by Bill Sweet
Yet people try to do so all the time. Creating a fraudulent deduction is one of the more common ways that people cheat the tax code - unintentionally, and intentionally. In contrast to those who run a business or are self-employed, creating a false deduction is probably the only way to go for folks who receive their income primarily through wages, which are reported directly to the IRS by their employer.
To combat this kind of fraud, tax regulations require taxpayers to keep substantial records, and place the burden of producing them during an audit squarely on the taxpayer. Rules are published which, to me at least, are very clear.
In most cases, the tax code is pretty specific as to what is a valid and substantiated deduction and what isn't. The deduction must be substantiated, with documentary evidence, such as a cancelled check. It must have a clear business purpose. And it must be both ordinary and necessary. That covers the majority of how tax deductible expenses are defined, although items that exist at the margins are debated endlessly in tax court.
However, there are some items defined within the tax code which are declared and/or the tax courts have ruled are non-deductible. Wrist watches are a good example of a personal expense. Here's what a typical ruling looks like when a taxpayer tries to deduct a wrist watch, from a medical researcher who claimed about $100,000 of deductions over two years for expenses clearly unrelated to any business:
IRC § 262 is the section of the US tax code that states that personal expenses aren't deductible. The wrist watch provision has been challenged many times on the grounds that for certain occupations are allowed as ordinary and necessary under IRC § 162. For certain jobs, this is certainly the case. But that's not the end of the story.
The tax courts have consistently applied that wrist watches are not deductible even if they are allowed in 162, because they are considered personal expenses under IRC § 262. Thus, personal items defined in 262 supercede items defined as ordinary and necessary in 162. End of story.
Grooming also falls into this category. They are considered personal expenses, even if required for work, even if the grooming is a condition of employment, such as this example of an airline flight attendant:
Note that it clearly doesn't matter if your employer requires you to maintain a certain appearance. Haircuts and personal grooming expenses aren't deductible.
This extends even to uniformed personnel, such as US Army service members, which goes into some detail:
The tax courts have ruled very consistently on this manner. It's not enough that your employer require these expenses.
It's not just grooming. Any clothing item that can be adapted to personal use is considered personal in nature. So a t-shirt or a polo shirt with a company logo purchased cannot be deducted as a uniform expense, same as a suit or dress or shoes purchased only for work.
What can be considered deductible are uniforms that can't be adapted to personal use. A police or military uniform is a good example, as this clothing is generally not appropriate for casual usage. The same applies to protective or safety clothing, or a costume for performances, provided these items meet the ordinary, necessary, and substantiation requirements discussed above.
Yet grooming and uniform deductions are some of the more common erroneous deductions that I come across on tax returns.
From IRS Publication 529, here are some more example of non-deductible expenses:
Adoption expenses, broker's commissions, burial or funeral expenses, including the cost of a cemetery lot, campaign expenses, capital expenses, check-writing fees, club dues, commuting expenses, fees and licenses, such as car licenses, marriage licenses, and dog tags, fines and penalties, such as parking tickets, health spa expenses, home repairs, insurance, and rent, home security system, illegal bribes and kickbacks, investment-related seminars, life insurance premiums paid by the insured, lobbying expenses, losses from the sale of your home, furniture, personal car, etc, lost or misplaced cash or property, lunches with co-workers, meals while working late, medical expenses as business expenses other than medical examinations required by your employer, personal disability insurance premiums, personal legal expenses, personal, living, or family expenses, political contributions, professional accreditation fees, professional reputation, expenses to improve, relief fund contributions, residential telephone line, stockholders' meeting, expenses of attending, tax-exempt income, expenses of earning or collecting, value of wages never received or lost vacation time, travel expenses for another individual, and voluntary unemployment benefit fund contributions, wristwatches.
