April 18 is not as far off as it might seem, and if you put off filing taxes because you have to write a check to the Internal Revenue Service, you’ll eventually have to face the music. Everyone must file a tax return and most must send in a tax payment.
Believe it or not, a small segment of the population has found loopholes in the system to avoid paying some income tax — legally. Learn about the outrageous ways people have avoided paying taxes and start searching for your own loopholes today.
Unbelievable Ways People Have Managed to Avoid Paying Taxes
One way or another, most Americans are expected to pay taxes. Tax avoidance might be legal, but tax evasion constitutes a serious crime. Do either and you’ll likely end up paying a tax penalty.
Some taxpayers, however, are able to take large enough deductions or receive sizable credits, which might enable them to legally avoid paying taxes. The following people were lucky enough to avoid paying taxes:
1. Drunk Driver Turns DUI Into 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 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. 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.
Know Before You File: Tax Breaks for 2018
2. Cats Can Be Worth Big Money
Jan Van Dusen, a cat lover with more than 70 felines in her home, spent much of her time caring for strays she found in the wild. 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 the IRS informed her that those expenses counted as personal ones and she couldn’t deduct them, 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, stating that business deductions work only 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 added breasts that large only for business purposes — they were 10 pounds each — and decided to grant the deduction.
Find Out: 30 Ways to Prevent a Tax Audit
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 he failed to declare his income from drug dealing.
Edmondson decided the government wouldn’t have the last laugh. Leading up to his 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 allow him to deduct his expenses, which included a $50 scale, more than 19,000 miles in business mileage on his car and 100 pounds of marijuana.
3 Easy Ways to Legally Avoid Paying Taxes
You might not want to sue 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 three options to legally avoid paying taxes:
1. Qualify for Tax Credits
Many people don’t realize that a tax credit is 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 a moderate-income household. The key to benefiting from them is examining all of the purchases you’ve made throughout the year to see if you are owed money.
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. In addition, itemized deductions often 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 tax deductions are subtracted from your adjusted gross income, which reduces your taxable income.
3. Enroll in College
One way to take advantage of tax deductions or credits 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. You can claim only one credit 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 nontaxable 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.