Generally, the IRS allows you to deduct certain expenses from your taxable income if they fall into the appropriate expense category. Some taxpayers have been able to win surprising tax deductions by offering rational arguments why expenses that most people wouldn't consider tax deductible should be allowed under certain circumstances. Be careful about creatively claiming deductions, however, if you lose, you might become liable for civil or even criminal penalties.
Within limits, you can write off the cost of a business trip to the extent that the trip was genuinely business-related. Generally, however, you can't write off the cost of a trip to a business convention held at an exotic destination unless you can show why there was a particular need to hold the convention there. Expenses for attending a marine biology convention in Key West, for example, are more likely to be deductible than expenses for a Tupperware convention held at the same location. This principal applies to both domestic and foreign destinations. Exceptions may apply to certain destinations, however -- Bermuda, Jamaica and many other Caribbean destinations are not considered "exotic" for tax purposes, for example.
Subject to certain limitations, your moving expenses are tax-deductible if you relocate to take a new job. This deduction includes the cost of relocating your pets. One taxpayer was even able to deduct cat food left out to attract stray cats to his junkyard. Since the cats ate rats and snakes, rendering the property safer for customers, the deduction was allowed as a business expense.
Criminal Defense Expenses
If you are charged with a crime you might be able to deduct your legal expenses from your taxable income as business expenses, even if you are convicted of the crime. This has happened more than once, and even the U.S. Supreme Court agrees that these expenses are deductible if the criminal acts were committed incidental to carrying on a trade or business and were ordered by the defendant's employer.
Sex Change Operations
You may deduct medical and dental expenses from your taxable income to the extent that they exceed 7.5 percent of your adjusted gross income. This threshold is scheduled to rise to 10 percent in 2013. One taxpayer obtained a tax deduction for expenses arising from a sex change operation because he was diagnosed with gender identity disorder -- he felt he was a woman trapped in a man's body.
The same taxpayer who obtained a tax deduction for a sex change operation was denied a deduction for breast augmentation because it was considered a cosmetic rather than a medical procedure. Nevertheless, an exotic dancer obtained a tax deduction for breast augmentation expenses because her augmented breasts were considered to be stage props and therefore business expenses.
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