How to make Halloween candy and costumes deductible
So with Halloween coming up, you may want to know how you can make Halloween candy tax deductible.
You can in fact deduct Halloween candy if you figure out a way to make it business related. The IRS doesn’t say a lot about this topic because they don’t want to give you “permission” to deduct these items, but they also have not specifically stated that you cannot deduct Halloween candy.
So here are five different ways for you to consider deducting those over-priced bags of snack size chocolates:
1. Make a promotion out of it by attaching your business card or a promotional flyer to the candies that are being passed out.
2. There are many companies who will print candy wrappers with your logo on it which is an even better and more advanced way to promote your business and still have something for trick-or-treaters.
3. Send a box of candy to potential or existing clients during October. This promotes your business and would likely not be questioned as a business deduction.
4. Donate any leftover candy to the U.S. military. Charitable organizations with 501(3)(c) status like Operation Gratitude (EIN 20-0103575) and Soldiers’ Angels (EIN 20-0583415) collect leftover Halloween candy to include in care packages for soldiers. They are two of many 501(c)(3) organizations on the IRS-approved list to donate tax deductible charitable goods. Always be sure to check the IRS list before claiming your donations are tax deductible, as status can change.
5. Make it a party. You can deduct a portion of a Halloween party if the party is to conduct or promote business. Typically this looks like an open house of some sort where you mingle with current and potential clients, play a few Halloween games, give out candy and treats, and discuss business. The IRS does not specify how much time you must spend discussing the business to claim a deduction but you must invite people that you do business with or are looking to do business with.
Now when I think of Halloween, I also look forward to seeing all of the different costumes that people wear. Some are very extravagant and I am sure pricey. And for some they would like to know how that can be deductible. Since costumes fall under the category of clothing or uniforms, be mindful that the tax law requires three elements for clothing useful only in the business environment to be deductible.
The required elements for deductibility are:
1. The clothing is required or essential in the taxpayer’s employment;
2. The clothing is not suitable for general or personal wear; and
3. The clothing is not so worn for general or personal wear.
If these three requirements are satisfied, not only is the cost of the closing deductible but also its upkeep.
Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.). Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.
In contrast, a white cap, white shirt or white jacket, white bib overalls, and standard work shoes that a painter is required by his union to wear on the job and there is nothing on any of the clothes that indicate the company this person works for would not be deductible because it is not distinctive. Similarly, blue work clothes worn by a welder are not deductible even if the foreman requires them. However, required protective clothing like safety boots, safety glasses, hard hats, and work gloves are deductible.
But consider this – by adding the company’s logo on the clothing will make it deductible even if it can be worn outside the scope of employment because you are advertising your company. In that case you are a walking billboard.
Given the large military presence here in California, military personnel on full-time active duty cannot deduct uniforms. However, reservists can deduct the unreimbursed cost of uniforms if military regulations restrict wearing it except on duty. Still, you must reduce your deduction by any nontaxable allowance you receive. If local military rules don’t allow wearing fatigues off duty, you can deduct the amount by which your uniform cost exceeds your uniform allowance.
Given today’s dot.com and casual era environment, people are not coming to work as dressed up as they used to. Nevertheless, where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment.
While these tax rules are pretty circumscribed, they are also intensively factual. Such was the case with an Ohio TV news anchor, Anietra Y. Hamper. She was claiming approximately $20,000 a year in 2005, 2006, 2007 and 2008 in clothing expense that included not only what she wore for each broadcast but also lounge wear, a robe, sportswear, lingerie, thong underwear, an Ohio State jersey, jewelry, running shoes, dry cleaning, business gifts, cable TV, contact lenses, cosmetics, gym memberships, haircuts, Internet access, self-defense classes, and her subscriptions to Cosmo, Glamour, Newsweek, and Nickelodeon. Her argument was that as a TV anchor she was required to maintain a specified appearance described in the Women’s Wardrobe Guidelines.
These guidelines say the “ideal in selecting an outfit for on-air use should be the selection of ‘standard business wear’, typical of that which one might wear on any business day in a normal office setting anywhere in the USA.” But where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment. For this TV anchor, that was no help. She claimed the requirement to dress conservatively made the clothing unsuitable for everyday use, and that’s how she treated it. She wore the business clothing only at work and even kept it separate from her personal clothing. But the IRS and Tax Court denied her wardrobe deductions and they added penalties.
Like with any expense you are looking to deduct it is important to make sure that the tax law would support a deduction and that you have the required backup documentation in case you are audited by the IRS.