As tax season rolls around, businesses across the country are wondering what deductions they can itemize before they file. Certain businesses have come up with some surprising, creative deductions that have been accepted by the IRS or U.S. Tax Court. While these are interesting and amusing, be sure to consult your accountant or a tax professional before actually claiming them as deductions.
In the past few years, businesses have been plagued by ransomware attacks from cybercriminals demanding large sums to decrypt their essential data, usually in bitcoin. While it isn't recommended that businesses pay the ransom, sometimes companies have no choice but to pay, or they risk losing much more.
If you do pay, the amount can be itemized on your taxes as a business expense similar to other acts of theft and extortion. You'll need to provide proof of the incident and the amount paid to the IRS, which can be provided in the form of a police report.
Bitcoin for good
While Bitcoin sometimes has a negative connotation of being the favored currency of cyberattackers, it can make a positive impact both on the world and on your taxes. As with any profit gained from investments, you must report money made from investing in bitcoin and pay taxes on it. However, instead of pocketing the profit, giving your bitcoins to charity allows you to take a deduction on your taxes.
Giving to an organization like Fidelity Charitable, which accepts bitcoin, will give you a tax deduction equal to the market value of the bitcoin while avoiding paying capital gains tax, according to Nabil Ashour, Director of Corporate Communications at Fidelity Charitable.
Pets on the job
Pets are not dependents and cannot be claimed on taxes; however, if you use pets for your business, certain expenses can be deducted, according to Joshua Zimmelman, president of Westwood Tax & Consulting. If you breed pets, use them in your advertising materials or use a guard dog, you can deduct expenses like food, grooming, and training, but these costs must be related to the hours your pet works, and they need to be documented.
"This only applies to certain animals in certain situations though," Zimmelman said. "For example, you can say that a Rottweiler is a watchdog, but don't try that with a hamster, or you will probably raise a red flag at the IRS."
In the same way pets can be used for advertising and branding, certain aspects of yourself can be considered a business expense if they're used for such. Bobbi Baehne, president of Think Big Go Local, dyed her hair purple for a convention and has kept it ever since. She is the face of the company, and the purple hair became part of her company's branding.
"My accountant quickly let me know that the purple hair has become part of our brand and, in turn, is advertising for our company," Baehne said. "So I get to write off the $200+ I pay a month to keep it fun and fresh."
Office fitness and health
Fitness and health initiatives have lots of potential for deductions. While you can't deduct gym memberships for employees, if you have an office gym that you own and maintain, then you can deduct those expenses, according to Taxbot. Programs to help employees quit smoking are also deductible.
Professional bodybuilders can itemize expenses that are ordinary and necessary costs for their profession, including body oil. The slick stuff that makes their muscles shine is deductible, but a tax court ruled that expenses like food and supplements used to get the bodybuilder physique don't qualify, according to TurboTax.
For adult entertainers, a tax court case in 1988 opened the door for them to deduct breast augmentation surgery, according to TurboTax. A stripper claimed a $2,088 deduction for her surgery, which was initially denied by the IRS but accepted by the tax court when she appealed. The court ruled that the augmentation was a legitimate business expense because it could result in bigger tips and more profit for the stripper.
Landscaping and home improvement
For the self-employed and home workers, sprucing up the homestead can be itemized as long as you can prove the improvements are tied to your business. For example, making your home more appealing if you often meet with clients can be deductible, including the tools you use for landscaping and home improvement.
Renovating your home to make space for an office can also be deductible. Be aware that the IRS has strict guidelines on what constitutes a home office that you must meet in order to qualify for the deduction. Primarily, your home office must be a principal place for your business and not used for recreation.
Business trip to the Bahamas
Travel expenses around the country are commonly deductible, however, this also extends to most of North America. You can itemize expenses for travel to the Bahamas, Bermuda, Costa Rica and other Central American spots. Furthermore, you don't have to provide reasoning of why your meeting or convention was held there.
In many cases, you cannot deduct travel expenses to places outside North America. To do so, you'll need to provide proof that it was reasonable to hold the meeting at that location. For example, you'll need to be able to explain to the IRS why your convention in China couldn't be held anywhere else.
Similarly, the expenses of attending a convention or seminar on a cruise ship are also deductible. However, you must provide comprehensive proof that the cruise was mostly devoted to business activities and that you, yourself, were participating in them.
Speaking of ships, whaling captains can itemize expenses related to their ships, such as repairs. Whaling is highly illegal to all but certain cultures. In the U.S., you must be a recognized captain of the Alaska Eskimo Whaling Commission in order to qualify for the deduction. If you're practicing unsanctioned whaling, you may have bigger problems than missing out on a tax deduction.