10 Crazy Tax Laws You Need to Know
This story originally appeared on The Fiscal Times.
Americans are known to bristle come April 15, but nearly 240 years after the founders threw a Boston Tea Party to protest unfair taxes, citizens are using less dramatic–but no less creative–ways to test the tax code. Modern-day challenges often end in U.S. Tax Court, where citizens can go to take on the Internal Revenue Service.
The basic questions that get brought up in Tax Court seem straightforward enough: What is income and what are its related expenses? The specifics can get, well, flat-out weird.
The IRS code may be full of loopholes and deductions as it is, but the IRS has also approved more than a few imaginative–even wacky–tax breaks.
If you have a huge deduction that you’d like to take but are unsure if it will pass muster with the IRS, talk to your tax preparer to see if a private letter ruling (PLR) makes sense, advises Gil Charney, principal tax researcher at the Tax Institute at H&R Block in Kansas City, Missouri. The PLR is written guidance from the IRS that provides an advanced decision on how it would treat the case. It does cost money, so make sure the deduction is worth it.
Maximizing the Look of Your Muscles
The Tax Court ruled that a professional body builder who uses special oils to prepare for competition could deduct their cost. What is not deductible are the wheat-grass shots and buffalo meat he eats to tone his form. Go figure.
Tax Breaks for Drug Dealers
If you make your money dealing illegal drugs, getting your taxes right might not be high on your list of priorities, but just because the money is made illegally, doesn’t mean the IRS won’t accept taxes on it. The Tax Court has clarified some potentially helpful details on the situation. (Remember, sometimes tax evasion is easier to prove than more insidious crimes. Think Al Capone.) Baggies and soil for marijuana plants are not deductible. Neither is the apartment you work from or the cost of your security team. However, you can deduct the cost of your product.
Depreciating Breast Implants
A stripper known as Chesty Love was allowed to write off her breast implants because they’re considered a stage prop. As it applies to business expenses, those assets can now be depreciated each year, even if her clients’ appreciation for them never diminishes.
The ‘Starving Artist’ Deduction
Performing artists get a deduction for expenses they incur while employed under certain circumstances, which seem almost ridiculous in their specificity: They have to have at least two employers and receive at least $200 in income from each; job-related expenses are more than 10% of income from performing artist jobs; and their adjusted gross income cannot exceed $16,000. If they meet those requirements, they can deduct art-related expenses. Pointe shoes, guitar picks, and paint cans really add up.
Straight as an Arrow?
The government has long imposed an excise tax on arrows, with the money raised going to fund wildlife restoration. Now an excise tax of 46 cents, as of 2012, is imposed on arrows that are more than 18 inches and/or are suitable for a specific kind of bow with a specific amount of draw. Wooden arrows designed for use by children are exempt. Obviously.
Can an overbite be cured by a clarinet? The taxman says yes. In the case of a girl with an overbite whose doctor recommended therapeutic clarinet lessons, the music lessons were deemed a medical expense by the IRS.
Rewards for Renting
If you rent space for fewer than 15 days in one calendar year, all the related income is completely tax free. If you rent it out for more than 15 days, “your income is taxable as rental income and you could allocate certain expenses,” says H&R Block’s Gil Charney. So listen up, New Orleans and New Jersey taxpayers: Two weeks is the max for renting out your house for the Super Bowl. Hamptons homeowners likely already know the rule.
Red Nose: Yes; Armani Suits: No
“What’s the difference between a lawyer and a clown,” asks Theodore Prioleau, a financial services consultant in Maryland who’s better known as Teddy the Taxman. “You might say the clothes, and you’d be right.” The lawyer’s impeccable suits are not tax deductible, but the clown’s costume is, “including his big red nose,” Teddy says. It has nothing to do with taste and everything to do with usability of the clothes. If you can wear it somewhere else, it’s not deductible.
Questionable Family Loan? Put It on Paper
Capital loss rules dictate that if you make a legitimate loan to someone with an official note, even if it’s your brother-in-law, you can write the money off if you don’t get paid back, up to $3,000 a year with a maximum of $10,000 total. Caveat: “If they do pay you back, you’ll have to pay taxes on the interest,” says Prioleau.
Burning Down the House
If you donate your house to the local fire department to burn down for practice, you can deduct the loss – as long as you donate your land too. There have been a number of cases related to this, says Charney. It’s best to tread lightly in this area and avoid “donating” your house for firemen to raze if it’s only to make room for a new one. That kind of generosity doesn’t count.