CHARITABLE CONTRIBUTIONS HAVE TO BE REAL
The Tax Court disallowed a charitable contribution deduction for $145,000 purportedly representing 20,000 items donated to Goodwill in a single year. (Ohde v. Commissioner, TC Memo 2017-137)
This included a deduction for $71,434 in used clothing. They ended up getting a charitable contribution deduction for $250 as they did not follow strict substantiation requirements (such as having an appraisal or signed documentation by the charity) and their testimony was not creditable.
The case did not say how much income they had but the taxpayers were in West Virginia where average incomes are considerably lower than $145,000 a year. Besides the $145,000 deduction for one year, for the 5 surrounding tax years they also claimed another $500,000 in donations for items donated to charity.
Tax Tip: Don't be a pig when claiming deductions and make sure all required substantiation is received.
SEX WORKERS AND PORNOGRAPHY ARE NOT MEDICAL EXPENSES
A taxpayer (a tax attorney) was denied a medical expense deduction for $100,000 paid to prostitutes and $25,000 for medical text and pornographic materials. [Halby v. Commissioner; TC Memo. 2009-204] Citing several books and magazine articles, the taxpayer argued of the positive health effects or sex therapy. Treasury Regulation 1-213-1(h) specifically provides that a taxpayer is not entitled to a medical expense deduction for any illegal operation or treatment. Since his doctor did not prescribe a treatment for any medical condition, the taxpayer’s payments were nondeductible personal expenses.
Since the taxpayer was a tax attorney for 40 years, he had no reasonable basis to claim the deduction and was liable for a 20% accuracy-related penalty for substantial understatement of tax.
Tax Tip: Items that may improve your health (such as healthy food) are considered personal in nature and are not deductible as medical expenses.
YOUR PET IS NOT A TAX DEPENDENT
There are many court cases that have repeatedly said your pet is not a dependent. In one case, the court concluded (a) pets could not be dependents, (b) medical expenses of pets are not tax-deductible medical expenses and (c) pets cannot allow you to claim head-if-household status.
In this case [L.J. Schoen, TC Memo. 1975-167], the Judge concluded:
Under no circumstances can a pet qualify as a dependent so as to allow a medical expense deduction for veterinarian fees.
Pet dogs or cats cannot qualify as dependents for purposes of claiming head-of-household status.
Tax Tip: According to IRS Publication 17 (Your Income Tax), medical expenses include “Guide dogs or other animals aiding the blind, deaf, and disabled.” No detail is provided so my interpretation is that the purchase price is a medical expense. Revenue Ruling 55-261 provides that medical expenses include the cost of a "seeing-eye" dog and its maintenance.
YOUR WARDROBE IS GENERALLY NOT A BUSINESS DEDUCTION
A Tax Court case reminds taxpayers that clothing used for work is generally not tax deductible. The Tax Court (Barnes TC Memo 2016-79) held that a clothing sales representative for Ralph Lauren wasn't entitled to deductions for unreimbursed employee expenses the taxpayer incurred to purchase and maintain clothing for his job. The taxpayer was required to wear the company's apparel while on the job. However since the Ralph Lauren clothing was suitable for general or personal wear, the court denied a business deduction.
Tax Tip: Clothing suitable for general or personal wear is not eligible for a business deduction. However, specialized protective clothing is eligible for a business deduction.