📋 The IRS knows more than you do

Good morning! And just like that, we’ve flipped the calendar to June, when it’s hot enough to fry an egg on your dashboard. Meanwhile, the IRS does not care about the heat — unless it’s the heat they’re giving you to pay your taxes. Let’s get into it.

This week’s lineup:

Business & Gigs

🍼 The Nanny Tax: When your babysitter becomes a federal case

You hired help. A nanny to keep the toddler from eating drywall, or a caregiver for an aging parent. You agreed on an hourly rate, shook hands, and figured you’d Venmo them every Friday and call it done.

Put the phone down. The IRS has entered the chat, and it brought a clipboard.

The number to memorize is $2,800. Pay any one household worker that much in cash wages during 2025 and you’re officially an employer, on the hook for Social Security and Medicare taxes—15.3% of wages. This covers anyone whose schedule you control: nannies, housekeepers, gardeners, senior caregivers. If you decide when they show up and whose drywall they protect, they’re employees, not contractors.

And no, you can’t hand your nanny a 1099 because “she has her own car.” Misclassifying a W-2 employee is like painting stripes on a horse and calling it a zebra. The IRS isn’t buying it, and the penalties are brutal.

The mechanics are less scary than they sound. Get an EIN at IRS.gov (takes about a minute), file Schedule H with your Form 1040, and hand your employee a W-2 by Jan. 31. Watch the FUTA threshold too: $1,000 in wages in any quarter and you owe federal unemployment tax, usually about $42 a head.

Hiring a nanny quietly makes you the CEO of a tiny, chaotic company. Do the paperwork right and everyone sleeps better.

Read the IRS rules straight from the source: Publication 926, Household Employer’s Tax Guide

IRS Survival Guide

🧾 Got an IRS bill? Pull this document before you do anything

You open a letter from the IRS. Your stomach drops. Before you call anyone, before you dispute anything, pull your account transcript.

Your account transcript is a line-by-line record of everything the IRS has on file for your account. Every payment, every penalty, every adjustment, every return you filed. It’s essentially the IRS’s receipts. And it’s free.

IRS bills are sometimes wrong. Not often, but it happens, especially if you recently made a payment, filed an amended return, or had a third party change your withholding. Your transcript will show whether the balance on that notice matches what’s actually in their system.

How to get it in under five minutes:

You’ll see it immediately online, or you can have it mailed to your house within five to 10 days.

Don’t call the IRS. Don’t panic. Pull the transcript first.

👉 Request your transcript on IRS.gov

Money Moves

🚐 Van life and the taxman: what full-time RVers need to know

You sold the house, downsized your life to 200 square feet, and now your backyard changes every week. Congratulations! You’ve also created one of the more confusing tax situations a person can voluntarily enter.

Let’s start with the good news. The IRS defines a “home” more generously than you’d think: anything with sleeping, cooking, and toilet facilities counts. That includes houses, condos, boats, and yes, your RV. Meet that three-part test and your rig can qualify as a first or second home, which means the interest on your RV loan may be deductible, provided the loan is secured by the RV itself and you itemize. Pay cash or charge it to a credit card, and there’s nothing to deduct. The bathroom needs to be permanently installed, too; a camping toilet you can carry off does not impress an auditor.

Then there’s the question of where you live, which for a full-timer is genuinely a question. Your domicile (the state you legally call home) decides your state tax bill. This is why South Dakota, Texas, and Florida are practically RV mascots: no state income tax, friendly registration, and mail-forwarding addresses their DMVs actually accept. Pick wisely and the savings can be plentiful.

The freedom is real. So is the paperwork. The road doesn’t file Schedule A for you.

Get the home mortgage interest rules straight from the IRS: Publication 936, Home Mortgage Interest Deduction

Wild Tax Tales

🎷 The 5 weirdest medical deductions the IRS has allowed

The tax code has a reputation for being humorless, and in most places it has earned that reputation honestly, the way a man earns a hangover. It is dense, repetitive, and written in a dialect of English that appears to have been translated from German, into Latin, and back again by someone who didn’t much care for either language. 

But tucked inside IRC §213, the section that governs medical expense deductions, is a definition so improbably generous that a surprising number of expenses most people would never dream of deducting have actually qualified, been challenged, and been upheld.

The magic language is that a medical expense covers any cost for the “diagnosis, cure, mitigation, treatment or prevention of disease.” If a licensed physician can tie an expense to a real medical condition, and you have the documentation, the IRS may have to allow it, even if the expense sounds ridiculous.

1. Clarinet lessons for an overbite

In 1962, somewhere in America, an orthodontist looked at a child’s misaligned jaw and said, in what must have been one of the more memorable consultations of that decade, “What this kid needs is a clarinet.” 

And the IRS, against every instinct the IRS has ever had, agreed. Rev. Rul. 62-210 made it official, the cost of both the clarinet and the lessons were deductible as medical expenses. 

Sixty-plus years later, it’s still the go-to case cited in “weird tax deduction” articles, partly because it’s genuinely useful precedent and partly because it is delightful to imagine the meeting where someone in a federal building had to sign off on this.

2. A backyard swimming pool for arthritis

A taxpayer with severe arthritis was prescribed regular swimming by his physician. So he did what any of us would do, which is to say he built an entire swimming pool in his backyard and tried to deduct it on his taxes. 

The IRS initially balked (you can almost picture the auditor reaching for the antacids), but the deduction was allowed, with caveats. 

The pool had to be primarily used for therapy, not weekend pool parties, and any increase in home value from the pool had to be subtracted from the deductible amount. A similar deduction was later allowed for a taxpayer with emphysema, which suggests there is now a small, very damp corner of American tax law devoted entirely to backyard pools.

3. A wig for hair loss from a medical condition

If you lose your hair due to alopecia, chemotherapy, or another diagnosed medical condition, the cost of a wig qualifies as a medical expense under IRS Publication 502. 

The reasoning is that it’s part of treating the psychological effects of medical hair loss. You need the diagnosis on file, but the deduction is well-established and uncontroversial, which in IRS terms is roughly equivalent to receiving a bouquet of flowers.

4. Dance lessons for depression or anxiety

The IRS has, in certain documented cases, allowed deductions for dance lessons when they were prescribed by a physician as treatment for a diagnosed mental health condition. 

The therapeutic framework is the same as any other treatment: Physician recommendation, clear link to the condition, and good ol’ documentation. This is not, we should stress, a loophole for anyone who has ever felt a bit blue and fancied a cha-cha. But for someone whose treatment plan specifically includes movement therapy, it’s real, and it’s on the books.

5. A service animal

While pets are famously not deductible, a fact people rediscover every April, service animals absolutely are. The full cost of buying, training, and maintaining a guide dog or other service animal is a qualified medical expense. Emotional support animals and family pets do not qualify, no matter how strongly you feel about your cat, and no matter how much emotional support he objectively provides while shedding on your tax forms.

Medical deductions only matter if you itemize, and even then, only the portion of your qualified expenses exceeding 7.5% of your AGI is deductible. So if your AGI is $100,000, the first $7,500 of medical spending doesn’t count, which is the kind of arithmetic that makes you want to lie down in a quiet room. With the higher standard deductions under OBBBA, many households no longer clear the itemizing threshold at all. But for those who do, especially people with significant chronic care costs, knowing what actually qualifies is worth real money.

The quick (and slightly prickly) stories we didn’t have time to get to:

If you made it this far, you’re our kind of nerd. Hit reply and tell us which story you want us to dive deeper into next week.