IFWA News

Tax Deductions You Won't Believe!!

While Americans are entitled to take every legitimate deduction to manage their taxes, the Internal Revenue Service (IRS) places limits on your creativity. Here are some examples of deductions from the IRS that were permitted and some that were, well, too creative.¹

Creative Deductions that Passed Muster

Usually a child’s school-related costs are not deductible. However, one taxpayer was allowed to deduct the cost of travel, room, and board as a medical expense for sending a child with respiratory problems to a school in Arizona.

Pet food typically doesn’t qualify as a write-off, except in the case where a business owner successfully argued that it was a legitimate expense to feed a cat protecting their inventory from vermin.

Does your child have an overbite? If so, you may find that the IRS is okay with a medical deduction for the cost of a clarinet (and lessons) to correct it.

A deduction for a swimming pool won’t float with the IRS, except if you have emphysema and are under doctor’s orders to improve breathing capacity through exercise. The deduction, however, was limited to the cost that exceeded the increase in property value. And yes, ongoing maintenance costs are deductible as medical expenses.

Deductions that Were Too Creative

The cost of a mink coat that a business owner bought for his wife to wear to dinner for entertaining clients was denied even though he claimed it was an integral part of dinner conversation and provided entertainment value.

Despite having dry skin, one taxpayer was denied a deduction for bath oil as a medical expense.

Losses associated with theft may be deductible, but one taxpayer went too far in deducting the loss of memories when her photos and other life souvenirs were discarded by her landlord.

One business owner reported an insurance payment as income, but then deducted the cost of the arsonist as a “consulting fee.”

Don’t expect taxpayers to pay for enhancements to self-image. Just ask the ballerina who tried to deduct a tummy tuck or the woman who tried to write off her Botox expenses.

Creativity is not something that the IRS typically rewards, so you should be careful testing the limits of its understanding. Seek the counsel of an experienced tax or legal professional for specific information regarding your situation.

Employers Are Responding to Employees' Demand for ...

A new study confirms the same ole results: lots of employees are facing financial challenges. And which is the most common money-related struggle? Debt.

According to a survey by the International Foundation of Employee Benefit Plans, seven in 10 employers say their workers are having difficulty managing credit card and other debt. Saving for retirement, paying for children’s education expenses and covering basic costs of living were also cited by employers as top worries among employees.

This is not only bad for workers, but also for business owners. Julie Stich, CEBS, associate vice president of content at the International Foundation of Employee Benefit Plans, explains: “An employee’s personal financial stress—whether it’s long-term like saving for retirement or immediate like paying the rent—can have a direct impact on their performance at work.”

In a report titled Financial Education for Today’s Workforce: 2018 Survey Results, the Foundation gets more specific. According to employer respondents, financial difficulty has interrupted the workplace “in the form of stress (79 percent), the inability to focus on work (64 percent), physical health concerns (36 percent) and absenteeism (34 percent).”

What’s worse, if nothing changes, employees’ financial futures look bleak. Forty percent of employers report that their workers are only a little bit or not at all financially savvy. Only slightly fewer (36 percent) say employees are barely, if at all, prepared to retire successfully at retirement age.

Fortunately, many businesses are taking action. “Employers are offering financial education to help employees manage their money, understand their workplace benefits and improve their investment decisions,” Stich said.

And their efforts are unlikely to be in vain. Two in five surveyed employees say demand has increased among workers for these types of programs over the last two years.

The report notes 63 percent of employers currently offer financial education programs for employees. Another 19 percent are considering doing so.

In 2016, just 14 percent of employers had set aside a portion of their budget for financial education programs. This figure has grown to 24 percent in 2018, and another one in five employers are considering adding it to their budget. Among those who have already set money aside, more than half plan to increase that amount within the next two years.

Within the programming, “the top five most common topics covered include retirement plan benefits, preretirement financial planning, budgeting, investment management and retiree health care,” according to the report.

Some employers are even going as far as providing education to employees’ spouses (39 percent), polling employees to determine areas of most interest (35 percent), offering education in multiple languages (30 percent) and providing education by generation (24 percent).

Other employers (17 percent) are targeting education to address life events, such as “approaching retirement, funding an education, getting married, purchasing a home, getting divorced or having a child.” Just under a quarter (23 percent) of employers who are not currently doing this are considering doing so in the future.

A mere 6 percent of employers who are offering financial education think their program is unsuccessful, compared to 57 percent who think it is.

“Most commonly, employers are measuring success through increased participant deferral rates in defined contribution (DC) plans, overall participation rates in DC plans, and participation in specific initiatives such as in-house seminars,” the Foundation’s report concludes.