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"Is it deductible?" is the most common question asked of tax professionals. Enrolled agent continuing education requirements keep those with the EA designation on top of essential tax matters. Tax deductions arise from home ownership, charitable giving, medical costs, casualty losses, and business. Sometimes an unusual expenditure is tax deductible because of its association with one of these categories.
You may be left scratching your head over some potential tax deductions even after completing EA continuing education. But, as an enrolled agent, you are expected to possess the highest level of tax knowledge. Here are some not too unusual situations involving tax deductions.
Don't expect the family pet to provide someone with any tax deductions. However, there are instances where an animal is tax-deductible. One such situation involves guard dogs. Such dogs have to involve a business purpose to qualify as a tax deduction.
Therefore, your enrolled agent ethics course become applicable when assuring that business income is only reduced by ordinary and necessary expenses. A tax-deductible guard dog must protect inventory, livestock, or other business property. If the dog qualifies, you can depreciate its original cost plus all, um, "operating expenses" for the dog - such as food and veterinary care.
Another type of tax-deductible animal is a seeing eye dog. The cost of a medically necessary guide dog is fully deductible in the purchase year; no need to depreciate over the dog's useful life. Costs for training and maintaining a guide dog are also included in medical expenses for determining tax deductions. Limitations apply to the deduction of medical expenses, as covered in your tax CPE.
Medical assistance is applicable to any service animal. Seeing eye pigs do actually exist. In addition, the tax rules apply to anyone using an animal to assist with physical limitations, not just the visually impaired.
The key factor in ethics CPE is that all income is taxable regardless of its source. For example, individuals must report income from illegal activities on their tax returns. As a consequence, taxpayers may deduct legal fees for criminal defense of illegal activities that produced taxable income. Tax professionals should remember this when preparing tax returns for thieves or extortionists.
Every taxpayer is entitled to deduct interest payments for two homes. Even a boat that has sleeping, cooking and sanitation facilities qualifies as a home. Therefore, interest paid on a loan obtained to purchase or improve a houseboat is tax-deductible. The lender should have a security interest in the boat. Of course, taxpayers must itemize deductions in order to qualify for deducting the houseboat interest expense.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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