Ridiculous Business Expenses

0:00 Ralph: Hey folks, have you ever tempted to fudge a few numbers on your taxes? Tried claiming those concert tickets or that tropical vacation as a business expense. Well, you're not alone. The links. Some people will go to try to Dodge taxes is downright shocking. Well, join us today on this wacky Wednesday, as we explore some of the more unusual and ridiculous business expenses.

0:51 Welcome back to the show on this wacky Wednesday, where we try to bring a little humor to our daily podcast. I'm excited to dive into today's topic with you. I'm recording this from the farm. Literally I'm a black Angus, cow farmer. A lot of people don't know that about me. So on my way, over to my office studio today, I got a chance to say hello to the cows this morning and the herd is doing great. So today we're diving into the wonderful world of ridiculous and unethical tax deductions. Get ready for some jaw dropping stories, some practical tips and a good dose of humor along the way as always, I'm going to bring ways for you to make these things work, even if they seem absolutely outrageous. Listen before I get too deep.

1:31 Don't forget to subscribe to the show. And join our email list. You can do that at askralphpodcast.com. So you don't miss tomorrow show when we're going to discuss correcting tax filing errors. That's right. Folks. When you make an error or find the error on your tax return, now, what. We're going to talk about on tomorrow's show. Now I don't need to tell you that tax fraud is illegal and immoral. It's the kind of thing that a land you in jail, like Al Capone. As Christians we're called to live with integrity in everything we do. Including how we handle our money. And how we file our taxes. Now, a lot of people don't want to hear that. But as a Christian, you have an obligation to not only be a good steward.

2:11 But you've got to live with integrity. But let's be real. The temptation is there folks? When tax reason rolls around, we all want to lower our tax bill as much as possible. That's what I do for a living. I try to find ways for people to legally reduce their tax burden. But every now and then someone gets a little too creative with those business expense deductions. The IRS has truly seen it all over the years. From pet food to lingerie prostitutes to haircuts. I know this is a Christian show, so we'll keep it nice and smooth. People have tried the deducting, literally anything you could imagine. And auditors have had a field day sharing the most outrageous examples they've come across. So today we're going to have some fun, little humor looking at real life.

2:55 Examples of ridiculous tax deductions. We're going to talk about why they don't work and then explore some ethical strategies you can use to maximize your legitimate. And legal business expenses. A lot of people ask me that question, is tax evasion illegal? Yes. Tax evasion is illegal. Tax avoidance is absolutely legal. All right. Let's dive into one of the, my favorite examples. This is the businessman who tried to write off his pectoral implants. Yes. You heard that, right. This guy claimed they were for business purposes to help him connect with his clients. I'm not sure what kind of clients he was trying to connect with. Needless to say the IRS did not buy his argument.

3:36 I guess they didn't fall for the old pectoral implants. Here's some other crazy tax deductions people have attempted. Pet food. Multiple people have tried claiming fluffy and Fido's kibble as a business expense. I guess they were guard dogs. It doesn't matter how much they brighten your day at the office. Your furry friends are not dependents. They're not employees. Folks. You cannot deduct their pet food. How about lingerie? How could those Lacy unmentionables possibly we consider business attire. One woman found out the hard way. That necessary clothing expenses don't include anything quite that risque. I had a client a few years back, that was a real estate agent. She came in to get her taxes done.

4:17 And she said, Ralph, I bought a whole new wardrobe this year. I spent about $5,000. I said, well, guess what, that's not going to be a tax deduction. She abruptly grabbed her stuff and stormed out saying that what kind of tax person are you. I said, I'm the kind of keeps people out of jail. How about a Disney world family vacation. As magical as it may be. Nope. Still not a business trip. That networking had happened with the frozen characters. Apparently wasn't persuasive enough to the IRS. It might've been a magic kingdom, but it definitely wasn't a magic deduction. How about swimming pool and landscape maintenance. While a pool could potentially be argued as an asset for certain businesses. For most, it's considered a personal expense.

