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This is from CBS Market Watch, so those of you who
subscribe can delete it.
Good luck and good trading,
Ray Raffurty
NORTH PALM BEACH, FL (<A class=lk001
href="http://www.bankrate.com/cbsmw/";>bankrate.com) -- Did you hear the one
about the ostrich? The sperm donor? The dog food?
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They're just three of the more ingenious tax deductions that creative
Americans have devised over the years to counterpunch the tax collector. A quick
Ali shuffle, a feign with the left and an outlandish deduction delivered with a
straight face can take the sting out of the annual tax beating -- at least until
the Internal Revenue Service catches on.
Taxes, of course, are no laughing matter. Serious consequences await those
who fail to file, falsely file, knowingly underreport or otherwise throw
spitballs at the system. Just ask Willie Nelson, who lost the best little golf
course in Texas to back taxes.
Still, every year Americans try to shave what they owe on their personal
income tax returns by pushing the envelope and letting their certified public
accountant make the line calls.
"If you're going to be aggressive, deductions are where you're going to do
it. You're not going to do it in the area of income; you want to report all your
income," says Frank Howard, CPA and principal of Howard and Waltrip in Dallas.
"I go ahead and apply the smell test. Most of the time, they're just throwing
everything up against the wall to see if it sticks."
As any accountant will tell you, the rewards of cheating on your taxes are
never worth the risk. But every year as April 15 approaches, taxpayers do -- or
at least try -- the darnedest things. Here are nine of the funniest, though not
recommended, tax-trimming attempts that clients have taken to CPAs across the
country.
My son, my dog
Disc jockeys typically don't make much money and save even less. A few years
ago, one approached Wyoming CPA Mike Lovelett for some free advice. "I've got
this problem, and I'm really starting to get nervous about it," the DJ admitted.
"Several years ago, I was going to owe some tax, so I put an extra deduction on
my tax return."
Well, Lovelett reasoned, it couldn't be that bad. Then the DJ explained: "I
put my dog on as a dependent." The radio personality had deducted his dog Red
all these years, a move that meant he owed nothing to the IRS. When Lovelett
advised him to contact the IRS and make things right, the DJ admitted, "I barely
have money for my next meal. What should I do?"
Lovelett, managing director of <A class=lk001
href="http://www.cpawyoming.com/";>Lovelett, Skogen & Assoc. of Casper,
Wyo., replied, "Well, this year when you file your tax return, mark Red as
deceased and pray nobody ever wants to talk to you about him."
Sex and the city
Then there was the client who approached Manhattan CPA Marc Albaum about a
very personal tax matter. "He had made some money being a sperm donor and wanted
to know if he could take a depletion allowance," Albaum recalls. "I told him he
really needed to be an oil well or something like that."
Playing with fire
Herb Wakeford, a CPA in Raleigh, N.C., recalls a Pittsburgh furniture-store
owner who, after years of trying unsuccessfully to sell his business, hired an
arsonist to torch the place. The insurance company paid off to the tune of
$500,000, which the owner dutifully reported on his income tax return. However,
along with taking the proper deductions for the building, its contents and the
usual business expenses, he also deducted a $10,000 "consulting fee" he had paid
the arsonist. An IRS audit two years later landed them both in jail. The IRS
disallowed the "consulting fee" and slapped on $6,500 in additional taxes,
penalties and interest.
What, not the Barcalounger?
Then there was the client who insisted on deducting the cost of his
television and cable service against his accountant's advice. "His reasoning was
that he was a Spanish teacher at school, and the only reason he bought the TV
and had the cable was for the Spanish channels so he could be able to teach his
students better," Howard recalls. "I told him, well now, not too many people out
there can deduct the cost of their TV and cable, but if you can get away with
it, knock yourself out."
Fun with livestock, part I
Back when the Society of Louisiana CPAs manned a tax hotline, few inquiries
stumped them. But Al Suffrin, SLCPA's communications and public relations
director, recalls one that did: "We took a call from an ostrich farmer in St.
Tammany Parish who called in to find out how to go about depreciating an
ostrich," he recalls. Strange as it sounds, you can depreciate an ostrich or any
other livestock, as long as they're used for breeding.
Fun with livestock, part II
Which brings us to the tale of the crusty old Texas rancher who insisted upon
accompanying his CPA, Raymond Lott of Lott, Vernon & Company of Killeen, to
the rancher's first tax audit. When the rancher's tax depreciation schedule
listed 15 or 20 animals as breeding stock, the no-nonsense young IRS agent
challenged the old cowboy. "I presume you breed these animals?" she asked
pointedly. Without hesitation, the rancher replied, "Nope," sending his CPA into
mild tachycardia. After a sufficient pause, the rancher finished the popular
Texas joke, "I've got a bull for that."
Go fish
There was a time when deductions were as plentiful as dinner mints. "Many
years ago when I was a young clerk, a local CPA kept a very large glass bowl
filled with receipts in his office," recalls Nancy Reynolds of <A class=lk001
href="http://www.aboutbusinessvaluations.com/";>Reynolds & Associates in
Naples, Fla. "If a client came in and was a little shy of deductions, they
merely dipped into the bowl and helped themselves to some of those glorious
deductions."
Sic him, Fido
Sometimes deductions seem so logical they just have to be legal.
"I had a guy come in one time wanting to know if he could deduct the cost of
his dog food. His reasoning was that his dog was security for his house,
therefore the dog food became a security expense," Howard says.
"I kind of liked that one. The IRS loves that stuff."
He works in mysterious ways
When all other loopholes seem closed, sometimes only a higher power can
help.
One fine February, a rookie tax accountant completed a slam-dunk return for
one of the firm's old and trusted clients and turned it in to his boss, relates
Mary Anne Petesch, a CPA with <A class=lk001
href="http://www.hkpseattle.com/";>Hagen Kurth Perman and Co. of Seattle.
There followed several loud whoops of laughter from the partner's office.
It seems the client had accidentally lost his dentures when they fell in the
toilet, and had claimed them on his taxes as an act-of-God casualty
loss.
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