Woman takes off on a jetpack shooting out paperwork.

Weird Tax Stories (And What You Can Learn From Them)

Tax season is over! While you breathe a sigh of relief, let us tell you about some weird loopholes and silly mistakes other people have made. You might even learn something for next tax season.

Thousands of people push their luck with the IRS every year. Some people try to put down their pets as “dependents.” People regularly try to write-off gym memberships, country-club dues and even weddings as business expenses.

Others go for more vanilla-flavored tax fraud, like not writing down their real name on their return.

Here are some of our favorite tax mistakes and weird tax stories, and what you can learn from them.

1. ABBA, bodybuilding, and feral cats

Ever wonder why ABBA wore those terrible outfits on stage? It wasn’t just for show: in 2014 the band revealed that the Swedish tax code let them write off the costumes as a business expense, so long as they were too ridiculous to be worn off-stage.

This isn’t just a Swedish thing, either. Between 1999 and 2001, the IRS apparently let a bodybuilder in Wisconsin successfully write off more than $10,000 in tanning oil. It also once let a junkyard owner write off the cost of cat food, because he claimed the feral cats it attracted helped him keep snakes and rats off the property.

There’s a whole world of obscure, industry-specific tax deductions you could be missing out on as a small business owner without even knowing it.

So how do you find them?

Make sure you’ve deducted the less obscure ones first

Did you know you could deduct 50% of the cost of food and beverages purchased during business-related meals? Or that you can deduct business-related airfare, cab fare, tolls, parking and lodging? Or that if you use a specific part of your home exclusively for business, you may be able to claim the home office deduction?

Before you start claiming cat food on your business tax return, make sure you’ve deducted more traditional business expenses first. Take a look at our list of popular small business deductions here for ideas about where to start.

Go digging for more obscure ones

Industry-specific write-offs are a bit harder to find.

If you’re lucky, a simple Google search might surface some useful information, like this Shopify guide to write-offs for ecommerce businesses or this list of write-offs for physical retailers by Gusto. You could also go digging through the IRS’ publications, but those are pretty hard to read if you’re not a tax expert.

Then, create a list of all the different kinds of expenses you make during the year, even ones that don’t seem like business expenses. You’re looking for weird expenses that you probably wouldn’t make if you didn’t own a business. If no obvious deductions jump out at you, run the list by an accountant who’s familiar with your industry.

2. The most common tax mistake in America

According to the IRS, thousands of filers write down the wrong social security number on their return every year, making it the most common tax filing mistake in America.

Thousands more make basic math errors, put down the wrong filing status, write down the wrong address, or forget to sign their physical returns.

The IRS doesn’t just chuckle and say “silly taxpayers!” though. The IRS can’t process an incomplete return. And if they catch you making small mistakes, they might dig deeper for bigger ones.

Here’s how to make sure you don’t goof up your return in a similar way:

Don’t just double-check the numbers. Check your basic information as well.

Make sure all of the personal and contact information you’re submitting is accurate. Make sure to check only one filing status on your return. If you’re filing jointly, remember to include your spouse’s social security number, and make sure you and your spouse have both signed the return. If you got a tax preparer to help you, make sure they didn’t indicate that the return was “self-prepared.” It’s the little stuff that gets you sometimes.

Oh, and don’t write your nickname down or the name everybody calls you. You’ll need to write your legal name.

File electronically

Filing through e-file or IRS Free File is the easiest way to avoid making basic errors on your return. Most tax software these days will do all the math for you, tell you about all the schedules you have to fill out, and let you know if you’ve omitted anything important.

Read more about what the IRS has to say about common tax return mistakes in this handy Q&A called “Taxpayers Ask IRS”.

3. Silent film stars pushing their luck

It’s important to be exhaustive when looking for legitimate business deductions, but it’s also possible to go too far.

1930s silent film star Ned Sparks learned this the hard way when he tried to write off a pair of $3,000 dentures as a business expense. He claimed he needed them for work because they let him enunciate words properly, but the IRS rejected the deduction, claiming that Sparks couldn’t prove that the dentures would only be used for business purposes.

If you’re even on the fence about whether or not something qualifies as a business expense, don’t rely on your own judgment. Ask an expert instead.

Always keep your business and personal finances separate. And remember that according to the IRS, the only proper way to pay yourself as a business owner is to take a distribution from the business and report it as personal income.

4. The IRS agent and the case of the missing receipts

In 2010, the IRS claimed that a prolific eBay seller had intentionally failed to keep records for more than $41,000 in supplemental income she had made on the site between 2004 and 2005.

“That would be ridiculous, unheard of. Unless there was some really bizarre reason why I kept a receipt, there were no receipts,” she told the U.S. Tax Court, claiming she didn’t know her activity on eBay constituted a business or that she was required to keep any records.