4:57 Now, if you're running A spa or you're running some kind of place where a pool, like a hotel or a motel, maybe a pool. Is a reasonable business deduction, but it doesn't make sense. In this case, and one woman who installed a pool, try calling it a therapeutic massage station for her clients. Well, the IRS didn't want to take part in that therapeutic massage session. Now, obviously these examples are extreme and they're funny and they're outrageous. But the illustrate an important point. And that's drawing the line between personal and business expenses. Isn't always straightforward. In fact, we're going to talk about that in an upcoming show, why it's so important to maintain a separation between your personal and business expenses.

5:38 But people can get very creative with their accounting. Trust me. I see this every day and some of the things I see does make me laugh. So where exactly is that line drawn? Let's be practical. What can you legitimately claim as a business expense? And here's what the key IRS criteria are. Number one. The expense must be ordinary and necessary for your business. This means it's common practice in your particular industry and directly tied to generating business income. one of the things IRS agents will do. Is they'll look around your industry. And see, is that a routine expense? I'll give you a great example. Let's say you're a plumber. Well, I would expect if you're a plumber, you're going to buy tools.

6:18 I expect if you're a plumber, you're going to buy pipe and glue. and things like that. Those are common business expenses. If all of a sudden, you're buying. Pectoral implants for your employees. So they look good when they're going to Ms. Jean's house for a plumbing job. I don't think that's going to pass the sniff test. Number two. You need adequate documentation. I say this to clients, continually receipts, receipts, receipts. So I'm going to say it again. Receipts, invoices. There's no room for guesstimating or ballparking figures. I did a podcast a few weeks ago on about ways to avoid getting audited. One of the best ways to get audited. If you just ballpark thing and just throw round numbers on there, they needed documentation.

7:00 And while I'm there, they want receipts. You can't just say, well, there's a copy of the check. They want to see the receipt that backs that up so they can see exactly what you bought. Number three. Business use must exceed personal use, for example. You can deduct the business percentage of your cell phone bill based on its usage. I have clients come in and say, listen, I'm going to go ahead and pick up my cell phone bill is a business expense. And I said, okay, that sounds good. I say to them, how many people are on the line? well there's six. Okay. Are all six of those employees? Well, no, my wife is on the plan. My two kids are on a plane and my mom's on the plan. Watch out. That's not all business use. And that doesn't mean you can't take a percentage of that.

7:43 You have to be very careful. And number four. And this is my favorite. It needs to pass the smell test. The expense has to be reasonably related to your business activities. Not just remotely connected or tangentially related in some obscure way. the thing I tell clients, Is that. Prove it to your grandmother. I think this is a great way to think about it, will you lie to your grandmother now? That's said some people lack character, so maybe they would lie to their grandmother, but most people would say. Yeah. You know what Ralph. My grandmother's not going to buy it. So let's talk through some common gray areas when it comes to business expenses. First one that.

8:23 Happens constantly as a home office. Here's the deal folks. You can deduct a portion of utilities, rent, repairs. If you have a space use exclusively for business purposes. And you noticed I used the word exclusively. That means exclusively. If you have, for example, a small business. Consulting business. And let's say you have a three-bedroom home. And in that three bedroom home, you use one of those bedrooms exclusively for an office. Well, then the IRS would make the argument or you will be able to make the argument to the IRS. That you will be able to take a percentage based on the square footage of that room versus the square footage of the entire house.

9:06 But you got to get proof. If it's also a bedroom, when your grandchildren come over or when your children come back home. And that may not be exclusive use. How about let's talk about business travel. This is a common one. The IRS looks for. You got to make sure it's primarily for a business purpose. Not personal enjoyment and document the agenda listen folks. This is an area where you can get yourself into trouble. But it's an, also an area where if you're smart, you will keep yourself out of hot water. Conference people aren't stupid. They plan these conferences in beautiful locations. Why did they do that?

9:47 Well, they want to entice you to come to the conference. If you're going to go to the conference, that's a legitimate business expense. Let's say, for example, they're going to have a conference in Miami. And that conference is a five day conference. Well, I think it's very reasonable that the primary reason for going to Miami to attend that conference, but you better, make sure. That you've documented the conference dates where you were. It take some written notes about the agendas that happen. Now if you happen to stay a day or two extra, because the flights back home or the flights going down or cheaper. I think that's primarily for business purposes. So that one I think is okay.

