Taxes. We all pay taxes, but sometimes we make mistakes or “embellish” our deductions. Here are some interesting stories and facts you may enjoy.
Trickster Tax Accountant – A former baseball player hired an accountant to manage his financial affairs, pay his bills, and file his tax returns. He fired her a few years later and then discovered she stole millions from him and didn’t pay his taxes or properly file his tax returns. The IRS penalized him. The baseball player claimed he should be absolved from the fines because of the accountant’s misconduct. An appeals court disagreed, saying the baseball player knew of the duty to pay taxes and file returns, and he failed to ensure that the accountant met those responsibilities.
Paleo Deduction – A taxpayer wanted to deduct the cost of their family’s gluten-free, vegan, paleo diet. It was an expensive diet to maintain, and the taxpayer felt their family was able to think more clearly as a result of their diet. This was not deductible.
Wrongful Write-Offs – Deducting wages paid to her young child did not pay off for one taxpayer. An attorney had her three children, all under the age of nine, help her during their summer break with jobs such as shredding, mailing, and copying. On her tax return, she took write-offs of over $10,000 for “wages to minor children,” which the Tax Court found excessive. She did not keep time sheets for the children nor issue W-2s. Plus, instead of paying her children in cash, she claimed she made contributions to each child’s 529 college education savings plan. The Tax Court limited her deduction to $250 per child.
Bar Mitzvah Networking – Some accountants have seen weddings, bar and bat mitzvahs and other large parties labeled as “100% Business Deductions.” However when asked for the invite list and the business relationship of each attendee, most of the deduction disappeared. If you’re inviting customers, bankers, attorneys, etc. to an event you may be able to deduct the direct costs associated with those people. But with family members and your bridge club—you will be out of luck!