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Crazy Tax Deductions
CG Business Advisor Podcast
With Scott Seidenberg
Guests: Christopher Raykowkski, CPA
Michelle Marston, CPA, Supervisor
Intro
When it comes to claiming tax deductions, it’s all about getting it right. On this episode of the Cg Business Advisor Podcast, Scott welcomes Christopher Raykowski and Michelle Marston, two seasoned Cg Tax, Audit and Advisory professionals, to help decipher the difference between taking advantage of every deductible opportunity and going too far. You’ll get accurate answers to common questions about personal and business write-offs to which you’re fully entitled.
Along the way, Michelle and Christopher share stories about some wild scenarios – write-offs perhaps initially rejected by the IRS that have since become settled case law.
- Is food for the cat you use to manage pest control at your junk yard a legitimate business expense? (Yes!)
- Can a dad who is managing and promoting his son’s burgeoning off-roading career write off the cost of parts, fuel, food, entry fees and other expenses? (Yes!)
- How about the specialty oil a body builder uses in competition (Yes!) or the beer you purchase to attract customers into your establishment? (Yes!)
- Any reason an entrepreneurial mom shouldn’t write off the cost of raising a child who contributes a “cuteness” factor to her business? (Uh, not so fast.)
Enjoy these real-world examples as well as important nuts-and-bolts information about the deductibility of medical expenses, home offices, child care and travel. Scott and his guests give you the scoop in this info-packed episode – with the caveat that everyone’s personal and business profile is unique, so always check with your tax-planning professional.
Key Takeaways
Personal Deductions:
- What about our family’s medical expenses? Are they deductible?
- Taxpayers may deduct eligible expenses, based on a threshold established annually by the IRS.
- For 2020, your total medical expenses would have to exceed 7.5% of your adjusted gross income (AGI) before an itemized deduction will apply.
- New Jersey listeners only: The state’s threshold is an exception at 2%!
- Qualifying medical expenses cover a broad spectrum. To find out which: Pub. 502 on the IRS website. (Link below.)
- Based on case law, music lessons, gym memberships and swimming pools can (at least in part) qualify as medical expenses. Worth doing the homework!
- Can child care expenses be written off?
- A woman who needed babysitters to watch her children while she did volunteer work pressed the case and prevailed. The IRS has not, 40 years later, removed this unusual charitable tax deduction.
- Military tax benefits to know about.
- Combat pay is either partially or fully income tax-free for active duty service members.
- Additionally, that same income can be used as earned income to achieve a greater refund.
- Those in military service who relocate for work-related reasons can deduct all expenses (a tax advantage no longer available to civilian taxpayers).
- Are gambling/sports betting debts deductible?
- Losses may be deductible, but only to those who itemize on Schedule A.
- “Casual gamblers should be aware that the IRS does offer a deduction of losses but only to the extent of the winnings.” -Michelle (11:55)
- Keeping detailed records of winnings and losses is essential.
- This benefit is only for amateurs – not professionals.
Business Deductions – the baseline definition matters!
- A business expense must be both “ordinary and necessary” in order to be written off.
- “In my short career I’ve seen many a taxpayer try to deduct something that wasn’t supposed to be deducted and we’ve corrected and informed them of that.” -Christopher (13:57)
- Home Offices:
- Taxpayers often pass on the deduction for fear of being audited, but the IRS has made changes.
- Keep careful, accurate documentation of all expenses and percentages based on square footage.
- “Thankfully over the years the IRS has actually simplified and changed its rulings, making it a lot easier for taxpayers to claim the (home office) deduction.” -Michelle (16:56)
- Travel expenses:
- Limos and other luxuries formerly deductible for high-profile people employed in the entertainment industry were eliminated by the Tax Cuts and Jobs Act of 2017, which now limits it to the self-employed.
- A case study on deducting business travel intertwined with pleasure:
- Trip has to be primarily for business.
- Trip must be planned specifically with doing business as the goal.
- Trip destination must conform with the conduct of business.
- Trip must represent business that is “ordinary and necessary.”
- “At the end of the day the work that you do determines what pertains to any luxurious deductions you’re trying to write off.” -Michelle (21:35)
Bottom Line:
- “Even though it might sound crazy, at the end of the day if you really have a reasonable cause and legitimate reason (to deduct), any case is plausible and arguable. -Michelle (27:25)
The Cg Business Advisor Podcast tackles the important issues affecting businesses and individuals right now. Our twice monthly episodes, we bring in industry experts to discuss topics ranging from tax implications on new (and ever-changing) legislation, cybersecurity in a post-pandemic world, marketing in a virtual environment and beyond. You can find more information or listen to previous episodes here.
