The Answer to Every Tax Question You Could Possibly Ask
Editor's Note: This article is part of our 2014 Tax Tips series. Robert Flach is an expert with more than 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro .
NEW YORK ( MainStreet) In today's Tax Tip, I am going to tell you the answer to just about every tax question you could possibly think of.
The answer is this it depends.
Even tax questions you would think had a definite "yes" or "no" answer do not. It depends.
The only tax question I know for which the answer is a definite "no" every time is: "Should I cheat on my taxes?"
Whether or not a specific item is taxable, deductible or eligible for a credit depends on the specific facts and circumstances of the individual situation.
Can I deduct my cat or dog? I am often asked this question, usually in jest. One would think the obvious answer is "no" (and certainly not as a "dependent"). But what about the owners of the cat who plays Morris in TV commercials, and Moose, the dog who played Eddie on "Fraiser"? And pet breeders who sell the purebred offsprings of their pets, or, as with horses, charge a "stud" fee for mating with another purebred? The animals generate business income for their owners, and so related ordinary and necessary expenses are deductible.
A business deduction has been allowed for cat food used by a scrapyard owner to attract wild cats who would chase away mice and snakes from the yard, and for the costs of guard dogs.
Did you know you can deduct the cost of moving the family pet to a new home, if the move is job-related and meets certain tests?
The IRS tells us
"You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing-impaired person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties."
Is interest on state and local government bonds taxable? They are referred to as "tax-exempt bonds," aren't they?
But tax-exempt income from state and local municipal bonds and municipal bond funds is included in the calculation of the taxable portion of Social Security and Railroad Retirement benefits. In certain situations, every $1.00 in tax-free bond interest can result in an additional 85 cents of taxable income!
And tax-exempt income from certain "private activity bonds" is considered a "tax-preference" for purposes of calculating the dreaded Alternative Minimum Tax (AMT). If you are a victim of the AMT, the interest from these bonds is taxed at a rate of 26% or 28%.