Prostitutes, Pet Food, Body Oil, and Other Bizarre Claimed Tax Deductions

September 15, 2009

A New York tax attorney spent over $100,000 on prostitutes, pornography, and other sex-related items, and then claimed such expenses as a tax deduction. Yesterday, the Tax Court determined that these “sex therapy” treatments were indeed not deductible medical expenses. Halby v. Commissioner, T.C. Memo. 2009-204 (Sept. 14, 2009).

After reading this case, I couldn’t help but Google some of the wild things that people have tried to claim as tax deductions. I found a few articles reviewing taxpayer’s claims for tax deduction (some denied, other permitted); here are some of the more interesting cases:

Free beer – YES
Strange but true. A gas station owner gave his customers free beer (brand unknown…I doubt it was Stella Artois though) in lieu of trading stamps. And the Tax Courts said yes, this is a legitimate business expense and tax deductible. Which makes the next entry even stranger…

Free whisky – NO
How ironic. A cunning fella thought a case or two of whisky would make nice client gifts, and thus tried to deduct them on his annual tax return. The category he chose was client entertainment. However, not only was it not allowed, it was a gift that violated state laws. Ouch.

Breast implants – YES
This one is infamous. A stripper going by the name of Chesty Love used her hard-earned savings to boost her chest to the size of 56FF. She figured it would get her more tips. And the write-off was allowed, being considered a stage prop essential to her act.

Prostitution expenses – NO
Maybe in Amsterdam or at the Bunny Ranch in Nevada, but you can’t deduct expenses of illegal professions. Trying to deduct condoms or lingerie is no good if you put down “prostitute” as your career. Similarly, drug dealers can’t deduct the cost of baggies or soil for Marijuana plants.

Here are a few more:

1. Pet Food

A couple who owned a junkyard were allowed to write off the cost of cat food they set out to attract wild cats. The feral felines did more than just eat. They also took care of snakes and rats on the property, making the place safer for customers. When the case reached the Tax Court, IRS lawyers conceded that the cost was deductible.

2. Moving the Family Pet

If you are changing jobs and meet a couple of tests, you can deduct your moving expenses — including the cost of moving your dog, cat or other pet from your old residence to your new home. Your pet — be it a Pekingese or a python — is treated the same as your other personal effects.

3. A Trip to Bermuda

This island is more than just a scenic place to visit. It’s a great place to schedule a tax write-off because business conventions held in Bermuda are deductible without having to show that there was a special reason for the meeting to be held there. That’s a sweet perk.

Other countries in the Caribbean region qualify, too, including Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia plus Trinidad and Tobago. Meetings held in Canada, Mexico and all U.S. possessions also receive this favorable tax treatment.

Attend a convention in Paris or Rome or Beijing, though, and there’s no deduction unless you can show it made as much sense to travel abroad as to head to Pittsburgh.

4. Body Oil

A pro bodybuilder used body oil to make his muscles glisten in the lights during his competitions. The Tax Court ruled that he could deduct the cost of the oil as a business expense. However, the Court frowned on his deductions for buffalo meat and special vitamin supplements to enhance strength and muscle development.

After reviewing these cases, maybe Mr. Halby truly thought he could claim prostitutes and sex toys as a tax deduction!

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions.