IRA Financial’s Adam Bergman Esq. discusses President Trump’s tax deduction for $70,000 worth of hair care while filming “The Apprentice” and why it may be allowed and how you can take advantage of the tax code.
In a recent podcast, Mr. Bergman talked about the NY Times report about President Trump’s alleged tax returns. For this one, he concentrates on Trump’s $70000 Hair Deduction and how it works. Business expenses can generally be written off. However, what about these hair care deductions? Can these possibly be legal and within the IRS rules? Mr. Bergman talks about what he thinks about the situation, and explain how you may be able to take advantage of these types of tax deductions.
According to the report, Trump spent more than $70000 on hair styling during his run on the show, “The Apprentice.” It’s important to remember that this was not a personal deduction that Mr. Trump took. The production company for the television show took the deductions and thereby lowering it’s taxable income. This is not an uncommon practice. Hair, makeup, stylists, etc. are around every entertainment venture. So long as these services are utilized for the production of the show, they are tax-deductible as a business expense.
A stylist spoke a few years ago about Mr. Trump’s hair, essentially saying he was very adamant about who should do his hair. It seemed to her that he came to the set “fully coifed.” It appears, his wife, Melania, was the one taking care of his hair.
It appears his television company, Trump Productions, was the entity that paid the roughly $70,000 in hair care. There were also deductions for Ivanka Trump’s stylist while she was filming the popular reality show. Mr. Trump’s hair care cost would’ve been covered by the show, however it is unknown if the services were reimbursed. It’s also common that celebrities pay their own “hair person” because they are generally nonunion and cannot be paid by the show itself.
Personal vs. Business Deduction
As stated, Trump’s $70000 Hair Deduction came from the business, not Mr. Trump personally. Whether these deductions were merely aggressive or illegal would ordinarily be the subject of IRS audits. Obviously, this type of information has not been made public. Tax experts told Mr. Bergman that deducting what is ordinarily considered a personal expense is prohibited under almost any circumstances.
The show’s producer, citing only standard procedure and not Mr. Trump’s specific situation, says stars are usually reimbursed for any hair and makeup costs they incur. If that’s the case, any funds reimbursed are not deductible. Again, we don’t know the specifics and are merely speculating.
IRC 162: Section 162(a) of the Internal Revenue Code defines business expenses as the ordinary and necessary expenses of carrying on a trade or business. Generally business expenses are tax deductible. However, the IRS does not provide a compendium of general business expenses, leaving it to the taxpayer to divine such from its definable criteria, ordinary and necessary. In fact, the terms ordinary and necessary were not defined in the original statute establishing the Internal Revenue Code, leaving it to the tax courts to establish their meanings through case law
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Trump’s $70000 hair deduction
It appears that Trump’s production company paid for the hair stylists, and since the entity was a passthrough, the deductions flowed to President Trump’s tax returns. However, the facts are fuzzy and should be taken with a grain of salt. If the deduction was taken by Trump personally, which does not seem to be the case, that would clearly not be a 162 deduction. In any case, courts have ruled that hair styling, even for someone on a TV program, is a personal expense that cannot be deducted.
In fact, in 2011, the U.S. Tax Court heard a case involving a news anchor at the NBC affiliate in Columbus, Ohio, who deducted her hair-care expenses on the grounds that her job required it and that she was a full-time ambassador for the station. The court flatly rejected the claim. Expenses related to “grooming” are “inherently personal expenditures.”
It isn’t clear cut whether the $70000 business tax deduction for hair styling as reported by the NY Times is egregious. Based on facts and circumstances, but not a clear cut example of abuse since the deduction was not taken personally by Trump but by a company owned by Trump that could be deemed to be ordinary and necessary for a production company. If Mr. Trump’s company had a relationship with the television station and Trump’s production company performed production related services, then hiring hair stylists as contractors could be deemed an ordinary and necessary business expense. Again, this would assume that Trump was not reimbursed for these costs
Bottom line – it is up to the IRS to decide if the hair styling deductions satisfy the rules under IRC 162. Without knowing all the facts, no tax professional or tax attorney can definitively say the deduction should not be respected.
What You can Learn
The deductibility of trade or business expenses has long been among the Ten Most Litigated Issues in the Annual Report. The courts overwhelmingly side with the IRS in these disputes, with the taxpayer only winning about two percent of the time.
Generally, the taxpayer bears the burden of proving that he or she is entitled to the business expense deductions and the IRS’s proposed determination of tax liability is incorrect.
In sum, we need more info about the source of expenses, the business relationship between Trump’s production company and NBC, and whether Mr. Trump was reimbursed for the expense. Without all the facts, no one can’t definitively say the expense was aggressive. Any good tax attorney would tell you it is based on facts and circumstances. The definition of a “trade or business” comes from common law, where the concepts have been developed and refined by the courts. Hence, without getting political – without all the facts, it is impossible to say whether the $70000 deduction take by Trump’s production company reported by the NY Times was reasonable or not.
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