this case, a client who took her dog to work every day wanted to deduct the cost of doggy treats and toys that were kept for it at the office.
Is that a legitimate business expense?
The dog had a positive impact on clients, the person argued.
But, nope. Definitely not a deduction. It’s a pet and a personal expense.
Now, if it were a guard dog, expenses could be counted as a business expense, Flores said. 4. Water aerobics
One client was advised by her doctor to exercise more for general health reasons, Flores said.
Could the cost of her water aerobics class be deducted as a medical expense?
Sorry, not in this case.
By the way, to qualify for a medical deduction, your expenses have to exceed 7.5 percent of your adjusted gross income for the year.
“Most people don’t get past that threshold, Flores said.
The 7.5 percent threshold has long been a deterrent. But now coupled with the higher and rising standard deduction, this deduction is ruled out for many taxpayers, according to IRS spokesman Eric Smith. In tax year 2017, just over 10 million taxpayers claimed it. By tax year 2021, the most recent year for which data is available, that number had dropped to just under 4 million.
“Those that do have a lot of expenses and could qualify will find our IRS Publication 502 a useful reference,” he said.
5. Happy hour
Then there’s the businessman who wanted to take a mileage deduction for his trips to and from the local pub for his afternoon cocktails.
It’s a hard no.
Now, if he were going to the pub to meet a specific client and paying for drinks and a meal, that could be deductible, Flores said.
Because of the “ordinary and necessary” standard that applies to business expenses, details, facts and context matter a lot, Smith said.
“A given expense could be ordinary and necessary for a given taxpayer in one line of business but not in another,” he said.
6. Cost of hiring a ghostbuster
One woman asked whether the service she used to cleanse her home of bad spirits could be expensed as medically necessary.
“It may have made her feel better, but it’s not a medical expense,” Flores said.
Nope, not deductible.
7. Upgrading your vehicle
This final one isn’t unusual, but important to note.
Flores said she’s received questions about the medical deduction for upgrading a van for a disabled person.
“For anyone in that situation, it may be unlikely that they think of taking a medical deduction for the upgrade,” she said.
The challenge in many cases is exceeding the 7.5 percent of your adjusted gross income per year for medical expenses.
One strategy is to lump expenses in one year. So you might install a wheelchair lift for the van and make modifications to your home, such as putting in a ramp or renovating a bathroom to make it more accessible.
The deductible cost of renovations (such as installing an elevator) is the difference between the cost of the improvement and the added value to the home. However, many modifications such as widening doorways do not add value and are fully deductible, Flores said.