It’s no secret that people come into the office all the time asking the question, “Can I Take This As A Tax Deduction?” It’s important to get a high-quality CPA on your side as they will be the person who can give you the ultimate yay or nay, but in order to even suggest a tax idea, you have to understand the nature of being creative. In 2018, many small tax deductions vaporized, but for those that own side hustles or small businesses, there are still opportunities to potentially use bizarre type tax deductions.
1. Can you deduct plastic surgery? – This year, one important tax deduction is completely gone. It is form 2016, which is for unreimbursed employee expenses normally reported in the itemized deductions Schedule A of your tax return. That means all of the salespeople and executives who took deductions for mileage, meals, and entertainment not allowed by their employer are now officially out of luck. However, if you own a side hustle or a small business, you need to ask the question of whether the item you want to deduct helped you do your job better or is necessary for you to do your job.
A stripper, Chesty Love had her breasts enlarged to a size 56N which she argued helped her to do her job better. Since her job was being a professional stripper, she argued that the plastic surgery should be a business expense and the IRS agreed. For most people, plastic surgery will not be allowed as a tax deduction, but you never know until you ask.
2. Deducting Cat Food? – Pets are one of the most expensive budget items for families. While you cannot normally deduct cat food or dog food, there may be extenuating circumstances that can get you that tax deduction. A California Cat Lady got national press for a decision allowing vet bills and cat food as charitable contributions. But after she beat the IRS, she faced animal cruelty charges. Even with that ending, hers isn’t the only successful cat deduction. In Seawright v. Commissioner, a couple ran a junkyard. They put out food to attract wild cats to control snakes and rats, making the junkyard safer for customers. When they claimed the cat food as a business expense, the IRS said no way. The Tax Court saved the day. (source: Forbes)
3. Can I Deduct My Live-In Girlfriend? – There should be no doubt that you can’t deduct the jewelry you give your girlfriend for the anniversary you celebrate together. In Bruce v. Commissioner, Bruce hired his live-in girlfriend to find furniture, oversee repairs at rental properties, and to run his personal household. The IRS said deducting her pay was not legit, but Bruce went to Tax Court and won. The court said $2,500 of the $9,000 he paid her was a business expense but paying for her housekeeping chores was nondeductible.
4. Can I Put The Kids On Payroll? – Now that each child qualifies for up to a $12,000 standard deduction, you need to ask yourself whether or not putting your kids on payroll is a good idea. And, you may be wondering how old do they need to be to legitimately be on payroll?
Say you operate your business as either a sole proprietorship, as a single-member LLC that is treated as a sole proprietorship for tax purposes, as a husband-wife partnership, or as an LLC that is treated as a husband-wife partnership. Great! That means you can hire your under-age-18 child (as a legitimate employee) and his or her wages will be exempt from Social Security tax, Medicare tax, and federal unemployment (FUTA) tax. In fact, the FUTA tax exemption lasts until your employee-child reaches age 21. You can hire your child part-time, full-time, or whatever works for you and the kid.
Thanks to the Tax Cuts and Jobs Act (TCJA), your employee-child can use his or her standard deduction to shelter up to $12,000 of 2018 wages paid by your business from the federal income tax. For 2017, the standard deduction was only $6,350, but the TCJA nearly doubled it. So, under the new law, your child can shelter almost twice as much wage income with the increased standard deduction. That makes hiring your kid a better idea than ever.
Bottom Line: For 2018, your child will owe nothing to the Feds on the first $12,000 of wages, unless the kid has income from other sources. Your kid can then set aside some or all of the wages and contribute money to a Roth IRA (more on that later) or a college fund. (source; MarketWatch)
If you are thinking about hiring your child make sure you have a legitimate job description, and the pay equals what you would pay an outside person doing the same job. With the new world of social media and technology, maybe there are some tasks that your child can do even better than you!
Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.