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Give Me a (Tax) Break!


Hedge funders aren't the only ones sticking it legally to the IRS.

The question: "Why should hedge fund managers get all the tax breaks?"

The answer: They don't. Many other industries also enjoy special privileges from the IRS.

For every Stevie Cohen -- founder of SAC Capital, master of an $8 billion personal fortune and, according to the Wall Street Journal, the undisputed "hedge fund king" -- there's a Chesty Love.

A stripper calling herself Chesty Love went under the knife and woke up with a 56-FF chest, in an attempt to get more bookings and increase the size of her tips. The IRS allowed it, considering the implants a stage prop essential to Chesty's act.

Hedge funds, by contrast, customarily charge a 2% management fee, plus a 20% "incentive fee." In simpler terms, a 20% cut of profits earned. This fee is taxed at the capital gains rate of 15%, rather than the ordinary income tax rate of 35%.

For every James Simons -- founder of Renaissance Capital and the smartest billionaire in the world, according to Forbes -- there's a Dexter Jackson.Dexter was 2008's Mr. Olympia.

Do you know how much it costs to grease up a 215-pound physique for competition? Pro bodybuilders can write it off, as it's a necessity for competition.

For every John Paulson -- head of Paulson & Co, which successfully capitalized on the sudden spike in foreclosures, to the tune of $28 billion as of January 2008 -- there's a guy who installed a swimming pool on his property after being diagnosed with emphysema. His doctor told him he needed more exercise. Insane? Nope. A "necessary medical expense." Also deductible were the chemicals, heating, cleaning and upkeep costs.

Absurd? Perhaps. But entirely legal. As a taxpayer, you're perfectly free to do the same.

Just make sure the deduction you claim isn't patented.

After a US appeals court ruled in 1998 that business methods could be patented, patents have actually been issued for innovative tax strategies. Want to use one? Be prepared to pay a royalty to whomever first dreamt it up.
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