Tucked away in the U.S. tax code’s 4 million words are
countless contradictions and write-offs. We asked accountants, tax lawyers, and
professors to identify some of the strangest sections.
Courtside deduction
Many alumni can’t get tickets to their alma mater’s home games unless they make
a special “donation” to the university. Under current law, 80 percent of
such contributions are deductible. The Obama administration has proposed
closing the loophole to raise an estimated $2.5 billion over the next
decade.
Fiscal favoritism
The blind are eligible for a higher standard deduction; the deaf or otherwise
disabled don’t get special treatment. A songwriter who sells his music catalog
pays a capital gains tax on the earnings. But painters, photographers, writers,
and other artists selling a body of work are subject to income taxes, which can
be significantly higher.
Mixed (car) signals
Buyers of energy-efficient hybrid and electric cars are eligible for a federal
tax credit of as much as $7,500. Yet the tax code also encourages businesses to
buy gas-guzzling SUVs, vans, and pickup trucks by making it easier to
depreciate the cost of a vehicle that weighs more than 6,000 pounds.
Artful write-off
Buyers of old master paintings or vintage Ferraris can enjoy their collections
while getting a tax break: First they set up a nonprofit museum that they
control, then donate their collection to it. The museum might need to open to
the public only a few days a month.
A GRAT dodge
The grantor retained annuity trust allows individuals to place assets into a
trust in exchange for an annuity payment. Any growth in the assets above the
payment goes to their heirs tax-free. Casino owner Sheldon Adelson used GRATs
to transfer at least $7.9 billion to his heirs from 2010 to 2013, avoiding
a $2.8 billion bill.
The value of an
education
If you withdraw money from a 529 savings plan without using it for education,
you’ll pay a 10 percent penalty. But that one-time levy is small compared
with the cumulative drain of years of taxes on capital gains and dividends an
ordinary investment sees, making the plans an attractive vehicle for anyone.
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