Fashion Blogger

Technical topics regarding tax preparation.
#21
Posts:
2468
Joined:
24-Apr-2014 7:54am
Location:
Wisconsin
countless wrote:@chicagocpa - I work with a lot of bloggers - I would say that with the income limited to 2k, it doesn't seem right to be able to deduct the 50k in clothing.


Which is, I think, why everyone is incredulous. Bloggers and YouTubers and podcasters and others trying to make money out of the new economy generally don't spend $50,000 to generate $2,000 in income. They ordinarily start out on a deficit -- maybe a thousand or two on cheap equipment, websites, LLC, and so forth, which evokes the obvious question of why this taxpayer didn't get the hint well before hitting $50,000.

§183 is our first hurdle, and then we have the other hurdle that clothing is generally presumed to be personal in nature (unless it's unfit for regular use) so we have to clear that hurdle to deduct it even if we defeat §183. That hurdle will be really hard, and the sale of such used clothing would generate a loss but would probably be a nondeductible personal loss, no?

I'm willing to listen to how the client really tried to make a business out of it, but it just seems hard to believe. Out of curiosity, @chicagocpa, what is the taxpayer's non-blog income that she was hoping to replace?

Unfortunately, a lot of the older crowd doesn't and probably won't ever understand where the economy is going.


And yet, the more things change the more they stay the same. Twenty years ago, it was horse farms. Nowadays it's candle parties and fashion blogging. The tax shelter economy just finds a new facade.
 

#22
Posts:
8156
Joined:
4-Mar-2018 9:03pm
Location:
The Office
Is anyone else curious how many outfits she got for $50,000?
 

#23
Posts:
1004
Joined:
4-Mar-2015 4:37pm
Location:
San Francisco
The impossibility difficulty here seems proving a bona fide intent to run a business, given that the subject matter (clothes) completely overlaps personal expenses. And leaves no trace that it was only used in "the business." That there's an LLC helps but that takes very little effort, that anyone would do for the upside of a $50,000 ordinary loss. Is there anything else to distinguish it from a hobby?

All the clothing landed in TP's house, right? How can we tell which is personal and which is business clothing? And I am guessing this is a TP who is no stranger to Louboutin - your bookish LL Bean types don't suddenly change course and become fashion bloggers. She may have even dropped $50k in the prior year on the same kind of stuff?

Would the male version of this sound different? TP starts a brand/site, AndyHandyman that talks about DIY home repair projects. Drops $50,000 on a shop-studio full of power tools and rough lumber and making videos on all sorts of stuff. Builds one small stool for his kid but otherwise, it's all for those how-to videos. After 18 months, $1,844 in Youtube revenue and no sponsor deal from Kreg (he tried) he gives up and sells it all on craigslist with the ensuing 1231 losses. That was a business right? So, the fashion blogger - #SheToo gets to write it off?

RE: dropping $50k for $2k of revenue...many overly-optimistic, doomed-to-losses businesses are funded by Big Money From Somewhere Else, by people with money to burn - that doesn't discredit the business intent. Tesla, for example! Lots of restaurants and retail boutiques too.

Navel-gazing aside, I bet the "real" answer here is $2k revenue minus $2k expenses = $0 after running it through the hobby-loss mill.
 

#24
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
ManVsTax wrote:Is anyone else curious how many outfits she got for $50,000?

And why she wasn't going for the blogger discount? Or arranging to borrow or rent the items instead of purchase?
 

#25
Posts:
2468
Joined:
24-Apr-2014 7:54am
Location:
Wisconsin
tb_in_sf wrote:Would the male version of this sound different? TP starts a brand/site, AndyHandyman that talks about DIY home repair projects. Drops $50,000 on a shop-studio full of power tools and rough lumber and making videos on all sorts of stuff. Builds one small stool for his kid but otherwise, it's all for those how-to videos. After 18 months, $1,844 in Youtube revenue and no sponsor deal from Kreg (he tried) he gives up and sells it all on craigslist with the ensuing 1231 losses. That was a business right? So, the fashion blogger - #SheToo gets to write it off?