There was just one problem: her day job between 2004 and 2005 was at the IRS, as a revenue officer.

The IRS is big on receipts. And if you plan on running any kind of business—and especially if you plan on deducting anything—you better make sure there’s a paper trail. The IRS will require it if you get audited.

Remember that good recordkeeping involves hanging onto everything: invoices, receipts, purchase orders, payroll records, cash register tapes, and any other records that might support a deduction.

If you didn’t do a good job of keeping records this year and you don’t have time to get your act together, don’t itemize your expenses and opt for the standard deduction this year. Submitting an itemized tax return with suspicious numbers is one of the top triggers for an IRS audit.

5. Al Capone underestimated the IRS

“They can’t collect legal taxes from illegal money,” mob boss Al Capone once bragged (apparently).

Capone had murdered dozens of people, ran gambling and prostitution rings, and made a fortune bootlegging at the height of Prohibition. But who finally brought him down? The IRS, who got him indicted for federal income tax evasion.

Every year, someone thinks they can outsmart the IRS like Capone, and every year, they learn that the IRS has already seen every trick in the book.

If you don’t want to get audited by the IRS for cutting corners on your taxes, make sure to avoid the following:

  • Hiring employees as independent contractors (or “misclassifying” them)
  • Operating a cash-only business
  • Over-inflating your charitable and medical deductions
  • Claiming 100% of your business use of vehicle expense

Further reading: Every IRS Penalty You Should Know About (And How to Avoid Them)

6. Rich people don’t pay taxes

“We don’t pay taxes. Only the little people pay taxes,” real estate mogul and billionaire Leona Helmsley is reported to have told her housekeeper once.

Although Helmsley was later found guilty of tax evasion in 1989, she had a point. According to the New York Times, the United States loses close to $70 billion a year in tax revenue due to tax havens and other loopholes. Most of this is legal, too. Rich people have access to the best tax attorneys money can buy, which means they often save a lot more on their taxes than “little people” like you or me.

But you don’t need a holding company in Bermuda to do your taxes like a rich person. One of the most popular ways that expensive tax attorneys save people like Leona Helmsley money is by taking advantage of retirement-related tax benefits. You can do that too, by maxing out your contributions to the following retirement savings accounts:

Individual retirement accounts (IRAs)

If you contributed any money to an individual retirement account (IRA) this year, you might be able to partially or fully deduct the contribution on your taxes, depending on your tax bracket and filing status. You can put up to $5,500 into an IRA every year ($6,500 if you’re above the age of 50). That’s a (potentially) $5,500 decrease in your taxable income!

Simplified Employee Pension (SEP-IRA) plans

An SEP-IRA plan lets you make contributions not just to your own retirement, but also to your employees’ retirement, for a total potential write off of $56,000.

One-participant (or “solo”) 401(k)s

If you don’t have any employees but want the same tax benefits as an SEP-IRA, you can contribute to a solo 401(k), which basically lets you treat yourself as both an employer and an employee.

Roth IRAs

Contributing to a Roth IRA doesn’t result in a deduction on your taxes. However, if you meet certain criteria, you can make distributions from your Roth IRA completely tax-free.

Don’t forget about the tax benefits of owning property

Another way rich people save money on their taxes is by taking advantage of the numerous tax benefits of owning property.

For example, did you know that mortgage interest and property taxes are both tax deductible? Many taxpayers don’t!

7. The backroom tax shop industry

Almost all of the tax preparation shops you see springing up around tax time are completely unregulated by the IRS. When the U.S. Government Accountability Office went undercover and hired 19 of them during a 2014 study, only two of them ended up filing their taxes correctly.

“We see bad actors every year that steal from their clients or compromise returns in ways that can severely harm taxpayers,” IRS Commissioner John Koskinen said in a statement back in 2015.

To avoid getting scammed, the IRS suggests making sure that your tax preparer has an IRS Preparer Tax Identification Number (PTIN). Avoid preparers who charge you a percentage of your refund, and never sign a blank or incomplete return.

If you think you’ve been scammed, consult this guide and use Form 14157-A to file your complaint with the IRS.

8. Waiting until the very last minute

This one doesn’t need a dramatic story because it’s so common, and it’s not technically a mistake. Most of us are procrastinators at heart, and taxes are no exception.

Our advice for how you can prevent last-minute taxes in the future? Sign yourself up for year-round bookkeeping, today. Then when April comes around, your bookkeeper will send your accountant a ready file with all your financial info, and you’ll be good to go. No stress, no drama.

If you don’t have a good bookkeeper in mind, try Bench. We’ll stay on top of your books each month, and create a comprehensive tax package to send to your accountant for tax filing. We won’t actually file your taxes for you, but we’ll take care of all the messy financial admin your accountant needs.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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