Fashion Blogger

Technical topics regarding tax preparation.
#1
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2017 - Client with a FT job decided to start a fashion blog with the intent on quitting the FT job once the blog took off. She earned less than $2000 and spent $50,000 on clothes and accessories which she modeled and blogged about.

Now it's 2018 and client has realized that you need to have your daytime free if you want to be a fashion blogger so she's liquidating that business. She has been trying to sell much of the stuff she bought via consignment shops. Sometimes she wears some of it on weekends. So, can she deduct the clothes as a business expense?
 

#2
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I'm just curious... what do you think the correct answer is?
 

#3
makbo  
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chicagocpa wrote:she's liquidating that business. [...] So, can she deduct the clothes as a business expense?

You keep on using this word, "business" -- I do not think it means what you think it means. :o
 

#4
JR1  
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LOL.
Thinking if I take pictures of my house....and write about it....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#5
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She created an LLC just for this purpose - so there was a legal entity that is being liquidated.

The clothing, unlike a house, was purchased specifically for the blog and not for personal use (though she does wear a few pieces on the weekends, which wouldn't be deducted). Clothing sponsors pay bloggers based on the number of followers they have - so you can't just buy anything - you have to buy things that people will read about and the things you're getting paid to write about. The more followers you have the more you get paid; there are events and advertising specifically to getting followers. So, it might not appear to be a legitimate way to make money but people earn livings doing this.
 

#6
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Sounds like hobby to me...you can have a hobby hidden behind a formal entity and despite her initial intentions.

She wears some of the $50k of clothing on weekends...I'm sure you're aware you cannot deduct cost of clothing if it can be used outside of work. It must have a purpose specific and necessary for work/business. And despite how many times my clients ask, logo embroidered polos do not count.
 

#7
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Yikes, $50k of expenses on $2k of revenue before tossing in the towel. She sure was confident out of the gate huh?

JR1 wrote:LOL.
Thinking if I take pictures of my house....and write about it....


Me thinks I need to start "blogging" from the tasting room at local breweries... :)
 

#8
JR1  
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Fantastic idea!
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#9
ATSMAN  
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I stay away from so called Bloggers as a business client because most of the time when you apply the rules it turns out to be a hobby. Couple of years back I had a lady who was Blogging about "alternative relationships" and wanted to deduct 10 times travel expenses compared to her income from the business. She had the receipts for air fare. hotel, food etc to exotic places I recall.
 

#10
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ATSMAN wrote:I stay away from so called Bloggers as a business client because most of the time when you apply the rules it turns out to be a hobby. Couple of years back I had a lady who was Blogging about "alternative relationships" and wanted to deduct 10 times travel expenses compared to her income from the business. She had the receipts for air fare. hotel, food etc to exotic places I recall.


"I have the receipts, surely it is deductible and my friend said it was!" :lol: :cry:

I had to fire a client that thought he could include meals since he had to do jobs at night that entailed dinner, and so thus dinner must be deductible since he ate while working. Ugh.
 

#11
ATSMAN  
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I had to fire a client that thought he could include meals since he had to do jobs at night that entailed dinner, and so thus dinner must be deductible since he ate while working. Ugh.


This is the discussion that I hate to go into with clients. Even after I tell them in simple English what the rules are, they seem to come up with ways to push that limit. Working overtime so I missed dinner at home so I got me a nice steak dinner and I want to deduct it. So I said what would you have eaten at home if you did not miss dinner. Leftovers!

It is just a matter of time before regulations are issued further tightening M&E rules, perhaps putting an overall cap or limiting it to a percentage of net profits.
 

#12
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ATSMAN wrote:
This is the discussion that I hate to go into with clients. Even after I tell them in simple English what the rules are, they seem to come up with ways to push that limit.


I know it isn't my job to audit tax clients, but if I have access to their detailed accounting, I now look through their general ledger since stuffing M&E into other G/L accounts seems to have become the new MO for some of these types. Sometimes it is simply their bookkeepers making errors; other times it is intentional, trying to hide it from me. The latter category tend to be told to go elsewhere for services.
 

#13
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"...stuffing M&E into other G/L accounts seems to have become the new MO for some of these types."

"New"?? :o ;)
 

#14
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chicagocpa wrote:The clothing, unlike a house, was purchased specifically for the blog and not for personal use (though she does wear a few pieces on the weekends, which wouldn't be deducted). Clothing sponsors pay bloggers based on the number of followers they have - so you can't just buy anything - you have to buy things that people will read about and the things you're getting paid to write about. The more followers you have the more you get paid; there are events and advertising specifically to getting followers. So, it might not appear to be a legitimate way to make money but people earn livings doing this.


@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. Did this all happen within 1 tax year or 2? While some of these bloggers to make enough money to make people's heads spin, I think with this particular case, she went over the top too fast. I suggest pushing her to sell these clothing items on Poshmark or something, so at least it's not a total loss.
chicagocpa wrote:She created an LLC just for this purpose - so there was a legal entity that is being liquidated.

ATSMAN wrote:I stay away from so called Bloggers as a business client because most of the time when you apply the rules it turns out to be a hobby. Couple of years back I had a lady who was Blogging about "alternative relationships" and wanted to deduct 10 times travel expenses compared to her income from the business. She had the receipts for air fare. hotel, food etc to exotic places I recall.


Feel free to send them my way ^^^

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

#15
Nilodop  
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Unfortunately, a lot of the older crowd doesn't and probably won't ever understand where the economy is going.. Whoa, I represent that!
 

#16
Frankly  
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countless wrote:Unfortunately, a lot of the older crowd doesn't and probably won't ever understand where the economy is going.
Unfortunately, a lot of the wet-behind-the-ears crowd doesn't understand that the "older crowd" has seen dozens of hot new things flash and fizzle over their many years.
 

#17
ATSMAN  
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Frankly wrote:
countless wrote:Unfortunately, a lot of the older crowd doesn't and probably won't ever understand where the economy is going.
Unfortunately, a lot of the wet-behind-the-ears crowd doesn't understand that the "older crowd" has seen dozens of hot new things flash and fizzle over their many years.


You are correct. I know many preparers that are willing to push the envelope just over the line to see if they get caught, but I am not playing that game. I am upfront with my prospective client and if they feel I am not telling them what they want to hear they are free to go elsewhere, no feelings hurt. Just yesterday I told a 1 year old client (on extension) that I will not be able to agree with many of the tax positions he is taking in his new business because it just does not pass the smell test. I told him I will prepare the return based on my knowledge and if he does not agree he can go elsewhere as long as he pays me for the engagement. Just because I prepared the return does not mean he has to file that return. He can tear it up and start fresh!
 

#18
Nilodop  
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Wait ... you have a 1 year old client? Who understands all that stuff?
 

#19
makbo  
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ATSMAN wrote: if he does not agree he can go elsewhere as long as he pays me for the engagement.

But he can still go elsewhere even if he doesn't pay you. The conflict of interest for some preparers is trying to recover at least some revenue even if it requires signing off on questionable positions.
 

#20
ATSMAN  
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Nilodop wrote:Wait ... you have a 1 year old client? Who understands all that stuff?


Should have said a client that I picked up a year back!
 

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