Sunday, April 26, 2020

{Tax Talk} Can a fashion influencer deduct the cost of clothing?

Hey, everyone.  I know I haven't been posting here.  With or without a reason, that sometimes happens.  I hope you are hanging in there with everything still ongoing.  I wrote most of this prior to the world shutting down and I'm sharing now in case you're looking for something different to read.

As someone who loves tax, I just can't stay away from thinking about and reading up on different tax situations.  Blogging about tax as it relates to blogging, social media and influencers (I actually despise that word but it's a generally accepted term now so I'm going with it) is always a bit tricky because it usually generates at least one hate comment or email.  Of course, these responses never contain any proof or documentation in support of opposing claims.  Someone just wants to tell me I'm wrong.

Yes, we are all entitled to our own opinion, so please keep in mind that this is a discussion of a tax topic, not a right or wrong guideline.  (Also, none of this post should be taken as tax advice.)

A couple of months ago, I was watching the IG stories of a fashion influencer, who was answering questions from followers.  When someone asked her how she determines a monthly budget for clothing, she responded that she doesn't have a budget because she "writes off" many of her clothing purchases on her tax return.

(Whenever people throw around the term "write-off" I always think of that Seinfeld episode.  "You don't even know what a write-off is.")

If you search the internet for the correct tax treatment of clothing purchases by fashion bloggers/influencers, you'll find two different points of view.  Unfortunately, there is nothing specific from the IRS which states exactly how these items should be treated and until the IRS issues guidance related to social media taxation or there's a tax court case that can be used as guidance, it's a little bit like the wild west out there.

Let's start by talking about clothing in general.  The IRS has always made it very clear that only uniforms and costumes required for work but not appropriate for wear outside of work are deductible for tax purposes.  If your restaurant job requires you to wear black pants and a white shirt, you would not be able to deduct these clothing items because you could wear them outside of work.  The IRS doesn't care if you would wear them outside of work, only that you could wear them outside of work.  For the correct definition of uniforms, think of those worn by police officers, nurses, postal employees, etc.  (Note, that in recent years, tax law changes have been made with respect to unreimbursed employee expenses, such as the cost of uniforms.  For purposes of this discussion, the past treatment of clothing in general is important.)

In 2011, a television news anchor challenged the IRS when they disallowed her tax deductions of clothing and other items.  Anietra Hamper (google her name to read more) stated that the clothing she was required to wear on air for work was extremely conservative in nature so she would only wear those items for work and, therefore, they were deductible.  Again, the IRS doesn't care if you would wear work clothes outside of work, only that you could.  And, because of that, she lost in tax court.

Bloggers/influencers are slightly different in that they are purchasing clothing items so they can create affiliate links.  That is their business.  BUT they are also selling a lifestyle.  Do any of them tell us they bought clothing items for the sole purpose of "influencing" their followers to swipe up?  No.  They tell us how this sundress is perfect for our vacation or how these joggers are so comfortable for running errands.  These claims are always accompanied with photos of bloggers/influencers wearing said items on the beach or waiting in the car line at school.

My point is that we are being lead to believe that these are clothing items appropriate for everyday wear because these influencers are shown wearing said items in their everyday lives.  So how are influencers taking the position that they can deduct the cost of clothes purchased for their . . . influencing?

The IRS allows the deduction of business expenses, which are basically defined as the cost of running a business.  A business expense must be both ordinary (common and accepted in your trade or business) and necessary (helpful and appropriate for your trade or business.)  This is what influencers are pointing to when they deduct the cost of clothing as a business expense.  Is it a stretch?

The tax world is not always black and white.  There are quite often gray areas and until the IRS states exactly how to handle these types of businesses, it's open to interpretation.  Likewise, an audit of an influencer could lead to a court case which would provide guidance for future tax positions, but until that happens this is where we're at.

Keep in mind that the chances of being audited right now are extremely low, and those odds have been decreasing with each year.  The IRS doesn't have the resources to increase the number of audits and, obviously, it makes more sense for them to dedicate their time to higher income taxpayers.  I would imagine that most influencers would not announce that they'd been audited by the IRS, most especially if it resulted in an unfavorable outcome for the influencer.  (That's not very influential.)
If you're interested in more, check out this (short) news article discussing taxing authorities in different countries and their views on taxation of influencers.

That's all from me for now.  Take care!


Christi said...

great topic, Sarah!
I wonder how many “influencers” go into debt buying the latest and greatest and then are shocked when their tax professional tells them they can’t deduct the expense?
and when they “make a small commission when you swipe up” it is income right?

on a slightly similar note I was surprised that my company’s fitness reimbursement is considered income - even though I paid for the gym membership with post tax money

Lisa H. said...

Hi - I notice you haven't really been writing at all. Are you through with your blog and writing about your girls? I've been reading along for years before I even had my own daughter. If this is the end of your blog, I hope you're all well!