Common tax misconceptions, part 1

Putting a sticker on your vehicle makes it an advertisement and thus every time you go somewhere it’s deductible. If we had a nickel for every time we’ve heard someone spout this or ask it in a meeting, we’d have over seven dollars. Do the math, that’s a lot. If you’re driving to drop your kids off at school, the IRS is never going to agree that you are driving for business no matter what is on your car. You can deduct legitimate business use of your car, you can deduct the cost of the sticker or vehicle wrap, and that’s it. At this point a lot of people go “Oh, nevermind then.” And we’re like, “Wait, I thought this was a great advertising scheme. If it doesn’t make every mile deductible it’s not worth it? What about the advertising benefits?” And then they say, “I’m not even sure I’d get that much business from it.” And then we say, “That’s why the IRS is on to this one.”

The home office is an audit trigger. This is another frequent statement. Do you know how Google chooses which websites show up first when you search for something? Neither do we. We know there is some kind of algorithm that generates search results, and there seem to be some things the algorithm prefers, and we know that that algorithm changes with some frequency. That’s about it, and anything else they keep secret. It’s the same with an IRS audit, but add in random chance. Every tax professional will have some general theories about what might trigger an audit, just like every Search Engine Optimization consultant will have some theories on how Google works, but very few people know the real information. The fact is, the home office is a perfectly acceptable and legal business deduction, but like any tax matter, this isn’t ‘Nam, there are rules. If you follow those rules and keep good records you will be fine, and anyway, next year the audit trigger is international trust disbursements. Wait, that’s a secret. Don’t tell anyone. 

Real estate agents hair and makeup expenses are deductible. Sorry to pick on real estate agents, but they’re an easy target on this one. I mean, their headshots are on their business cards. Why? Who chooses a real estate agent based on attractiveness? We could really spin out on a rant on this one, because buying and selling a house is the biggest financial transaction most people will enter in their entire lives, and yet for some reason people place importance on how their agent looks. It’s bizarre. With all that said, we hear all the time that people in certain occupations get to deduct the cost of their hair and makeup and teeth whitening, because physical attractiveness is part of the job. 

Unfortunately, the IRS and the tax courts have already ruled on this one, and hair, makeup, teeth whitening, and clothing aren’t deductible expenses for most people. There are some rules about when clothing can be deductible, and they’re pretty strict. In a nutshell, the clothing must be essential to the job (a nurse’s uniform or a policeman’s uniform, for example), it must not be suitable for wearing on the street (the uniforms above, plus things like an actor’s stage costume or anything a magician wears), and finally, the clothing isn’t worn outside of conducting business. When a police officer wakes up on a Saturday he or she doesn’t throw on the uniform and head to the store, because the uniform isn’t appropriate for wearing off duty. Likewise, an actor playing Hamlet doesn’t throw on some tights and a codpiece and hit the town, nor does a surgeon wear scrubs to go to the mall. Wait, scratch that last one, they do that all the time, but we think it’s for a specific reason... The only time hair and makeup would be deductible is if it’s paid for by the taxpayer, it’s required in order to perform the job (not simply preferred), it’s not suitable for normal wear, and as a general rule it’s not worn on the street. A good example is a television newscaster who purchases her own makeup. It’s required to be worn, TV makeup looks weird on the street, and they typically wash it off before they leave the studio. Sorry, but if that doesn’t sound like your job, then hair, makeup, teeth whitening, and clothing aren’t deductible.

Check back soon for part 2, where we’ll cover that old rule about needing to show a profit in your business for 3 out of 5 years. It’s not true, but it’s also not not true. It’s a doozy.