Understanding the wild, wild world of legitimate (and not) business deductions

An interior decorator can deduct horseback lessons, but can a doctor deduct zoo keeping expenses?

WALLINGFORD, CT — Countless high income tax payers are facing huge tax bills this year. And the more income they make, the more pressure they are under to find legitimate tax write-offs.  Tax resolution attorney Anthony Parent cautions against getting too creative with those write-offs.  “It’s pretty tempting to think that you might be able to get a tax break on some of the things you need for daily business life, like clothing and grooming, but be careful or you could end up in a lot of trouble with the IRS,” says this founder of IRS, Medic in Wallingford, CT.

He offers this definition of a legitimate write-off:“You have to be able to explain to yourself how an expense actually helps your business. If you can’t explain it to yourself — with a straight face — then it is not an expense worth claiming.” He offers the example of some of the misunderstanding when it comes to hobbies: “If you are merely looking for a write-off for a hobby of yours, good luck. The IRS will likely not let your deduction fly.  I found a case where a medical doctor who kept exotic animals as a hobby.  “His zoo keeping expenses were not allowed because the doctor could not prove that he paid those expenses with the intension of making money from the venture. If he did have a profit motive, and could actually prove that he did, then he would have had a shot at writing off his hobby expenses as legitimate business deductions.”

On the other hand, he cites the example of an interior decorator who was able to write off not just her horseback lessons, but all of her expenses related to her equine hobby. Why? Because she marketed her business by using the hobby as a way to meet prospective clients.  “Her business plan was to reach high income clients who needed interior decorating for their residences and horse stables (yes, horse stables),” Parent points out. “This interior decorator proved that the only reason she was able to make the money that she did was because she was able to use her background in the amateur equine field to gain new lucrative clients. Of course, the interior decorator liked horses, but just because an activity is pleasurable, does not automatically make it an illegitimate tax deduction. “

He points out that claiming those deduction can be dangerous and hurt a tax payer significantly over time.  “If you haven’t talked to a CPA or tax attorney about your deduction, you may be tempted to claim deductions out of desperation in your quest to lower your taxes,” he points out.  “You may even get away with it for several years. As a result, you’ll continue to wrongfully deduct.  And then when the IRS catches wind of it, the problem may get out of control and give a high income tax payer a bill that will be difficult and painful to pay.”

Atty. Parent offers this as the moral of the story: “Maximizing legitimate business deductions takes thoughtful planning. It is best not to rush panic at the 11^th hour and claim deductions that will eventually be disallowed.  You’ll often find that these will leave a taxpayer with a huge bill and even worse, the full brunt the IRS collection division hot on their tail.”

About IRS Medic

IRS Medic is a practice of tax attorneys that works to resolve tax issues for businesses and individuals.  These issues can range from unfiled taxes to audits, liens, penalties, other federal and state agency tax actions and business recovery. Attorney Anthony Parent founded the firm in 2003 to help clients deal with difficult tax problems.  He combined an academic background in finance with a law degree to develop the foundations of the practice.

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Andrea Obston aobston@aomc.com

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