Tax Loophole? Meet a South Carolina Couple Who Tried to Deduct Cat Food and Got Away With It
By SCOTT MAYEROWITZ
ABC NEWS Business Unit
April 6, 2009—
It's that time of the year again: tax time.
You probably won't hear families across the country cheering, unless they are getting giant refunds.
So before you sit down to calculate your income, deductions and ultimate tax liability, learn a few tips about how you might be able to get a bigger refund, or at the least take the sting out of that tax bill.
For as long as there have been taxes, people have tried to cheat the taxman.
Consider the Virginia man who tried to write off the cost of 120 Super Bowl tickets. Or the South Carolina couple who attempted to deduct the cost of cat food. One was legitimate; one wasn't. You might be surprised.
But first, how about some more mainstream ideas on how to save some cash?
New Homeowner Deduction
As part of the housing bailout bill passed by Congress, homeowners who do not itemize their taxes can claim a property tax deduction of $500 or $1,000 if they are married and filing jointly, in addition to the standard deduction.
And, if you were a first-time home buyer in 2008, you may be eligible for a tax credit of up to $7,500 or 10 percent of the purchase price, whichever is less.
There is an important catch to this credit, though. You have to pay it back in the next 15 years, in equal amounts each year, which makes it a bit more like a loan than a credit. So if you took the maximum credit of $7,500, you would need to pay back $500 per year for the next 15 years. But it still helps you get some much needed cash now when the economy is so bad, and you can pay it back a little at a time as things get better.
Job Hunting Expenses
If you were laid off in the past year, most of the expenses incurred while looking for a job can be deducted from your taxes, so carefully track these expenses. For example, any money you spent on creating and mailing your resume is deductible. You can also deduct expenditures for career coaches and headhunters. You can even deduct long distance or cell phone charges related to the job search, as well as travel expenses incurred for interviews, including mileage.
Other Missed Deductions
College tuition credit: Parents who paid their children's college tuition in 2008 can deduct up to $4,000.
Teacher book credit: Teachers who paid for books or other classroom supplies can deduct up to $250.
Clean fuel credit: If you bought a hybrid car or truck, you're eligible for a conservation tax credit of between $250 and $1,000. Depending on the make of the car, you could get a fuel economy credit of between $400 and $2,400.
Tax Payment Plans
In this recession, unfortunately, many Americas don't have enough money to put food on their tables, let alone pay the IRS. Luckily, there is a payment plan option, but it comes with several strings.
You may qualify if your tax bill is less than $25,000 and can be paid off within five years. So most people will be able to take advantage of that.
These payment plans are not free of charge, but the interest rates are typically much more favorable than taking out a loan. The IRS' interest rate is 5 percent. Additionally, if you are approved for a payment plan, you will also be charged a one-time fee of $105.
An extension allows you to delay filing your official tax return for six months, a godsend for procrastinators. But don't think it will save you money.
You must still pay all the taxes you owe on April 15, or you will incur interest charges. Filing an extension should not be done in place of not filing a return at all. It's not a way to defer payment. So, if you know you can't pay your taxes, you'll need to set up a payment plan.
Paying by Credit Card
More and more people are paying their taxes by credit card this year.
This may seem like a good idea but you will likely be charged a convenience fee of a 2.49 percent on your entire tax bill by one of the approved service providers handling your payment.
That's a hefty surcharge.
On average, Americans owe about $2,200 to the IRS, so with the convenience charge your total amount owed would be $2,255.
First, that's an extra $55. It might not seem like much, but every extra dollar counts these days.
Second, if you don't pay off your credit card bill in full, it will really cost you. If you only paid the monthly minimum on this balance, and you had an average interest rate of 12 percent with a minimum payment requirement of 2.5 percent, it would take you almost 14 years to pay off this debt and you would end up paying an additional $1,350 in interest.
Now on to some of the more, let's just say creative, deductions. Over the years, American taxpayers have tried just about everything and anything to avoid paying the government more money.
Super Bowl Sales Seminar
You can't blame a guy for trying? Well, if you are the IRS, you can.
Back in 1981, Danville Plywood, a Virginia company, sponsored a 1981 "Super Bowl Sales Seminar" where it flew 120 people including customers and some employees along with their spouses and children to New Orleans.
They paid for airfare, hotel rooms, game tickets and even threw in an outing to the French Quarter.
The company claimed a $103,000 deduction, saying it was an advertising cost. The tax savings: $45,000. The courts ultimately found the expenses had nothing to do with Danville's business and rejected the deduction.
O. Carlyle Brock, president of the Sanitary Farms Dairy in Erie, Pa., tried to write off the cost of a six-month hunting trip in Africa with his wife.
Before you call this a scam, consider this: Brock said there was a legitimate business expense.
You see, the dairy -- which bought, processed and sold milk -- ran advertising around the theme of wild animals. Customers were served game dinners at the plant, they shared films of the hunt and displayed heads and skins from hunts in their own museum for the public. They donated a tiger from the Africa trip to the Erie zoo and held a "name-the-tiger" contest. The IRS ruled the trip was a legitimate expense.
Is Laundry Deductible?
Ever think about trying to write off the cost of doing laundry, buying various bath and skin oils or even your daily shampoo? How about your gas and electric bill?
How, you ask? As medical expenses.
In 1968, Earl T. Jefferson tried to deduct all those items after his doctor suggested he sit in tubs of hot water to treat his prostatitis and that he wash his hair and scalp three times a day.
So he said that buying all those products and heating his shower water were actually medical expenses. The IRS and, subsequently, the courts didn't agree, declaring the expenses to be personal, living and family expenses and, therefore, nondeductible.
Then there is the case of the $3,500 dentures.
In 1935, Edward A. Sparkman purchased two sets of dentures to stop a slight hiss that could have prevented him from receiving future work as an actor. (The second set was a backup so if one broke, he could still act.)
The courts ultimately said the expenditure was "nevertheless so purely personal in character" that it cannot be considered a legitimate business expense.
The Cat Food Deduction
This is probably one of the most creative -- and shocking -- tax deductions out there.
Samuel T. Seawright and Carol A. Seawright had a little problem at their Columbia, S.C., junkyard: snakes and rats.
So the couple came up with a creative solution. They left out cat food to attract wild cats to the junk yard. Those cats would run off the snakes and rats.
So was the $300 they spent on cat food a legitimate tax deductions? Turns out it was.
Buffalo Meat and Body Oils
Finally, we bring you one of the most obscure tax cases, which comes from Corey L. Wheir, a professional bodybuilder who tried to deduct high-protein buffalo meat, protein shakes and various kinds of body oils in 1999, 2000 and 2001.
Wheir ate three pounds of buffalo meat a day for muscle development. (If he had stuck to lower-protein beef, he apparently would have needed to consume six pounds a day.) He also consumed protein shakes.
He wrote off all that on his taxes as business expenses.
The court said "there is no doubt that buffalo meat is also consumed as food by nonbodybuilders, albeit not with the regularity and in the quantities consumed by petitioner." It ruled that his consumption was "inherently personal" and therefore not a legitimate deduction.
Additionally, Wheir used a number of oils to help him look better during competitions. The court found that the oils were a legitimate use for his business and, therefore, deductible.
So as you go through your taxes, consider some of these more unusual loopholes. As always, remember to consult a professional tax advisor. And the only reason we know about these deductions is because they all ended up in court.