By Haddon Libby
Will Rogers once said that income tax “has made more liars out of the American people than golf.”
All but 10 million tax filers will have their returns done and filed by the 15th. For those of us running late, the IRS gives a six month extension with the filing of a 4868 form. Just make sure that you don’t owe taxes as you will be penalized for any late payments.
As you prepare your tax returns, remember to deduct your car registration – many people forget this one.
If you use an accountant, tax service or tax software, tax preparation fees are all deductible.
Small business owners should remember that Social Security and Medicare taxes are deductible.
If you operate your business from home, you can deduct a portion of your home costs. As an example, if you pay $1,000/month for a 1,000 square foot home and use 250 square feet as your office, you can deduct $250/month or $3,000 a year. This type of deduction can trigger an audit so be conservative when using this write-off.
If your employer did not reimburse you for a business trip, those expenses are deductible. Just remember that the cost should be “ordinary and reasonable” to whatever you do.
When making charitable donations, you will need to fill out an 8283 form if you gave more than $500. If your donations exceeded $5,000, make sure that you have an independent valuation on the gift as this is another deduction that often triggers an audit.
As it relates to health care deductions, if you tried to stop smoking during the year, the cost of nicotine patches and other related expenses are deductible.
Your gym membership can also be deductible if your doctor signs off on that gym membership and states that it is necessary for your health.
People who have sex changes can deduct all costs except for cosmetic surgery procedures.
Looking at the more obscure tax situations, dancers at men’s clubs can deduct the costs of their personal floatation devices.
Here in California, those who were persecuted by the Ottoman Empire between 1915 and 1923, don’t have to pay taxes. In New Mexico, anyone living over 100 years old doesn’t have to pay taxes as well.
Up the coast in Oregon, double amputees get a $50 tax break.
If you are a Native American and engage in whaling, up to $10,000 a year can be expensed against boat maintenance. The rest of us are S.O.L. (ships outta luck) as whaling is illegal to all but Native Americans.
Thieves be warned. You have to pay taxes on your ill-gotten gains. As you probably don’t want to put down your source of income, list it under other income.
Now if you wreck your car while drunk, your insurance company does not have to reimburse you for the accident due to your gross negligence. If you can prove that you waited and tried to sober up before you crashed, your costs related to fixing the car are tax deductible despite the insurer not reimbursing you. Whoever said that the IRS isn’t compassionate?
Overseas, Germans can deduct bribes while Netherlanders can deduct witchcraft expenses.
Lastly, a lot of people think that taxation is illegal and use this argument to avoid paying taxes. People have cited the 5th Amendment of the Constitution using the argument that taxes are the unlawful seizure of property. Others have cited the 13th Amendment calling taxes slavery or involuntary servitude. Some say that the green paper that we call money is not real as it cannot be exchanged for gold or silver. The cold truth is that taxes, like death, are unavoidable.
Haddon Libby is the Managing Director of Winslow Drake, an investment management practice. To contact him, call 213.596.8399 or email hlibby@winslowdrake.com.
