Social Media Influencers – Can You Deduct the Bling?
My son last week told me he wanted to be a “youtuber”. He’s 8 so I forgive him for not choosing to follow in his father’s footsteps. I mean who wouldn’t treasure a career in tax law. All kidding aside, since the pandemic, social media influencers have risen in number and prominence. Some of it good, some of it bad, and very much of it meh.
Still being an influencer can be a potentially lucrative side-gig or full-time job. Here are just a few influencers I found online:
- Chiara Ferragni is a fashion influencer, entrepreneur, and founder of The Blonde Salad.
- Huda Kattan is a beauty influencer, makeup artist, and founder of Huda Beauty.
- Gary Vaynerchuk is a business influencer, author, and motivational speaker.
- Nash Grier is a lifestyle influencer known for his entertaining videos and relatable content.
- Zoe Sugg (Zoella) is a lifestyle and beauty influencer.
Each of these influencers have thousands to hundreds of thousands of followers. As such they can use their influence to create lucrative partnerships with other companies and brands. More influence often results in more money and some of them have started to wear expensive clothing and jewelry to show off their person “brand”. Let’s put aside for a moment that some influencers have a “fake it until you make it” attitude, many of these influencers have done well financially and as such have every right to show off the fruits of their hard work.
With every rose comes some thorns, which includes the IRS. Making money means generating taxes to pay Uncle Sam. No one likes paying taxes (no one sane anyway) and I have even heard some financial influencers (yep, they have those too) suggesting that other influencers can reduce what they owe by adopting a lifestyle brand, meaning deducting personal expenses, specifically clothing, jewelry, trips to the spa, etc. all as part of maintaining an image that serves the influencer’s brand.
Being the killjoy tax attorney that I am, I asked myself can, in fact, influencers deduct the bling? Short answer: no. Still, it’s the journey and not the destination we seek, so why is that?
Understanding Business Deductions for Clothing and Accessories aka “Bling”
Let’s start at the beginning, the tax law allows a trade or business to deduct expenses which are both ordinary and necessary. Ordinary means an expense that is commonly found in an industry or profession (e.g. paper supplies in a law office). Necessary means an expense that is appropriate and helpful for developing the business (e.g. annual dues to maintain a law license).
One could argue that influencers personal life plays a large part in their business success. Well-dressed and groomed carries more weight than uncared-for and unkempt. So, the money spent on clothes and accessories supports the influencer’s ability to maximize their income. Okay, first hurdle seems to be crossed – the expense for clothes and accessories is common among influencers so it fits within the realm of the ordinary. The second hurdle is also pretty easy to cross as I think it is undeniable (unless you are into garbage chic) that it is helpful to an influencer’s specific business to be well-attired. All set, right?
The problem is that there is a lesser known third hurdle that has to be navigated. Internal Revenue Code (IRC) Section 262 states that personal, living, and household expenses are non-deductible. Courts generally take a hard line that IRC 262 broadly such that any inherently personal expenditure will be treated as non-deductible even if there is some arguable benefit to a person’s business. This has been interpreted to include clothing, jewelry, personal means, commuting costs, haircuts, dry cleaning, makeup, gym memberships, and publications of general interest (like newspapers and magazines). A lifestyle brand then runs headlong, like a car into a brick wall, leaving it a wreck. IRC 262 virtually eliminates those deductions.
I do have some sympathy for social media influencers though. There is a great deal of truth in the statement that clothes make the man (and of course woman). To create a successful business the influencer has to put a lot of his or her personality into it and as such needs to put a great deal of time and effort into appearances. I know it is not a requirement for all influencers, e.g. Mr. Beast, but it certainly helps in many cases. To put in a great deal of time and money into a brand and then have it denied as a deduction can be frustrating. Still it is the law and good luck getting Congress to change it.
In short, an influencer may have a very good case for why he or she should be allowed to deduct clothing and jewelry and maybe can even point out specific instances where it helped land a deal or improved the reach of their message. Unfortunately, these arguably deductible expenses are cut up by the buzzsaw of IRC 262
The IRS is Aware of Influencers Claiming Such Deductions for Clothing and Accessories
IRS agents are aware of influencers taking deductions for personal items. In fact, the IRS has recently updated its audit technique guide for the Entertainment Industry, which discusses clothing and accessories. The IRS does not specifically mention influencers but the reasoning it applies to actors who want to deduct clothing and accessories to “maintain appearances” is relevant to influencers. If you find yourself under audit, you can expect the IRS agent to deny these types of deductions.
Here is the IRS’s position on clothing and accessories from the audit technique guide:
(1) Taxpayers in the entertainment industry sometimes incur unusually high expenses to maintain an image. These expenses are frequently related to the individual’s appearance in the form of clothing, make-up, and physical fitness. Other expenses in this area include bodyguards and limousines. These are generally found to be personal expenses as the inherently personal nature of the expense and the personal benefit far outweigh any potential business benefit.
(2) No deduction is allowed for wardrobe, general make-up, or hair styles for auditions, job interviews, or “to maintain an image.”
If it is not apparent before, by now you should be getting a clear picture that “bling” is not deductible. No matter how much it helps you in the business of being an influencer, it is not deductible.
Summary
If you are an influencer (or not) and you have been deducting clothing and jewelry as a business expense, if you get audited you can expect to be challenged on those expenses and you are likely to lose 99 times out of 100 in court. I know of some folks online who are suggesting you can deduct clothing, accessories, and other personal expenses as part of your brand. I think some of their own bling might have gone to their head. With the IRS increasing audits, you can expect trouble if you deduct clothing and accessories.
If you or someone you know if facing an IRS audit and you have some questions about what is deductible or not, you can reach my firm using the below contact information.
James D. Wade, Esq.
Beacon Tax Advocates, LLC
57 Portland Road, Ste. 3
Kennebunk, ME 04043
207-502-7181
jwade@beacontaxadvocates.com
www.beacontaxadvocates.com