Wolters Kluwer Tax & Accounting takes a look at some of the more unusual tax provisions
What: The tax world is a strange place. Did you know swimming pools, ransom payments, and candy bars could be tax deductible?
Tax provisions can be very complex, and that complexity can lead to very unusual distinctions. Quite often a decision in a tax case in court creates a precedent that can survive for many years after. Questions such as “Can that expense be treated as an ordinary and necessary business expense?” and “Is that expense based on a prescription from a physician for a recognized medical condition?” can lead to unexpected outcomes.
Why: When in doubt about the tax treatment of an item of income or expense, always check with your tax return preparer. The answers may often surprise you:
- Cosmetic surgery, while generally not deductible, may be deductible if a taxpayer can demonstrate the procedure increases their income
- While a general work uniform like a business suit is not deductible as a business expense, very specialized uniforms and tools, such as leather clothes, whips, or handcuffs belonging to a person who makes their living as a dominatrix may be deductible
- A swimming pool would not normally be deductible, but a swimming pool prescribed by a doctor for a particular medical condition may be deductible
- Clarinet lessons for a child with an overbite may be deductible as a medical expense
- Food for stray cats in a junk yard may be a deductible business expense for pest control
- Paying ransom to a hacker may be a deductible business expense if a police report is filed and the incident is reported to the SEC
- In a few states, candy bars are taxable or not depending on whether they contain flour
- A petting zoo to entertain children of visiting clients may be a deductible business expense
- At least one state taxes blocks of ice but not ice cubes
- In another state, an unsliced bagel is not taxed but when sliced, toasted, or smeared then it is taxed
- In a third state, pumpkins for decorations are taxed but pumpkins for food are not
- Fostering animals in conjunction with an IRS recognized charity may lead to a qualified charitable contribution for related expenses
Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, is available to discuss unusual provisions in the tax law and the logic behind them.
PLEASE NOTE: These materials are designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering tax advice or accounting, legal, tax or other professional service.
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