If I'm honest, the fact pattern sounds worse to me for a handyman YouTuber than the fashion blogger.

RE: dropping $50k for $2k of revenue...many overly-optimistic, doomed-to-losses businesses are funded by Big Money From Somewhere Else, by people with money to burn - that doesn't discredit the business intent. Tesla, for example! Lots of restaurants and retail boutiques too.


That's why there are a number of factors to determine whether something is a business. Generating losses doesn't inherently discredit business intent; it's just one of a number of factors to evaluate.
 

#26
Posts:
102
Joined:
19-Aug-2018 1:34pm
Location:
New York
missingdonut wrote: And yet, the more things change the more they stay the same. Twenty years ago, it was horse farms. Nowadays it's candle parties and fashion blogging. The tax shelter economy just finds a new facade.


I definitely agree with you on the tax shelters - but I am talking about legitimate businesses, not shelters, not hobbies - where the family is living off of one income, or the blogger wife is out-earning her doctor husband and supporting their 4 kids in NE, where it's not cheap to live.

I also agree with clothing purchases being personal in nature - but normal people who are not bloggers don't need to spend 30k a month in clothing - obviously at least a percentage of these purchases is tax-deductible. No one can possibly wear or store that many clothes. The bloggers either donate them, give them away to family/friends, or re-sell them once they're done listing them on the blog. In order to stay current and keep / gain followers in the hundreds of thousands, the bloggers need to be current on the latest trends and that requires some outlay.

I do not agree that none of these purchases can be deductions just because they're personal in nature. A lot of things are personal in nature that other businesses are able to deduct. Company cars is one example that comes to mind. With small businesses, there's always overlap between the business and the owner and their personal life, and the owners definitely get a benefit from the tax write offs. I don't understand why it can't apply to this. So many blogger clients come to me saying that their previous accountant wouldn't let them write off anything, and I don't understand the logic behind that.

I would love to understand the logic behind this if anyone could please share with me. Thank you.
 

#27
Posts:
2468
Joined:
24-Apr-2014 7:54am
Location:
Wisconsin
countless wrote:I definitely agree with you on the tax shelters - but I am talking about legitimate businesses, not shelters, not hobbies - where the family is living off of one income, or the blogger wife is out-earning her doctor husband and supporting their 4 kids in NE, where it's not cheap to live.


Are you counting a fashion blogger spending $50k in clothes to generate $2k in income as a "legitimate business"?

Modern media has incredible potential to allow people to make boatloads of money. But just because some are successful, legitimate businesses doesn't mean that we need to assume that all are legitimate businesses. Just because some horse farms are actual business doesn't mean that every one is. Same with the candle party people or the Avon sellers or content providers.

I don't understand why it can't apply to this.


We have special rules for clothing as a business deduction. The items must be (1) required/essential to the job, (2) not suitable for general/personal use, and (3) not actually used for general/personal use. The taxpayer meets #1, and in the original fact pattern the taxpayer meets #3 for most but not all items, but #2 is the biggest problem. The specific act of buying more clothes than could be feasibly worn does not mean that the clothes themselves are unsuitable for general/personal use.

This is different from your example of a personal car used for business because the rules for automobiles are different from clothing.
 

#28
Frankly  
Moderator
Posts:
2455
Joined:
21-Apr-2014 9:08am
Location:
California
countless wrote:I would love to understand the logic behind this if anyone could please share with me. Thank you.

The simple logic is that too many taxpayers have gamed the system to deduct anything and everything personal in the name of "business". Regulations and court cases are the result.

The cost of a wardrobe needed for business, even if a condition of employment, is considered a nondeductible personal expense under Sec. 262 (Kennedy v. Commissioner, T.C. Memo. 1970-58, affirmed, 451 F.2d 1023 (3d Cir. 1971)).

The general rule is that where business clothes are suitable for general wear, a deduction is not allowed (Donnelly v. Commissioner, 262 F.2d 411 (2d Cir. 1959), affirming 28 T.C. 1278 (1957); Hynes v. Commissioner, 74 T.C. 1266 (1980);
Roth v. Commissioner, 17 T.C. 1450 (1952)).

