25 Simple Rules for Maximizing Your Tax Refund
From swimming pools to steak dinners to breast implants
Can a swimming pool be a tax write-off? Is breast augmentation deductible? Does your dog qualify as a security expense?
We’ve all got tax questions.
To the rescue: 25 simple rules on what you can — and definitely cannot — write off, as told by eight accounting experts from all across this great, publicly funded land we call home.
They’ll even teach you how to “write off thousands in steak dinners and strip club fees.” IRS approved.
Bob Wheeler | CPA, CFO of The Comedy Store
Robert Wm. Wheeler, CPA, Inc.
1. On the most outlandish (but legitimate!) write-off he’s seen …
“I deducted a $35,000 swimming pool for a client as a medical deduction, which was legitimate because he had a doctor’s note, and the IRS accepted it … It’s because he had a really bad back and [his doctor] wanted him to be able to swim every day to strengthen it.”
2. On whether you can write off your medical marijuana …
“Especially in California, people want to know if they can deduct their medical marijuana as an itemized medical deduction. And I’m always like, no, it’s still illegal … I have a couple clients that have co-ops, are growers.”
3. On what does count as a medical expense …
“A lot of people don’t realize for some reason that therapists and dentists are medical. People will give me their medical stuff and they’re like, ‘Well I didn’t include the dental stuff ‘cause I know that’s not deductible.’ And I’m like, why is dental not deductible? ‘Oh! Well I spent $10,000 on my teeth.’ Well, that’s a deduction.”
Aaron Lesher | CPA, Growth at Hurdlr
Hurdlr, a finance app for small business owners and entrepreneurs
4. On setting up a Simplified Employee Pension, which can “literally save you $10-20k per year in taxes” …
“If you’re already saving for retirement and own your own business, hack the tax code by setting up what’s called an SEP, or Simplified Employee Pension. It’s going to significantly reduce your tax rate while at the same time increasing your tax-advantaged retirement saving limit by roughly 1,000%. Small business owners can contribute up to 25% of their Schedule C income or $53,000 per year, whichever is less (meaning the max is almost 10x more than a traditional IRA). Then write the whole contribution off as a business expense.”
5. Is it too late to set one up this year?
“You can still set up a SEP for your business right now and contribute before the filing deadline (April 18th), so you get this benefit for your 2016 tax return.”
6. On whether you can write off steak dinners and strip clubs …
“Before I joined Hurdlr, I worked at a Big 4 accounting firm that counted many Fortune 500 companies as clients. One of the main clients I worked on frequently took visiting business partners out on the town — which included a fancy steakhouse dinner followed by a trip to the strip club. The IRS views this as a legitimate business write-off if you can prove it was related to conducting your business in some way. While meals and entertainment are subject to a 50% limit, and ‘lavish and extravagant’ expenses are disallowed, there is no dollar amount limit, so the client was able to write off thousands in steak dinners and strip club fees in the name of business development.”
7. On the one write-off small business owners and entrepreneurs tend to overlook …
“Mileage. I work with a lot of real estate agents who frequently drive from client to client, and in some cases the value of this tax write-off is $5-6K per year … The best thing you can do you for yourself is get a free mileage tracking app to do the work for you.” [Ed. note: Like, say, Hurdlr.]
Priya Malani | Founding Partner at Stash Wealth
Stash Wealth, a modern financial planning firm for 20- and 30-somethings
8. On the point at which you should hand your taxes over to a professional …
“You got married, especially if one of you has student debt and is on an income-based repayment plan. You moved across state lines or have to file in multiple states because of your job. You think you may have a good amount of deductions (this one is key, because a tax pro can stop you before you deduct yourself into an audit). You exercised company stock options (lots of [Stash clients] work for startups, making this one super relevant).”
9. On writing off breast implants …
“We have a few clients in adult entertainment and they have been able to deduct the cost of breast augmentation and other ‘job-related’ expenses.”
10. And your wardrobe …
“I would imagine the ‘discerning gentleman’ enjoys the occasional wardrobe upgrade. Donating old clothes can provide a substantial write-off and this one always seems overlooked.”
11. And SoulCycle …
“If the doctor prescribes fitness, SoulCycle counts! We are a SoulCycle-addicted generation (at least Stash’s H.E.N.R.Y.s* are).”
