In my federal tax class, there are many amusing cases that I’ve read about where people try to get out of paying their taxes. Most of the time it doesn’t go well. The Supreme Court and Congress have recognized that it’s perfectly fine for people to minimize their tax liability as much as possible…they just have to play by the rules.
The IRS allows people to deduct business expenses from their gross income, but not personal expenses. The distinction between business and personal expenses isn’t always that clear and people try to classify many things as business expenses. In Irwin v. Commissioner, a fiction writer tried to claim that almost everything (including buying toothpaste) he did was a business expense because all of his life experiences were part of his fiction writing. He lost his case.
In a case sure to raise more eyebrows, one Mr. Vitale decided to go into retirement and write a novel about brothels in Nevada, where prostitution is legal. He decided to travel around Nevada visiting various brothels and sleeping with prostitutes. Mr. Vitale decided to write down all his travel expenses and the payments he made to prostitutes as business expenses on his tax returns. The IRS had none of it, but the tax court did find that there was a sufficient profit motive in his travel expenses because he was traveling to write a book. Unfortunately, Mr. Vitale didn’t save any receipts, so he was unable to claim his travel expenses as business expenses. As far the payments to prostitutes…the court found that those were much too personal