Tax cheats get creative

As the Obama administration scrambles to tighten tax loopholes, the strategies for dodging income taxes continue to evolve. A recent report from Bankrate Inc. in North Palm Beach, Fla., uncovered such creative deductions as toilet paper from a home office worker, dog food as a home-security expense and a $2,000 gynecologist bill as "repairs and maintenance." Those were among Bankrate's fourth annual wackiest tax deductions. Previous installments of creative accounting included tax write-offs for a wedding as a business expense, dog day care and sperm donations. According to the most recent findings, compiled by Bankrate contributing editor Jay MacDonald, the definition of a tax deduction is limited only by the imagination of the tax filer. A Cleveland accountant had to challenge a client who wanted to deduct as a medical expense the cost of a $100,000 swimming pool. In Fort Worth, Texas, another creative tax filer finished off a home landscaping project by cutting down trees and donating them to charity. In Kissimmee, Fla., a woman decided to claim as a dependent a young man living in her home as a tenant by listing him as her nephew. "As audacious as these stories might be, rest assured that the Internal Revenue Service is not amused when taxpayers fail to file, misfile or underreport income or otherwise attempt to avoid taxes," Mr. MacDonald wrote in the report. In the case of the landlady who claimed that her tenant was her nephew, the IRS charged the extended family $5,000 in back taxes and a $2,000 penalty. The entire report can be found at Bankrate.com.