Clothing costs are not deductible even when it has been shown that the particular clothes would not have been purchased but for the employment (Stiner v. U.S., 524 F.2d 640 (10th Cir. 1975)).
 

#29
Posts:
102
Joined:
19-Aug-2018 1:34pm
Location:
New York
I understand the cases and the regs.

I think where I'm looking at it differently is instead of looking at the product as clothing for personal use, it's a prop or an inventory. So are you saying that fashion retail stores or other fashion-related companies/positions that give their employees clothing to wear so they "look the part" aren't deducting this? They are.

What about magazines and other publications? They need to buy clothing for the models on the cover and in the spreads - is that not a deduction? It's the same logic. The girls are buying the clothes, hiring photographers, doing photoshoots, selling the clothes, making a commission, and then repeating 4-5x/week. When they're not out shooting they're home in pajamas like any other self-respecting self-employed person who works from home. Why put on pants if you don't have to?!

Are you telling me that Oprah is not deducting the cost the clothing she is wearing on the cover of each one of her magazines?

My arguments here are not related to this specific case at hand with the 50k and the 2k, I'm talking about other bloggers (also called influencers). Existing businesses over the past 5+ years, generating 7-figure incomes. Show me a case that limits clothing as deductions in the fashion or publication industries. These girls are running online magazines that generate income from advertising and affiliate commission - in order to do those things, they need to buy the things they are selling and/or buy props to have a tantalizing advertisement. No one is deducting the cost of the clothes that go into making a commercial? Alright.

I feel like these arguments I'm hearing are nothing more than a careless and thoughtless application of law that doesn't apply to the situation at hand.
 

#30
Nilodop  
Posts:
18759
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
FWIW, countless, I think you may be on to something. Your general argument makes a lot of sense. Perhaps your last sentence is a bit harshly worded, but whatever.

OTOH, I think you'd lose at the IRS level and would need a well developed argument at the court level, and even then it's far from a slam dunk.
Last edited by Nilodop on 7-Sep-2018 3:53pm, edited 1 time in total.
 

#31
Posts:
102
Joined:
19-Aug-2018 1:34pm
Location:
New York
I don't understand what FW means. Sorry.
 

#32
Nilodop  
Posts:
18759
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
It means my hand slipped.
 

#33
Posts:
3299
Joined:
21-Apr-2014 7:01am
Location:
Near the fridge.
Is Dinah Shore the name of the court case I'm looking for?
 

#34
Posts:
102
Joined:
19-Aug-2018 1:34pm
Location:
New York
Nilodop wrote:FWIW, countless, I think you may be on to something. Your general argument makes a lot of sense. Perhaps your last sentence is a bit harshly worded, but whatever.

OTOH, I think you'd lose at the IRS level and would need a well developed argument at the court level, and even then it's far from a slam dunk.


lol about the hand-slipping

Thanks!! That means a lot! I actually called up an attorney friend of mine after I sent that last long message and literally fought with him for a half hour about it, and at the end of it, he had a similar thing to say as you.

I know I am still wrong, but it eases the burn just a little.

I hope you have a nice weekend.
 

#35
Frankly  
Moderator
Posts:
2455
Joined:
21-Apr-2014 9:08am
Location:
California
countless wrote:I feel like these arguments I'm hearing are nothing more than a careless and thoughtless application of law that doesn't apply to the situation at hand.

The issue is that the law doesn't address the situation at hand. You're left with regs and court cases and the IRS position to guide your tax treatment.

Such gray areas could be cleared up in a heartbeat if the congress would write some tax reform to deal with that, and a thousand other tax issues. As it is we have a code that (weakly) addresses personal expenses. The Treasury can write regs but is limited to addressing what they think is the legislative intent. And the courts can only interpret to a limited degree.
 

