My Little Princess
Have you ever tried to deduct someone else’s expenses? No? Well, a couple tried to deduct some from their daughter’s prize money after she’d participated in beauty pageants at the age of 9. Each year, she won between $1,000 and $2,000 and her parents deposited the money in her college savings account.
And what did the parents do? They not only took large write-offs for the cost of costumes and travels, but they also reported the income on their returns. Here’s the thing, they may have spent a lot of money in order for their little princess to win, but the prize money was compensation for her services and thus, the Tax Court considered the money as her income, not theirs!
Pizza for the Kids
If your children help you with your business, would it be fair to write off their wages? Here’s how this woman’s story played out and, by the way, she’s also a tax preparer, so she really should have known better!
While she ran a staffing and consulting business, she hired her children who were at that time between 8 and 15 years old. Being that they were children, she tasked her with small jobs such as copying, tending the yard around the home office, stuffing envelopes, and shredding paper. She went one step above and beyond and included the hours they worked on timesheets and issued them W-2 forms!
Here’s where things get even stranger. Instead of actually paying them, the woman bought them meals, such as pizza, and paid for their tutoring. The Tax Court denied her claim to deduct their wages as business expenses, saying that the services fell under parental training instead.
Do you agree with this decision?
