By Rachel Ochman
That sunny face chirping on your local news each morning doesn’t come without a cost. There are the elocution sessions, maybe a film-production course, perhaps even a master’s degree in journalism. And then you’ve got to consider all those on-the-job expenses. You know – sports jerseys, evening dresses, bikini and thong underwear. These are some of the business expenses that a Columbus, Ohio-area television news anchor tried to deduct. Not surprisingly, the U.S. Tax Court didn’t buy it.
From 2005 to 2008, Anietra Hamper claimed deductions for unreimbursed employee business expenses of around $20,000 each year. Some of the more outrageous items Hamper tried to deduct include the cost of bedding, self-defense classes and Internet expenses, according to the Tax Court’s opinion.
“You should never get a deduction for anything that’s personal,” says Brookes Billman, a tax-law professor at NYU School of Law. “The problem is trying to negotiate the business/personal line.”
To help taxpayers navigate this gray area, the Tax Court has established fairly high standards for clothing deductions, says Billman. 1) The clothing must be specifically required as a condition of employment; 2) the clothing is not adaptable to general usage; and 3) the clothing is not so worn. What passes the test? Think lab coat, construction hard hat, bulletproof vest. What doesn’t? Many of Hamper’s deductions.
To abide by her employer’s “Women’s Wardrobe Guidelines,” which requires anchors to maintain a “professional and conservative appearance,” Hamper incurred “considerable” expenses for clothing and grooming, according to the opinion. However, she followed her own set of rules. She’d ask herself, “‘[W]ould I be buying this if I didn’t have to wear this’ to work? ‘and if the answer is no, then I know that I’m buying it specifically’ for work, and therefore, it is a deductible business expense,” according to the opinion. The Court disagreed, but hasn’t yet decided how much she’ll owe.
“You can’t make the argument, ‘I wouldn’t wear that,’” in your off-hours, personal time, says Billman. Any case involving clothing that plausibly could be worn every day you’re going to lose, he says, because the Tax Court makes no room for subjective style.
Take a landmark case from the 1980s. A boutique manager at Yves Saint Laurent tried to deduct expenses for the couture clothing her employer required she wear to promote the YSL image. She argued that she’s a jeans-and-sweatshirt type of gal, and wouldn’t buy YSL clothing if it weren’t required for her job. No dice.
Not only did Hamper get creative with her deductions, she made the bold decision to defend herself in court. It’s a case that a non-lawyer could argue, but you’d be going up against government lawyers, says Billman. “I think you’re going to be overmatched.”
Perhaps Hamper’s luck finally ran out. Bear in mind the IRS only audits 1% of tax returns. The so-called audit lottery allows people to get aggressive about some of the gray-area deductions, says Billman. “If you were savvy about it, you could conceivably deduct carefully and subtly, and never get caught.”
Readers, what are some of the more creative deductions you’ve heard people claim?