April 9, 2016 - 1:35 pm
April 18 is rapidly approaching, and taxpayers who forgot to file or who have put off writing a check to Uncle Sam will soon have to face the music — that is, unless they avoid paying altogether.
Believe it or not, a small segment of the population has found loopholes in the system to avoid paying taxes — legally.
Unbelievable Ways People Have Managed to Avoid Paying Taxes
One way or another, most Americans are expected to pay taxes. Usually, the money comes out of workers’ paychecks — and those who have overpaid might receive a refund.
But if taxpayers are able to take large enough deductions or receive sizable credits, they might be able to legally avoid paying taxes. The following people were lucky enough to have this experience:
1. Drunk Driver Turns DUI Into a Tax Deduction
Some people have all the luck — or incredible persistence. Justin Rohrs managed to slide his truck off an embankment in 2005, only to be slapped with a DUI for driving while intoxicated. Despite the circumstance under which his car was damaged, he decided to file an insurance claim for his truck for $33,629. After his insurer denied his claim, he attempted to claim his vehicle loss as a tax deduction.
At first, the IRS wasn’t having any of it. So Rohrs took the matter to the U.S. Tax Court, claiming that he deserved a casualty loss deduction for his damaged truck. Shockingly, the judge agreed and allowed him to take the deduction.
2. Cats Can Be Worth Big Money
Jan Van Dusen, a cat lover with over 70 felines in her home, spent much of her time caring for strays she found in the wild along with those that had been injured. In some instances, after caring for the cats, she’d release them back into the wild. But more often than not, she held on to her furry friends.
The cost of caring for the cats began to mount for Van Dusen, so when she filed her 2004 tax return, she tried to write off $12,068 for cat-rescue items like food, vet bills, paper towels and more. After being alerted that these expenses counted as personal ones and could not be deducted, she sued the IRS. Following a long battle, Van Dusen proved her cat care was charity, resulting in the IRS finally granting deductions for most of her claims.
3. Exotic Dancer’s Breast Implants Pay for Themselves
Cynthia Hess, also known by her stage name, Tonda Marie, was an exotic dancer who wanted to improve her business by fixing her “hereditary deficiency.” In other words, she wanted bigger breasts. After getting a breast-enlargement procedure done, her business grew — along with the jump in her bra size to a 56FF!
Hess, now known as Chesty Love, decided to deduct her implants as a business expense. The IRS turned down her request, advising that business deductions only work in circumstances that are ordinary and necessary.
Hess sued the IRS, arguing that her new breasts should be considered a business uniform. She went on to say that she planned to have them removed immediately after retiring from exotic dancing. After much convincing, the tax court agreed that she would have only added breasts that large for business purposes — they were 10 pounds each — and decided to grant the deduction.
4. Even Drug Dealers Get Tax Deductions
Drug dealer Jeffrey Edmondson could teach classes on how to avoid paying taxes legally. He got himself in trouble with the law after being busted and charged with drug trafficking. Eager to get even more out of the dealer, the IRS audited him for $17,000 in back taxes after failing to declare his income made from drug dealing.
Edmondson decided the government wouldn’t have the last laugh. While awaiting trial, he filed a tax return that listed his taxable net income along with a list of business deductions. He left his occupation blank, of course. After looking at his return, the IRS turned down his deductions. But Edmonson was not ready to give up.
He took the matter to Tax Court where he claimed he’d established a home business and wanted to claim home-office deductions — including drugs. Surprisingly, the judge agreed to deduct his expenses, which included a $50 scale, over 19,000 miles in business mileage on his car and 100 pounds of weed.
3 Easy Ways You Can Avoid Paying Taxes — Legally
You might not want to go around suing the IRS every time you’re turned down for tax deductions, but you could benefit from learning how to pay no taxes, legally. Here are a few options to consider that don’t involve standing in front of a judge:
1. Qualify for Tax Credits
Many people don’t realize that tax credits are the equivalent of free money. Tax deductions reduce the amount of taxable income you can claim, and tax credits reduce the tax you owe — and, in many cases, result in a nice refund.
The IRS offers a large number of tax credits that encompass everything from buying energy-efficient products for your home to being a low- to moderate-income household. The key to benefiting from them is examining very closely all of the purchases you’ve made throughout the year to see whether money is owed to you.
2. Take Itemized Deductions
Most people take the standard deduction available to them when filing taxes to avoid providing proof of all of the purchases they’ve made throughout the year. This is because in most cases, itemized deductions don’t add up to more than the standard deduction.
But if you’ve made substantial payments for mortgage interest, property taxes, medical expenses, local and state taxes, or have made major charitable contributions, it could be worth it to take this step. These deductions are subtracted from your adjusted gross income, which reduces your taxable income.
3. Enroll in College
One way to take advantage of tax credits or deductions is to enroll in college. The government currently offers credits and deductions — you usually have to take one or the other — to go back to school online or in your community.
Students can take advantage of one of two education tax credits: The first is the American Opportunity Tax Credit, which offers up to $2,500 off the cost of tuition, fees and course materials paid during the taxable year per eligible student. Another credit to consider is the Lifetime Learning Credit, which offers up to $2,000 off the cost of tuition, fees and course materials. Only one credit can be claimed per year.
Students who don’t qualify for credits should consider tax deductions. The government allows qualified students to deduct up to $4,000 off the cost of tuition, fees and course materials. Although not as valuable as a credit, deductions can still lower taxes considerably.
Also, keep in mind that financial aid in the form of grants and work study offer tax-free cash that doesn’t count as taxable income. Scholarships also help pay for school and are non-taxable as long as the money is used for school-related purposes.
There’s no doubt that it’s difficult to legally avoid paying taxes, but by taking advantage of credits and deductions, you could improve your chances of doing so. Or, if you’re brave enough, you could claim an outrageous deduction — then, when turned down, tell Uncle Sam you’ll see him in court.
From GoBankingRates.com: The 4 craziest ways people have legally avoided paying taxes