#36
Posts:
5702
Joined:
21-Apr-2014 7:21am
Location:
The Land
I feel like these arguments I'm hearing are nothing more than a careless and thoughtless application of law that doesn't apply to the situation at hand.


I agree.

I myself wouldn’t be so quick to make a personal/non-deductible judgement here. It is pretty common for people to jump into “their own business” without thinking it through. We all have seen it. It is also pretty common for folks to over-buy inventory. (Although what we have here isn’t “inventory for sale/resale”).

The tax laws do not, and should not, deny deductions for bad business decisions.

With that said, I do think the personal use element could be problematic. It’s kind of like medical residents: Are they primarily students that also work…or are they primarily workers that are also students? Is she buying the clothes primarily for personal use and is just so happening to blog about it or vice versa? (Think about the writer who writes about all those exotic destinations they visit – are they a traveler that just so happens to write or are they a bona fide writer who travels in pursuit of his or her craft?). And I can’t even say if “primarily” is the test here…just throwing it out there. It sure would help if she kept a detailed sheet for each article of clothing, wherein she jotted down when she blogged about it/reviewed it/posted a photo about it…etc. Any personal use should show up on those sheets as well. This speaks to the idea that a business maintains records. And she’ll want to be able to show copies of her (hopefully) extensive blogging efforts. And if you want my opinion, maybe the cost of those personally used items (and hopefully there’s not a lot of them) get removed from the tax return.

I think those detailed sheets would go a long way. And if it comes down to it, the taxpayer’s own testimony will be critical. If that testimony turns out to be not that credible, you’re in trouble. It might even be wise to sell everything, even if for pennies on the dollars, as opposed to donating to charity. This might lead one to believe that we are trying to recoup our investment to the greatest extent possible.

The other big issue is hobby vs. business. The IRS will assert that the taxpayer had no business plan, did no forecasting, did not consult with professionals, etc…which are things anyone should do if they are starting a business. Even if she didn’t do all that stuff formally, she can maybe make a showing that she did some empirical research that led her to believe it would be financially profitable. I’d also be interested in knowing about the taxpayer’s net worth. Often, these cases involve one big-earning spouse and a do-nothing spouse that “starts a business” that turns out to be nothing but a tax shelter. If this lady is single, that’s off the table, but maybe not wholly if she has a decent net worth.

In the end, we want to make a showing that this was just a bad business decision. And that might be revealed with this comment:

with the intent on quitting the FT job once the blog took off.

I also wonder if she established something like a 1-member LLC…

In summary, you have to really dig deep in a situation like this to flesh out the facts and the nitty gritty details and get them to point in your favor.

And if we have any Celebrity Bloggers out there (Nilodop?), I am available for interviews. Thank you very much.
 

#37
RowTax  
Posts:
287
Joined:
15-Jan-2018 3:45pm
Location:
Florida
Countless brings up a good point in that the blogger could be considered a modern version of a fashion magazine. In the movie " The Devil wears Prada", they have tons and tons of clothing (I assume donated not purchased, but let's say that some were purchased)...you will notice that they were kept in a locked room at corporate headquarters and presumably not available to the staff to wear on a whim. Yes...the young secretary is outfitted with some of those clothes, but that was for a specific assignment....go to fashion week in Paris....so, presumably, she had to return the articles of clothing to the corporate storage when she returned to New York. Perhaps that type of scenario would prevail in tax court, but not the clothing stored at the bloggers home and available for use at all hours. I believe that there was a tax court case involving Cher whereby they disallowed some of her clothing used in a Vegas show.
 

#38
Posts:
2887
Joined:
21-May-2018 7:50am
Location:
Northern MI and Coastal SC
Jeff-Ohio wrote:
I feel like these arguments I'm hearing are nothing more than a careless and thoughtless application of law that doesn't apply to the situation at hand.


I agree.

...

