Scenario: a taxpayer works as an employee somewhere. The taxpayer insists that their purchase of (insert something personal in nature that’s clearly not deductible) is deductible as a work-related expense.
If it was a legitimate work-related expense, it would be considered a “miscellaneous itemized deduction” and would only benefit the taxpayer if:
- They itemize deductions and
- The total of their miscellaneous deductions is greater than 2% of their income
In most cases with average taxpayers, their miscellaneous deductions are nowhere near 2% of their income.
Question: Let’s assume that the taxpayer gets crabby when you tell them that their purchase isn’t deductible.
Is it okay to show the purchase as a miscellaneous deduction if the amount is less than 2% of their income and thus isn’t deductible anyway?
That way, the taxpayer sees it on their tax return but technically the government hasn’t been harmed because the amount was too small to actually be deducted. Is this okay?
First of all (since I know of at least one IRS representative who reads my blog!): I have never done this before (okay maybe I have once or twice with things that I think are in the gray area); I’m asking hypothetically!
My thought is: it might technically be “okay” in that there’s virtually no way the IRS would audit a return that shows a $0 deduction. But I wouldn’t do it. Here’s why:
- It trains the preparer that it’s okay for clients to boss you around (I struggle with this as it is)
- It trains the client that they can boss the preparer around and get what they want
- It trains the client and the preparer that it’s okay to fudge now and then … which could lead to the fudging happening more often and in much bigger ways
- What if the taxpayer’s situation changes in future years? Their income drops, or they suddenly start wanting to claim the same illegitimate expenses AND they now have legitimate expenses too, so they suddenly meet the 2% threshold. How will the preparer talk himself out of the box he’s put himself in with this client?
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”