Pushing the limits on Tax Deductions

Many taxpayers try to come up with creative or unusual reasons as to why purchases should be considered legitimate business expenses. Here are a few from the US:

  • A woman in Arizona attempted to deduct $26,000 relating to nappies, food, clothes, pictures and a nanny because she used an image of her child in her logo for her curtain and blinds business. While she wasn’t allowed a full deduction, she was allowed a deduction for the photographer costs, clothing and stroller that carried the company logo.
  • A taxpayer refused to use a computer or telephone because of his distrust in technology. He instead used carrier pigeons to communicate with his business partner, and was allowed a deduction for the costs of caring for the pigeons.
  • A junk yard owner in South Carolina used wild cats to rid his property of snakes and rats. He put out cat food to attract the wild cats which then ate the rats and snakes. A deduction was allowed for the cost of cat food.

beware of catWhile these taxpayers obtained deductions for unusual items, it is important for New Zealand taxpayers to remember that there must be a sufficient connection between the expense and the taxpayer’s income earning activity in order to claim a deduction…..without getting too creative.