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The Tax Prophet Newsletter   Issue # 66 October, 2008

REDUCE TAXES!
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In This Issue:
Introduction
Personal Expenses
Examples
Exception
Charitable Deduction
Conclusion


Sarah Palin's Makeover
- Tax Issues


Introduction

Tax blogs are buzzing over the McCain campaign's purchase of designer fashions worth $150,000 for Sarah Palin and her family.

Are the purchases taxable income to the Palins? What about the costs for Mrs. Palin's hair and make-up artists who were paid an additional $32,000?

Personal Expenses

Work-related payments by a third party for clothes, hair styling and make-up constitutes income to the recipient equal to the fair market value of the items received. Regarding deductions, there are two bedrock tax principles:

(i) except in the most limited circumstances, personal expenditures for clothes, hair styling, make-up and personal grooming are never deductible; and

(ii) there are no exceptions to rule (i) for politicians. In fact, any costs incurred in seeking public office are not deductible.

For clothing, the test is whether they are adaptable to general usage, regardless of the taxpayer's particular lifestyle, preference or choice.


Examples

Trial attorneys cannot deduct the costs of their business suits, even if they only wear them to court - likewise for clothing boutique employees who are required to wear the designer's fashions while on the job. The same is true for expenditures for make-up and hair styling.


Exception

There is a limited exception for work uniforms (police, firefighters, baseball players) and job-related apparel and cosmetics worn by professional performing artists.


Charitable Deduction

The McCain campaign claims that after the election, the clothing given to the Palin family will be donated to charity. If true, the Palins may be entitled to a charitable deduction based on the fair market value of the used clothing, usually between 10%-20% of the original cost.

But giving clothes away to charity does not change the original tax consequences of receiving them - income to the taxpayer at the full cost of the clothing, with a potential for a much smaller deduction if there is a subsequent donation to charity.


Conclusion

The rules regarding personal clothing, hair styling and make-up are clear: there is no deduction for these items, except in extremely limited circumstances, such as work-required uniforms and business-related expenditures incurred by performing artists.



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All contents copyright 2008 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.