10:27 But if you decide next week, Hey, you know, we're going to take a trip this summer to Hawaii. And while we're there, I'm going to buy a book on how to make my business stronger. I'm going to read it while I'm sitting by the pool. I think that's not going to pass the grandmom or the sniff test. Let's talk about business meals. These should directly relate to our work activity. Not just because you happen to discuss work over dinner. Now, this one is a cracks me up every time. I will have clients come in, husband and wife own a business. And they said, well, Ralph, we got a lot of business expenses this year, because every Friday night on date night, we talked about business. I said, well, folks, I don't know if that's such a good plan, you know, keep receipts and note who you met with. If it's just the two of you, I think you're going to run into problems.

11:08 Let's talk about business vehicle use. This one is very important. You've got to track your mileage for drives specifically taken for business purposes. Commuting miles don't count. Clients ask me this. Hey Ralph, do we really have to have a mileage log? The answer is yes. That's what the IRS code says. Basically what the IRS code tells you is you need to put the date. You need to put the starting odometer reading. You need to put the ending odometer reading. You need to put the reason for the trip and then the total mileage. That's what the IRS is looking for. If you get audited, those are the receipts they're going to want to see. Let's talk about education.

11:49 Education needs to directly tie to maintaining or improving skills for your current job. Not to prepare you for a future career change. In all of this, the bottom line is tracking. Documenting and proving business purposes. Just don't throw everything into one big deduction category. And I have clients that do this. They'll come in. a two a day or two before the filing deadline and say, Ralph. I am already. I got my business receipts for you, hoping up there, paper, and it says business sales, 125,000 business expenses. 135,000. Now Ralph get my tax return done. And I'd say to them whole Nelly, wait a second. You're going to have to break this down.

12:31 You got to make sure that your records are Bulletproof. The thing I say to clients is make sure your records are ready to be audited. On the day you sign that tax return for filing. Cause that's basically the IRS says is the day you file your return. The expectation is that you have all of your receipts in order, and you're ready to defend an audit that same day. And if there's any question on whether something is primarily personal or business, You should really err, on the side of being cautious. don't deduct those concert tickets. You might schmooze as a client don't claim, a hundred percent of your cell phone bill. If you chat with your mom on it daily. When in doubt. Leave it out.

13:12 You'll sleep better at night. You won't end up on a YouTube compilation of insane audit stories or on the Ask Ralph podcasts talking about. Ridiculous business expenses. Now, before we wrap up, I want to remind all of our listeners to visit our podcast page. That's at askralphpodcast.com. There you can leave us a review, share your thoughts, or even send us a message with questions for future episodes. I would love to hear from my listeners. Tell us about things you'd like for us to cover in future episodes. And guess what? We'll do that. And while you're there, make sure you join our email list to enter into our weekly $25 Amazon gift card drawing. We've already had a bunch of people enter and we're getting ready to make our second drawing.

13:53 So don't miss out on that. You can also schedule a consultation if you've got some business expenses. Do you want to say, Hey Ralph, you know, do these pass the sniff test or the grandma test? My grandmother's passed away, but I think we can figure it out between the two of us. Well, that wraps up today's episode on ridiculous business expense and tax deductions. To recap. We looked at some shockingly crazy examples of expenses. People have tried to claim, went through the IRS criteria on what counts as a legitimate business expense, and even discussed how to ethically maximize your deductions. Remember I said, ethically. It's okay to minimize your taxes. It's not okay to commit. Tax evasion.

14:34 Filing your taxes doesn't have to be stressful or shady. Just focus on a few things. Focus on accuracy. Transparency and integrity. Seek wise counsel from a trusted tax advisor like myself. If you need guidance and avoid the temptation to cut corners. Remind yourself. God is always watching. If this topic was interesting or helpful, please visit askralphpodcast.com and check out more episodes we have over 300 episodes out there of all kinds of useful. Information that you can put into action to improve your financials or improve your business or improve yourself as a Christian person. And remember, I always end with this. Stay financially savvy.

15:15 And may God bless you in your journey.