CARL WATTS & ASSOCIATES

March 04, 2013

www.carlwatts.com
office@carlwatts.com
Washington DC
 tel/fax 202 350-9002
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Yes, we know it’s tax time, but it’s also spring time and all work and no play makes any taxpayer a dull person.

So let’s take a short spring break and smile at some of these out of the ordinary, “did you know that ...” kind of tax deductions.

Your Priceless Pet

Pet care can be really expensive and, in some instances, also tax deductible.

  • If you’re a business person you should know that the costs of acquiring and maintaining animals used in your business (say a guard dog or a cat that keeps rats in check) may be deductible as long as you can show they are "ordinary and necessary" costs of doing business. Expenses for animals hired from an outside firm often are fully deductible, whereas the cost of acquiring your own animal may be subject to depreciation.

  • The cost of acquiring or caring for a service animal such as a guide dog or hearing cat is eligible for a medical deduction, just like the cost of animals who help with mental illnesses or disabilities, such as therapy dogs, as long as the pet is trained or certified as treatment for a diagnosed illness or condition in the taxpayer.

  • Expenses related to a foster animal may qualify as a charitable deduction for unreimbursed expenses if the goods or services are for the foster pet only to further the nonprofit mission, and if the organization is a registered non-profit. Expenses exceeding $250 may require a letter from the organization.

  • If you move either to start a new job or to seek work in a new city you may include the cost of moving your pet also. This is one of the few deductions you can take advantage of without itemizing (like you need to for all the deductions above).


Your Significant Other
Sometimes love can really pay off!

  • You may remember from our previous newsletters on exemptions that to claim another person as your dependent on your tax return, the person (an American citizen or resident) is not a dependent on another person’s return, is not married filing jointly, is not your qualified child, has lived with you for the entire year as a member of the household, has made less than $3,800 in gross income (during 2012), and for whom you have provided more than half of the their total support during the year. Does your live-in significant other qualify as your dependent?

  • If you hire your live-in significant other, you can deduct money paid for their services as a business expense, unless you pay them for housekeeping.


As Prescribed by Your Physician

  • If you enroll in a weight loss program upon the prescription of a doctor to treat a physical condition such as obesity, you may claim the fees as deductibles. The cost for remedies that help you drop a few pounds, improve your heart rate, or reduce your cholesterol might all be deductible.

  • If you have a medical condition that would improve with a swimming pool exercise regimen, you may be allowed to deduct the cost of your pool as a medical expense if its primary purpose is for medical care (for instance if you’ve emphysema and swimming improves your breathing.) Also, the cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area are treated as medical expenses.

  • Hormone therapy and sex-change operation for a person diagnosed with gender-identity disorder may qualify as a medical tax deduction as it helps treat a disease (excluding breast augmentation which is considered cosmetic surgery.)

  • At your doctor recommendation, you might qualify to deduct expenses for smoking cessation programs, nicotine patches, stop-smoking aides, etc. You can also deduct the cost of massage treatment, aqua therapy, as long as you keep hard records and the doctor’s notes.


What Do You Want To Be When You Grow Up?

When it comes to business deductions, the IRS states "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary."

When you’ve got a one-of-a- kind type of career or business, it’s not always easy to figure out what ordinary and necessary mean. 
Inventive business owners have managed to deduct some quite unusual expenses as business expenses.


  • If you are a professional athlete having to put on a uniform while at work, or you are a firefighter, police officer, medical personnel etc., you are entitled to claim a deduction for the cost of your uniforms.
Deductible uniforms for such professionals are considered work clothes and work clothes are deductible tax expenses as long as they are worn as a condition for the employment, they cannot be substituted for common every day clothes, and they are not compensated by the employer.

  • A business owner whose house was his workplace managed to deduct his lawn care expenses as business expenses because he met his clients in his home office, so the state of his lawn had some relevance to the performance of his business,.

  • A bodybuilder successfully claimed a deduction for the cost of body oil he used while performing in competitions.

  • Another businessman deducted the cost of beer he used to attract customers and promote his business as a business expense.

  • A stripper was allowed to deduct her breast augmentation surgery as a work expense stating that the implants were stage prop.

  • The owner of a dairy took a trip to Africa to conduct research on wild animals, and claimed it as a business expense because it was relevant to his business.

  • Fuel and maintenance costs on small charter planes can be deducted if the plane is used for ends that directly impact the business profit. These expenses can range from the transport of goods to travel for meetings or conventions.

  • Companies can hold conventions in the Bahamas and deduct the costs without actually demonstrating a specific reason for them to be held there.

  • Gifts for business clients or associates, can be claimed as deductions, but the amount you can deduct is limited to $25 per recipient and you cannot claim gifts that are identical, widely distributed, cost $4 or less, or have your name imprinted on it.

  • When a writer or an artist sell their copyrighted work they have to pay income tax on the profits. But if they sell their catalog of songs, they can claim they are selling a capital asset (like a share of stock) and pay taxes on it at the capital-gains rate instead of the much higher income-tax rate.

  • Businesses are able to deduct verifiable legal costs such as lawyers and courts fees when accused of wrongfully terminating someone from their job. As a general rule, legal defense fees associated with the collection of taxes or taxable income are also deductible.

  • Anyone who receives bribes, deals drugs, takes kickbacks or steals property is expressly required to pay taxes on that income and, of course, they can write off their attorney's fees as a business expense, as well as other expenses of “doing” their business.


Here are a few other strange deductions.


  • Regardless of the reason for your hair loss, you can include the cost of getting a wig into your list of deductibles. Nevertheless, hair transplant surgery cannot be claimed a deduction because such surgeries are considered cosmetic surgeries. The only exception to that is when certain situations made the surgery absolutely necessary, such as an injury to your scalp.


  • Parents whose child has been kidnapped by a stranger (not a family member)can continue to take all credits and exclusions for which they would be eligible if the child still lived with them, until the child would be 18 years old or is found dead

  • You may be able to deduct interest payments on a boat loan as long as the boat itself is pledged as security and has all the typical amenities of a home, such as cooking, sleeping and sanitation facilities.

And the list can go on and on, with new additions for every tax season.

Apart from making you smile, we hope this newsletter will prove to you once again how valuable a good tax professional can be, especially with the annual tax code changes and other trends influencing your taxes each season.
The Cute, The Weird &
The Tax Deductible
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