Let’s talk
about miscellaneous itemized deductions - likely for the last time.
These are
the deductions at the bottom of the form when you itemize, and you probably itemize
if you own a house and have a mortgage. Common miscellaneous deductions include
investment management fees (if someone, such as Simply Money, manages your
savings) and employee business expenses.
These are the
“bad” expenses that are deductible only to the extent they exceed 2% of your
income (AGI), because … well, because the government wants more of your money.
I am reading
a case concerning a bodyguard and his employee business expenses.
His name is
Rick Colbert and he retired after 30 years from the Long Beach, California
Police Department. He gigged-up with Screen International Security Service Ltd
(SISS) in Beverly Hills. They assigned him celebrities. He chauffeured them,
deflected paparazzi, installed and monitored security devices, patrolled their
estates, performed access point control and responded to distress calls.
SISS had a
reimbursement policy. It did not cover everything, but it did cover a lot.
Colbert did not seek any reimbursement.
He filed his
2013 tax return and reported SISS income of $25,546.
He then
deducted employee business expenses of $23,965.
COMMENT: One can tell he is not in it for the money.
Those
numbers are out-of-whack, and the IRS audited him. Like the IRS we know and
love, they bounced all of his employee business expenses, arguing that he had
not substantiated anything.
On to Tax Court
they went.
The Court went
through the list of expenses:
(1) $211,154 for a pistol and target
practice.
Looks legit, said the Court.
(2) $86 for earbuds
To avoid annoying celebrities.
The Court grinned. OK.
(3) $1,711 for clothing and dry cleaning
Nope said the Court.
We have talked about this before. If you can wear the clothing
about town and day-to-day, there is no deduction. It is just another personal
expense, unless our protagonist wanted to dress up like “Macho Man" Randy Savage.
(4) $1,609 for a gym membership, weight
loss pills and other stuff.
Uhh, no, said the Court, as these are the very definition of
“personal, living, or family expenses.”
(5) Office in Home
This would have been nice, be he did not use space
“exclusively” for the office, which is a requirement. This would hurt a send
time when the Court got to his …
(6) iPad and printer
Computers are like cars
when it comes to a tax deduction: you have to keep records to document business
use. The reason you never hear about this requirement is because of a
significant exception – if you keep the computer in an office you can skip the
records requirement.
When Colbert lost his
office-in-home, he picked-up a record-keeping requirement. He lost a deduction for his
iPad, printer and supplies.
(7) $5,003 for his cellphone
It did not help that his internet and television were buried
in the bill.
The Court disallowed his cellphone, which amazes me. Seems to
me he could have gone through his bills and highlighted what was
business-related.
He won some
(primarily his mileage) but lost most.
And his case
is now among the last of its kind.
Why?
The new tax
bill does away with employee business expenses, beginning in 2018. There is NO
DEDUCTION this year.
If you have
significant employee business expenses, you really, really need to arrange a
reimbursement plan with your employer. Your employer can deduct them, even
though you cannot. Why the difference?
Because, to
your employer, they are just “business expenses.”
