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SKIP A DEDUCTION?

September 19, 2006

Dr. Maule has a new scholarly paper out, "No Thanks, Uncle Sam, You Can Keep Your Tax Break." The Tax Prof reproduces the abstract today.

It's something I haven't given a lot of thought to. It seems counter-intuitive, but I recall one case in our practice - I forget how it came about, exactly - where taking a deduction would have increased the tax for the year. We skipped it.

Dr. Maule says that deductions aren't usually mandatory, but that they can be in some cases:

The article concludes that deductions are not mandatory other than in the computation of self-employment tax, as to which the IRS and courts have concluded deductions cannot be ignored, and other than the earned income tax credit which incorporates the self-employment tax computation concept.

That makes sense. While one can argue that skipping deductions gets in the way of Congress's intent to finely tune the economy to some platonic ideal, the real world gets in the way:

Careful analyis of the practical challenges to requiring taxpayers to claim all allowable deductions suggests that an "all deductions are mandatory" paradigm would be unworkable because it could easily be circumvented with techniques of which the IRS is aware and which the IRS has not sanctioned, such as deliberate failure to maintain requisite substantiation and other records supporting the deduction.

That said, if the deductions help, by all means, take 'em!

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