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Taxpayers Should Be Careful About Claiming Deductions on Their Tax Returns

By:
S.J. Steinhardt
Published Date:
Apr 5, 2024

Every year at tax time, people try to claim certain deductions that the IRS will not allow. But there are some that are creative and even weird, The Washington Post reported.

One client asked Alison Flores, manager of the Tax Institute at H&R Block, whether he could deduct the cost of different beers he had taste tested.

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,” said Flores in an interview with the Post. It turned out that the tasting was an ordinary and necessary business expense and, as such, was deductible.

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.”

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, said Flores. But, she said, the toys “looked like [they were for] personal use” and “did not seem like a business expense.”

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. She argued that, as the dog had a positive impact on clients, it was a legitimate business expense.

No, said Flores. It’s a pet and a personal expense. But, she said, if it were a guard dog, expenses could be counted as a business expense.

One client was advised by her doctor to exercise more for general health reasons and asked Flores if the cost of her water aerobics class be deducted as a medical expense. The answer was no; to qualify for a medical deduction, one’s expenses must exceed 7.5 percent of the adjusted gross income (AGI) for the year – and most people don’t get past that threshold, Flores said.

The businessman who wanted to take a mileage deduction for his trips to and from the local pub for his afternoon cocktails would also be denied. If he were going to the pub to meet a specific client and paying for drinks and a meal, that could be deductible, said Flores. To meet the “ordinary and necessary” standard that applies to business expenses, details, facts and context matter a lot, she said.

No, too, to the woman who asked whether the service she used to cleanse her home of bad spirits could be expensed as medically necessary.

Flores told the Post that she has received questions about the medical deduction for upgrading a van for a disabled person.

To qualify, one must exceed the 7.5 percent of AGI per year threshold for medical expenses. Flores said that one strategy is to lump expenses, such as modifications to a vehicle or to a home to make them more accessible, in one year.

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, she said.

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