*For “High Earners, Not Rich Yet”
12. On how to not pay taxes twice on dividends …
“Many people are unaware that if they own shares of a company or mutual fund in a non-sheltered account (I.e., not in a 401(k) or IRA), any dividends they receive are taxable as income whether the investor takes them in cash or reinvests them. The investor will receive a 1099-DIV form for the account so they’ll know to pay the income tax. The tricky part is that reinvested dividends affect your tax basis when you actually redeem or sell the shares, so if you don’t include these in your tax basis, you end up paying taxes on them twice.”
13. On the right way to deduct pet expenses …
“One thing you see a lot of is people trying to take deductions by mistakenly claiming pets as dependents … But there actually are circumstances where you can claim deductions for domestic animals. One is, if you have a guard dog for a business, you can deduct food and care expenses. However, the IRS is finicky about the breed of dog you assign to this job. Big, imposing German shepherd? No problem. Charming little pug? Not so much.”
14. On how much dog is enough dog …
“One person I know tried to deduct expenses for a Jack Russell Terrier, arguing that an annoying ankle-biter is just as likely to deter a would-be burglar as his scarier cousins. Alas, the IRS didn’t see it that way and disallowed this fellow’s deduction. I thought he had a decent chance of getting it through and was disappointed with the denial.”
Thomas C. Butler | EA, NTPI, CTRS
Acumen Accounting Inc.
15. On writing off education, for you or your kids …
“Going to college or pursuing an advanced degree? In addition to tuition, you might be able to deduct the cost of computers, books, software, supplies and other related fees … To do that, the college needs to issue a Form 1098-T, which is a statement that shows the tuition paid.”
16. On where the line is drawn w/r/t academic expenses …
“Beer is not a qualifying expense, despite its critical role in college education.”
17. On what the IRS will be cracking down on this year …
“[The Internal Revenue Service] is cracking down this year on ID theft, fraudulent refund claims, and bogus earned income, children and education credits. Make sure you qualify before claiming a credit. The extra security could slow down refunds.”
18. Why is this happening?
“[The] IRS is trying to address billions of dollars in fraudulent tax refund claims … They’ve found that some of the biggest areas of fraud are in what are known as ‘refundable credits.’ … For instance, the IRS has thousands of claims for earned income credits (a refundable credit) for kids that don’t live with the person claiming the credit. You’re not entitled to the EIC for a child unless the kid lives with you!”
Gail Rosen | CPA, PC
Gail Rosen, CPA
19. On deducting medical bills for your kids and parents …
“If you cover the [medical cost] of dependents (your children, for example), these can be deducted. Additionally, if you are covering the costs of an individual who would qualify as your dependent except that they have too much gross income to qualify or files jointly (for example, an elderly parent), you may be able to deduct these costs as well.”
20. On how to write off your home office …
“If you have your own business, you should understand the deductions that may be available to offset your self-employment income … Many people avoid the home office deduction … I recommend you make sure your accounting data is in order so that you can compare the ‘safe harbor method’ versus the ‘actual method’ to see which method generates a better tax deduction for you. You can switch each year to choose which method gives you a better [deal].”
Brian J. Thompson | CPA, Attorney
Brian Thompson Law
21. On deducting your new business equipment …
“Section 179 allows self-employed taxpayers and business owners to elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting the cost in the year the taxpayer places the property in service … instead of recovering the cost by taking depreciation deductions over a period of years.”
22. Any creative uses of this deduction?
“A section 179 deduction for a passenger auto seemed creative when [this] was a new tax provision, but now seems pretty ordinary.”
Dave Du Val | EA, Chief Customer Advocacy Officer at TaxAudit.com
23. On the deductions most people forget …
“Cash and noncash contributions; employee business expenses; self-employed expenses; hobby expenses; energy credits; personal property taxes; child care …”
24. On what the hell “hobby expense” means …
“The U.S. Tax Court uses a nine-factor test in considering whether or not an activity is one that is engaged in for profit, or a hobby loss … Out of the nine factors, the ‘elements of personal pleasure’ come up quite a bit, especially for people in the arts or horse breeders/farmers. Also, the sixth factor comes up quite a bit in audits for taxpayers who show losses on their business activities several years in a row.”
25. On what not to attempt to write off …
“[Some] taxpayers tried to write off their boat expenses for a ‘harbor tours’ business. The problem was, there was no income from the business and all they had to prove that there was a business was a handwritten sign. But as U.S. Tax Court justices have stated in the past, just because you enjoy your business does not make it a hobby.”
Suggested for you