Please Rate and Review the Cg Business Advisor Podcast at:
https://podcasts.apple.com/us/podcast/cg-business-advisor/id1526322328
Further Info and Contacts:
IRS Website/Publication 502:
https://www.irs.gov/forms-pubs/about-publication-502
Contact Scott Seidenberg: https://www.linkedin.com/in/scott-seidenberg-44374522/
Contact Michelle Marston: https://www.linkedin.com/in/michele-marston-59725bb9/
Contact Christopher Raykowski: https://www.linkedin.com/in/christopher-raykowski-cpa-26589058/
View all episodes
By CG Tax, Audit & Advisory
5
2929 ratings
CG Business Advisor Podcast
With Scott Seidenberg
Guests: Christopher Raykowkski, CPA
Michelle Marston, CPA, Supervisor
Intro
When it comes to claiming tax deductions, it’s all about getting it right. On this episode of the Cg Business Advisor Podcast, Scott welcomes Christopher Raykowski and Michelle Marston, two seasoned Cg Tax, Audit and Advisory professionals, to help decipher the difference between taking advantage of every deductible opportunity and going too far. You’ll get accurate answers to common questions about personal and business write-offs to which you’re fully entitled.
Along the way, Michelle and Christopher share stories about some wild scenarios – write-offs perhaps initially rejected by the IRS that have since become settled case law.
- Is food for the cat you use to manage pest control at your junk yard a legitimate business expense? (Yes!)
- Can a dad who is managing and promoting his son’s burgeoning off-roading career write off the cost of parts, fuel, food, entry fees and other expenses? (Yes!)
- How about the specialty oil a body builder uses in competition (Yes!) or the beer you purchase to attract customers into your establishment? (Yes!)
- Any reason an entrepreneurial mom shouldn’t write off the cost of raising a child who contributes a “cuteness” factor to her business? (Uh, not so fast.)
Enjoy these real-world examples as well as important nuts-and-bolts information about the deductibility of medical expenses, home offices, child care and travel. Scott and his guests give you the scoop in this info-packed episode – with the caveat that everyone’s personal and business profile is unique, so always check with your tax-planning professional.
Key Takeaways
Personal Deductions:
- What about our family’s medical expenses? Are they deductible?
- Taxpayers may deduct eligible expenses, based on a threshold established annually by the IRS.
- For 2020, your total medical expenses would have to exceed 7.5% of your adjusted gross income (AGI) before an itemized deduction will apply.
- New Jersey listeners only: The state’s threshold is an exception at 2%!
- Qualifying medical expenses cover a broad spectrum. To find out which: Pub. 502 on the IRS website. (Link below.)
- Based on case law, music lessons, gym memberships and swimming pools can (at least in part) qualify as medical expenses. Worth doing the homework!
- Can child care expenses be written off?
- A woman who needed babysitters to watch her children while she did volunteer work pressed the case and prevailed. The IRS has not, 40 years later, removed this unusual charitable tax deduction.
- Military tax benefits to know about.
- Combat pay is either partially or fully income tax-free for active duty service members.
- Additionally, that same income can be used as earned income to achieve a greater refund.
- Those in military service who relocate for work-related reasons can deduct all expenses (a tax advantage no longer available to civilian taxpayers).
- Are gambling/sports betting debts deductible?
- Losses may be deductible, but only to those who itemize on Schedule A.
- “Casual gamblers should be aware that the IRS does offer a deduction of losses but only to the extent of the winnings.” -Michelle (11:55)
- Keeping detailed records of winnings and losses is essential.
- This benefit is only for amateurs – not professionals.
Business Deductions – the baseline definition matters!
- A business expense must be both “ordinary and necessary” in order to be written off.
- “In my short career I’ve seen many a taxpayer try to deduct something that wasn’t supposed to be deducted and we’ve corrected and informed them of that.” -Christopher (13:57)
- Home Offices:
- Taxpayers often pass on the deduction for fear of being audited, but the IRS has made changes.
- Keep careful, accurate documentation of all expenses and percentages based on square footage.
- “Thankfully over the years the IRS has actually simplified and changed its rulings, making it a lot easier for taxpayers to claim the (home office) deduction.” -Michelle (16:56)
- Travel expenses:
- Limos and other luxuries formerly deductible for high-profile people employed in the entertainment industry were eliminated by the Tax Cuts and Jobs Act of 2017, which now limits it to the self-employed.
- A case study on deducting business travel intertwined with pleasure:
- Trip has to be primarily for business.
- Trip must be planned specifically with doing business as the goal.
- Trip destination must conform with the conduct of business.
- Trip must represent business that is “ordinary and necessary.”
- “At the end of the day the work that you do determines what pertains to any luxurious deductions you’re trying to write off.” -Michelle (21:35)
Bottom Line:
- “Even though it might sound crazy, at the end of the day if you really have a reasonable cause and legitimate reason (to deduct), any case is plausible and arguable. -Michelle (27:25)
The Cg Business Advisor Podcast tackles the important issues affecting businesses and individuals right now. Our twice monthly episodes, we bring in industry experts to discuss topics ranging from tax implications on new (and ever-changing) legislation, cybersecurity in a post-pandemic world, marketing in a virtual environment and beyond. You can find more information or listen to previous episodes here.
Please Rate and Review the Cg Business Advisor Podcast at:
https://podcasts.apple.com/us/podcast/cg-business-advisor/id1526322328
Further Info and Contacts:
IRS Website/Publication 502:
https://www.irs.gov/forms-pubs/about-publication-502
Contact Scott Seidenberg: https://www.linkedin.com/in/scott-seidenberg-44374522/
Contact Michelle Marston: https://www.linkedin.com/in/michele-marston-59725bb9/
Contact Christopher Raykowski: https://www.linkedin.com/in/christopher-raykowski-cpa-26589058/