Taxpayers can generally deduct the ordinary and reasonable, bona fide costs that are part of doing business, but the costs must be supported. In one case, the IRS found that a married couple wasn’t entitled to deduct payments made to the husband’s assistant, even though they might have been business expenses. Reason: They failed to substantiate them. The U.S. Tax Court agreed, and also found that the husband had failed to provide proof for car and truck expenses, and the couple may have already deducted them in connection with the wife’s work.
Married taxpayers who file a joint tax return are “jointly and severally liable” for the tax due. But spouses may be able to request “innocent spouse” relief if they can prove they didn’t know their taxes were understated. In one case, both spouses held law degrees. The wife sought relief, saying she was unable to understand their bank or credit card statements. The 7th Circuit U.S. Court of Appeals denied her request, finding her testimony defied reality and lacked credibility, based on her “sophistication” and participation in their finances.