Can Charlie Sheen Deduct His Hookers?


Professor Caron says other claimants over-reach because they're tax protesters bent on showing the IRS who's boss, or because they believe, mistakenly, that their own notions of equity match the IRS's. In the last category he puts the female TV anchor, whose own personal test of something's being business-deductable was to ask herself (according to her own account): Would I be buying this if I didn't have to wear it to work?

The IRS determined that the clothing, while appropriate to the workplace, was not inappropriate for the anchor's personal use, and, as such, ought to be treated as a personal expense.

"People go into tax court," says Caron, "because they think 'X' ought to be deductible in their ideal vision of an ideal tax world. They don't take into account the law as it stands." Better they should adopt, he says, Donald Rumsfeld's approach to war, which he paraphrases as: "You go to war with the army that you have, not the one you wish you had."

When it comes to business deductions, he says, it's the presumed deductibility of laptops and other computers that most often gets employees (as distinct from independent contractors or consultants) into hot water:

"If someone is an employee," says Caron, "it's virtually impossible to deduct a laptop that you use at home for office-related work as well as for personal stuff." On the other hand, an employee who can prove he has a business on the side—a journalist, say, selling freelance pieces to buyers other than his employer, or a university professor moonlighting as a consultant—may be able to take a legitimate deduction.

The AGI Test

Employees face the further hurdle that they can deduct employment-related expenses only if they exceed 2 percent of adjusted gross income. If your cheapskate boss requires you to read the Annals of Taxidermy and requires you to pay the $100 subscription fee, chances are you're out of luck—unless, of course, you're getting paid just $5,000.

Filers tempted to deduct the business use of cell phones, he says, ought to go ahead and do so this year. "The IRS somewhat recently announced it was softening its approach to cell phone deductibility," he explains.

The old policy dated from a time when cell phones were new and calls costly. "Cell phones were these exotic things the size of a shoebox. As written, the law required taxpayers to account separately for each call they made and to allocate calls between personal and business use."

Now the IRS has implicitly admitted that policy is silly, since the cost of calls has plunged and the phones themselves are cheap enough to be almost universal. "The IRS has backed off on that requirement," says Caron. "There's no need anymore for that kind of picayune documentation."

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