The other big issue is hobby vs. business. The IRS will assert that the taxpayer had no business plan, did no forecasting, did not consult with professionals, etc…which are things anyone should do if they are starting a business. Even if she didn’t do all that stuff formally, she can maybe make a showing that she did some empirical research that led her to believe it would be financially profitable. I’d also be interested in knowing about the taxpayer’s net worth. Often, these cases involve one big-earning spouse and a do-nothing spouse that “starts a business” that turns out to be nothing but a tax shelter. If this lady is single, that’s off the table, but maybe not wholly if she has a decent net worth.

In the end, we want to make a showing that this was just a bad business decision. And that might be revealed with this comment:

with the intent on quitting the FT job once the blog took off.

I also wonder if she established something like a 1-member LLC…

In summary, you have to really dig deep in a situation like this to flesh out the facts and the nitty gritty details and get them to point in your favor.


Some of the comments are off-hand, but this is no doubt where a lot of thoughts have gone and any reasonable person knows the hobby vs. business subject could easily come into play by IRS. Her wearing the inventory is problematic, especially $50k worth, because she is ONLY a blogger--she is not representing these brands in public, just the internet. I know the counterargument would be that she needs to wear the clothing outside of just a photo studio to get a feel for the fit, quality, comfort, etc. The IRS could easily build an argument that may be difficult to defend against that she created a so-called business, really under the guise of attempting to gain tax benefit for personal purposes. Or, if they're generous, call it a hobby. Further, we also know clothing/uniforms cannot be deducted unless they are used and required SPECIFICALLY for business purposes. I might not wear my sports coats and suits outside of work, but I still cannot deduct them as a business expense since I COULD wear them as my personal wardrobe.

This subject is swiss cheese. Good luck filling the holes sufficiently to have a solid argument against known IRS regulations. I haven't searched for other guidance, including court cases, but I imagine there are plenty.
 

#39
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
countless wrote:What about magazines and other publications? They need to buy clothing for the models on the cover and in the spreads [...]

Are you telling me that Oprah is not deducting the cost the clothing she is wearing on the cover of each one of her magazines?

These girls are running online magazines that generate income from advertising and affiliate commission - in order to do those things, they need to buy the things they are selling and/or buy props to have a tantalizing advertisement.

Where is your evidence that all these promotional clothing items are being purchased outright, rather than simply being on loan from the fashion designer? Yes, I'm telling you Oprah is not deducting the cost of clothing she doesn't pay for.

Almost any industry that relies on "influencers" is going to be eager to provide promotional/loaner items to the people who they think will actually help their sales, such as the "girls" you refer to. An unknown blogger? Not so much.

Yet most of your argument seems to rely on your unproven assumption that everyone in the fashion industry buys at retail every item they are photographed in or write about.
 

#40
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
chicagocpa wrote:2017 - Client with a FT job decided to start a fashion blog [...]
Now it's 2018 and client has realized that you need to have your daytime free if you want to be a fashion blogger

A clear indication she hadn't even the basic skills or qualifications to start this business, if she was and remained so ignorant of that fundamental fact for so long.

Jeff-Ohio wrote:The tax laws do not, and should not, deny deductions for bad business decisions.

But first you have to have a bona fide business. And how do you deal with the same bad decision made repeatedly? It doesn't sound like she went out and bought all $50K of clothes in one shot.

Jeff-Ohio wrote:The other big issue is hobby vs. business.[...] she can maybe make a showing that she did some empirical research that led her to believe it would be financially profitable.

That is the primary "big issue", and was so identified very early on in this thread. As for "empirical research", is that really the phrase you want to use? It would seem her empirical results should have quickly led her to believe it was in fact not a profitable endeavor.

countless wrote: I work with a lot of bloggers - I would say that with the income limited to 2k, it doesn't seem right to be able to deduct the 50k in clothing.

countless wrote:I feel like these arguments I'm hearing are nothing more than a careless and thoughtless application of law that doesn't apply to the situation at hand.

Do you specialize in serving blogging businesses? Is there some special trait that they look for in a tax preparer? I'm just someone in the "older crowd" trying to learn about the new economy.
 

PreviousNext

Return to Taxation



Who is online

Users browsing this forum: Google [Bot], Google Adsense [Bot], JoJoCPA, Yellowdog and 128 guests