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The Most Exotic Tax Write-Offs That Actually Work

We hear some pretty wild questions about tax write-offs.

Can I write off my swimming pool? What about my dog? Can I take a trip to Florida and call it a business expense? What about that expensive suit I bought specifically for meeting clients?

Believe it or not, sometimes the answer is yes.

There are legitimate tax deductions out there that sound completely ridiculous until you understand the circumstances behind them. That’s one of the interesting things about taxes. It’s not always about what you bought. It’s about why you bought it and how it was used.

Take a swimming pool, for example. You can’t put a pool in your backyard, decide swimming is good for your health and send the bill to Uncle Sam. But there have been situations where home improvements made primarily for legitimate medical care qualified as medical expenses. There are rules involved, especially if the improvement increases the value of the home, but it’s a good example of something that sounds crazy until you know the whole story.

Animals are another interesting one.

No, your family dog isn’t a tax deduction just because he occasionally hangs out at the office. But legitimate service animals can qualify for certain medical expense treatment, including some of the costs of buying, training and maintaining them. Animals that actually serve a legitimate business purpose can present other tax considerations as well.

The important part is being able to explain why the expense exists in the first place.

Travel is probably where things get the most interesting for business owners.

There’s a strange belief that if you enjoyed a business trip, it somehow stops being deductible. That’s not how it works.

You can fly somewhere beautiful and still have a legitimate business trip. The IRS doesn’t require your conference to be held in the least enjoyable city in America.

If the primary purpose of the trip is legitimate business, qualifying expenses such as airfare and lodging may be deductible. You can even add personal days to certain business trips, although the personal expenses don’t suddenly become business expenses just because you checked your email from the beach.

That’s where people get themselves into trouble.

Spending $5,000 on a vacation and having one lunch with a potential client doesn’t make the vacation a $5,000 business deduction.

On the other hand, spending $5,000 traveling to an industry event, meeting clients and conducting legitimate business doesn’t automatically become a personal expense because you happened to have a good time while you were there.

Clothing is another one we get questions about.

You might spend thousands of dollars on suits because your business requires you to look professional. Unfortunately, that doesn’t necessarily make them deductible. If you can reasonably wear the clothing outside of work, the IRS generally isn’t impressed by the argument that you bought it for business.

Specialized clothing can be different. Uniforms, costumes and certain clothing that isn’t suitable for ordinary everyday wear can potentially qualify d

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Independent Contractor or Employee? Why the Difference Matters at Tax Time

If you own a business, there’s a good chance you’ve hired someone as an independent contractor at some point. It’s common, it’s convenient, and for the right situation it makes perfect sense. But one mistake we see business owners make is assuming that simply paying someone as a contractor automatically makes them one.

Unfortunately, that’s not how the IRS looks at it.

Whether someone is an employee or an independent contractor depends largely on the actual working relationship. The IRS looks at things like how much control you have over the person’s work, how they are paid, who provides the tools and equipment, whether they have an opportunity for profit or loss, and the overall nature of their relationship with your business.

For example, let’s say you hire someone to redesign your office. They have their own business, bring their own tools, determine how the work gets done, give you a price for the project and work for several other customers. That sounds much more like a traditional independent contractor.

Now imagine you have someone who works for you every Monday through Friday, you determine their hours, provide the equipment they use, train them on how you want the work performed and oversee their day-to-day responsibilities. Calling that person a contractor and giving them a 1099 doesn’t necessarily make them an independent contractor.

That distinction matters because the tax treatment is very different.

When you have an employee, you generally have payroll responsibilities. Federal income taxes are withheld from their pay, along with their portion of Social Security and Medicare taxes. As the employer, you also have your portion of payroll taxes to pay and additional reporting requirements.

With a legitimate independent contractor, you generally don’t withhold those taxes from their payments. The contractor is self-employed and is responsible for reporting the income and paying the applicable income and self-employment taxes themselves. Depending on how much you pay them and the circumstances, you may also be required to issue a Form 1099-NEC.

