September 29, 2020
Haircut deduction may face deduction haircut. The presidential tax return revelations promise to cause endless headaches for tax preparers. I can see it now: "Why can't I deduct my haircuts?"
While none of us outside the New York Times newsroom have seen the President's returns, we'll assume for now that the reports are accurate. So why can't I deduct my haircut?
First, don't assume that the President has successfully deducted anything. While his returns may include haircut deductions, there is nothing in the report that addresses how the IRS has treated them on exam. And if the tax law truly treats Presidents the same as the rest of us, those haircut deductions could face a trim.
The Times says the President's returns show deductions for "more than $70,000 paid to style his hair during 'The Apprentice.'" Presumably the costs were claimed as a necessary expense for his TV appearances.
In 2011, a humble Columbus, Ohio TV anchor went to Tax Court to deduct expenses for clothing and makeup needed to look presentable on a high-def news set. In addition to deducting her work wardrobe, the anchor also wrote off "haircuts and manicures." Special Trial Judge Dean wasn't having it:
Petitioner’s expenditures for manicures, grooming, teeth whitening, and skin care are inherently personal expenditures. Although these expenses may be related to her job, expenses that are inherently personal are nondeductible personal expenses. As in Hynes v. Commissioner, 74 T.C. at 1292, the fact that petitioner’s employment contract with the station required her to maintain a neat appearance does not elevate these personal expenses to a deductible business expense.
If anybody needs to look good on television, it's a local news anchor. TV news is brutally competitive, and it doesn't take many bad hair days to get bounced back to Paducah. Yet, no deduction. If a TV anchor doesn't qualify for a haircut deduction, the rest of us don't have much chance.
The moral? Just because somebody tries to take a tax deduction doesn't mean it works. Even if that somebody sits in the Oval Office.
Dems Include Familiar Tax Provisions in Updated Relief Package - Jad Chamseddine, Tax Notes:
A slimmed-down COVID-19 relief package from House Democrats would extend the Paycheck Protection Program, allow for tax deductions of affiliated expenses, expand the employee retention tax credit, and remove the $10,000 state and local tax deduction cap for one year.
The updated Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R. 6800), released September 28, would cost about $2.2 trillion, according to a summary, and is meant to draw Republicans to the negotiating table.
Whether the GOP will be so drawn remains to be seen.
Trump Tax Revelations Spur Fresh Calls for IRS, Tax Reforms - Jonathan Curry and Alexis Gravely, Tax Notes ($). "But Kyle Pomerleau of the American Enterprise Institute said there aren’t any obvious policy changes that would combat the types of tax avoidance strategies that the president appears to have used. Although net operating losses seem to be a big factor in Trump’s reduced tax liability, limiting them would be 'counterproductive,' said Pomerleau."
Trump Declines to Say How Much He Has Paid in Federal Income Taxes - Michael C. Bender, Wall Street Journal ($). "President Trump declined to say how much he has paid in federal income taxes after a new report alleged that he paid $750 a year in 2016 and 2017, and no income taxes in 10 of the previous 15 years."
New York Times Trump Tax Story Disappoints - Peter Reilly, Forbes. "More to the point they are disclosing that it appears that President Trump has flat out been losing a lot of money - hemorrhaging cash-, which we are supposed to be shocked at. And he has not been paying much if anything in the way of taxes which if the previous is true is not that shocking."
Trump Tax Returns Call Consulting Fees Into Question - Sarah Paez, Tax Notes ($). "Both Karlin and Rubinger said the large amount of money Ivanka Trump was apparently paid in consulting fees and her commensurately low experience raise questions over whether the fees were legitimate."
Details and Analysis of Democratic Presidential Nominee Joe Biden’s Tax Proposals - Garrett Watson, Huaqun Li, and Taylor LaJoie, Tax Policy Blog. "Democratic presidential nominee Joe Biden would enact a number of policies that would raise taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. Biden would also raise taxes on corporations by raising the corporate income tax rate and imposing a corporate minimum book tax."
Missing from Tax Plans - A "Normal" Personal Income Tax - Annette Nellen, 21st Century Taxation. "Why not fix an outstanding problem with the individual income tax that has worsened with recent law changes and ways people generate additional income and cash flow today?"
What Exempt Organizations Need to Know About Partnership Audit Rules - Kim Hunwardsen, Eide Bailly. "If your tax-exempt organization is invested in a partnership, and the partnership chooses to be subject to the default rules, consider what types of indemnification provision or other contractual protections you may want to explore for your organization."
The IRS Sets a Trap for Cryptocurrency Tax Cheats - Laura Saunders, Wall Street Journal ($). "Cryptocurrency holders, beware: A surprising change to your 2020 tax form is about to strip away excuses for ignoring the tax rules on bitcoin, ether or other digital currencies."
Related: New Tax Guidance Issued on Cryptocurrency Transactions 2019/10
Lesson From The Tax Court: State Law Matters - Bryan Camp, TaxProf Blog. "Those friends think that forming a nonprofit entity is a one-step process, done at the federal level. They do not realize that it is a two-step process: one must first form the entity under state law and then ask for tax-exemption from the IRS."
IRS Taxes Most Lawsuit Settlements And Exact Wording Matters - Robert W. Wood, Forbes. "Taxes depend on what the case was about, how the settlement agreement is worded, the complaint, how checks and IRS Forms 1099 are prepared and more. You can influence how your recovery is taxed by how you deal with these issues."Work from home pros, cons and home office tax tip - Kay Bell, Don't Mess With Taxes. "Also remember, since this is a tax blog, that if you're an employee working from home during the pandemic, you probably won't be able to deduct your new home office."
Final Regulations on Withholding on Periodic Retirement and Annuity Payments Issued - Ed Zollars, Current Federal Tax Developments. "The second question provides that rules similar to those for withholding certificates for wages will apply to these payments"
News you can use. Time travel isn’t as dangerous as we think, study says - BGR.Com.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.