Can I Write Off That Rolex I Just Bought?!
Anyone who spends more than five minutes on YouTube will eventually run into an influencer. You know the type. Someone staring directly into the camera, promising that you – yes, YOU – can be just as successful, just as sharp, just as “in the know” as they are. All you have to do is watch this quick video… and maybe sign up for a course, a masterclass, or some other can’t-miss opportunity.
Lately, a breed of influencers who talk tax, have been pronouncing to the work that a Rolex, you know the incredibly expensive but damned good-looking watch, can be deducted as a business expense. The key, according to them, is that having a Rolex handing off your arm helps elevate your brand which increases your potential income. Look around. Rappers, models, actors, public figures and (of course) influencers wear luxury watches. They are cool and you love to buy what they are selling, so why shouldn’t the watch be deductible for you if you do the same thing?
At first glance, all of that makes more than a bit of sense. But it is dead wrong. Internal Revenue Code (IRC) §162 provides that a taxpayer can deduct “ordinary and necessary” expenses paid or incurred in carrying on a trade or business. Okay, is wearing a Rolex something that is a common thing in your line of work? Is it also necessary for you to make a profit. Seems like a stretch for most people. Still, let’s assume you can make a good argument that it is both ordinary and necessary.
The Buzzsaw or Why You Don’t Get a Deduction for that Rolex
IRC §162 is not the final word on all this deductible. Case law has developed in this area, meaning the law does not exist in a vacuum. Courts have interpreted what clothing and wearable (jewelry and watches) are deductible under IRC §162. Courts love creating tests for deductible expenses and here we have a three-part test:
- The clothing or wearable must be required as a condition of employment;
- Not be adaptable to general or street wear; and
- Not actually be worn for personal use
All three requirements must be met or no deduction. And #2 is where most of these deductions fall apart.
In Pevsner v. Commissioner, an employee at a high-end fashion boutique was required to wear the designer clothing sold in the store. She didn’t like the flashy style and only wore the clothing at work. The Tax Court initially sided with her, but the Fifth Circuit reversed. The court said adaptability is judged objectively – meaning it doesn’t matter whether she personally would wear the clothes outside of work. What matters is whether the clothing is suitable for ordinary street wear, regardless of whether the employee was required to wear it for work. Deduction denied.
Now compare that to Romana v. Commissioner, here a nurse deducted the cost of scrubs and associated dry cleaning costs. The US Tax Court allowed it because scrubs were required by her employer, not adaptable to general street wear, and not worn outside the workplace. Scrubs are work attire and not ordinary clothing, thus deductible.
So Where Does a Rolex Fit into All This?
A luxury watch, classified as a wearable, is adaptable to general or street wear. Seems obvious but watches are designed to be worn (and seen) on your arm. No different than a necklace or earrings. What sense would it be to pay tens or hundreds of thousands for a Rolex if you never show it off. Even if you want to argue that it boosts your brand, signals status, or helps close sponsorship deals, there is always the element of personal use inherent in its ownership. This “duality of purpose” is the biggest problem.
Tax laws do allow deductions in certain instances, business use of your car or computer, an allocation between business and personal use. For example, if you use your car for business, say, 70% of the time, then you can obtain a tax benefit of roughly 70% of the purchase price as well as of any related costs (gas, oil, maintenance, etc.). Clothing and wearables are different. If the item is adaptable to general or street use, meaning the 2nd part of the 3-part test, it fails outright. No tax deduction.
Wishing Don’t Make it So
Don’t fall for the tax influencers’ mantra of “this makes me money, so it is deductible.” That’s not the law. IRC §162 (and related court interpretations) have always drawn a hard line between solely for business use and suitable for personal use. A Rolex worn to elevate your brand or to show you are successful to prospective customers does not change that fact. It’s a great example of how tax law often turns on technical distinctions that you do not hear those tax influencers talk about.
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