Where business owners can run into trouble is when someone has been treated as a contractor but should have been classified as an employee.

If that happens, the business could potentially become responsible for employment taxes that should have been withheld or paid. Depending on the situation, there can also be penalties and interest. What seemed like a simpler arrangement at the beginning can turn into a much more expensive problem later.

Another important thing to remember is that there isn’t one magic test that determines whether someone is an employee. Having a contract that says “independent contractor” isn’t enough by itself. Neither is paying someone without withholding taxes or issuing them a 1099.

The actual facts matter.

This can become especially confusing as a business grows. Maybe you originally hired someone for an occasional project, but over time they started working for you every week. Their responsibilities increased, you began setting their schedule, and eventually they became an important part of the daily operation of your business.

At that point, the relationship may look very different than it did when you originally hired them.

That’s why it’s worth reviewing these arrangements periodically instead of waiting until tax season or until you receive a notice questioning the classification.

If you’re hiring your first contractor, adding employees, or you’ve had the same contractors working with your business for years, this is one of those areas where asking the question ahead of time can save you a major headache later.

And if you’re unsure whether someone working for your business should be classified as an employee or independent contractor, TaxPointe can help you look at the situation and understand the tax implications before it becomes a bigger problem.

Sometimes a small tax question today can prevent a very expensive tax problem tomorrow.

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Made a Mistake on Your Tax Return Here’s What to Do Next

Filing your taxes can feel like a big relief, especially once you finally hit submit and know they are done for the year. But what happens if a few days or even a few weeks later you realize you made a mistake?

Maybe you forgot about a 1099, entered the wrong amount somewhere, missed a deduction, or received another tax document after you already filed. It happens more often than you might think, and fortunately, most tax return mistakes can be corrected.

The first thing to determine is whether the mistake actually requires you to amend your return. The IRS can automatically correct some simple math errors and may contact you if additional information is needed. However, if you reported the wrong income, filing status, deductions, credits, dependents, or other information that changes your tax liability, you may need to file an amended return.

For most individual taxpayers, corrections are made using Form 1040-X, Amended U.S. Individual Income Tax Return. This allows you to show what was originally reported, what needs to be changed, and the reason for the correction.

One mistake that should not be ignored is forgetting to report income. Employers, banks, investment companies, and other businesses generally send copies of tax documents such as W-2s and 1099s to the IRS as well. If the income reported on your tax return does not match the information the IRS receives, there is a good chance they will eventually notice the difference.

If correcting the mistake means you owe additional taxes, it is usually better to take care of it sooner rather than later. Depending on the circumstances, interest and penalties can continue to add up while the balance remains unpaid.

On the other hand, you may discover that the mistake means the IRS actually owes you more money. Perhaps you forgot a deduction, missed a tax credit, or reported something incorrectly that resulted in paying too much tax. Filing an amended return may allow you to claim the additional refund, although there are deadlines for doing so.

It is also important to remember that changing your federal tax return could affect your state return. If you need to amend your federal return, your state taxes should be reviewed at the same time to determine whether another correction is necessary.

If you have already received a notice from the IRS about the mistake, don’t automatically send in an amended return. The IRS may have already made an adjustment or may simply need additional information from you. Filing another return while the IRS is already working on the issue could make things more complicated.

The biggest thing to remember is that discovering a mistake on your tax return does not automatically mean you are in serious trouble. Mistakes happen. What matters is recognizing the problem, determining whether it needs to be corrected, and taking care of it properly.

If you discover an error on a tax return you have already filed and aren’t sure what to do next, TaxPointe can help. Our team can review your return, determine whether an amendment is necessary, and help you make sure the issue is handled correctly.

Have questions about a tax return you’ve already filed? Contact TaxPointe today to speak with our team.

This information is provided for general educational purposes and is not intended as individualized tax advice.

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