This week, the Tax Court reminded us that even though your boss may have an expectation that you dress a certain way while at the office or while working the assembly line at the cracker factory, that doesn't necessarily mean you can claim a tax deduction for your work "uniform."
Terance Barnes was a salesman at Ralph Lauren. As a big wheel in the Polo family, he was asked to do more than extol the virtues of the smooth, contoured shoulders of the split pleated back yoke offered by the checked estate dobby shirt; in addition, Barnes was expected to live, breathe, and mostly, wear Polo. In fact, Barnes was required, as a condition of employment, to sport head-to-toe Ralph Lauren clothing at all times while representing the company. I would imagine the ideal attire would look like so:
Of course, a closet full of Polo gear isn't cheap; just ask Blaine from Pretty in Pink. So if you're going to shell out that much dough, and if you're doing so because your bosses is forcing you to do so, well, then...you're surely going to view those clothing purchase as work-related and seek a tax deduction. Barnes certainly did, and took a deduction for the cost of his Polo wardrobe. The IRS saw things differently and denied the deduction, leading to a debate in the Tax Court.
Understand this: under the right scenario, work related "uniforms" are tax deductible. While Section 262 provides that no deduction is allowed for personal, living, or family expenses -- which would generally include clothing, Section 162 permits a deduction for expense incurred in carrying on a trade or business; and while we tend to think only of self-employed people or shareholders or partners of a corporation or partnership of conducting a business, an employee is in the business of being an employee. Thus, any expense an employee incurs related to his employ that is not reimbursed by the employer may generally be deducted as an "unreimbursed employee expense" on the employee's tax return. Unfortunately, such deductions are 1) only available to those who itemize their deductions, and 2) subject to a floor equal to 2% of adjusted gross income, which means it can be awfully difficult to reap much of a benefit from unreimbursed work-related costs.
The bigger issue, however, when it comes to clothing worn for work, is this: how can you be sure it's "work-related?" I mean, clearly the paper hats and bright red vests at McDonalds are specific to that job, but what about Terance's Polo gear? Or the dapper suits of a CEO? Or the workout clothes of a highly-skilled and well-trained Beachbody coach? Are those really work related and deserving of a tax deduction, given that they are often a "condition of employment?"
Over the years, the court's have established three criteria that an employee must satisfy before claiming a tax deduction for work-related clothing:
- Is the clothing required or essential in the taxpayer's employment?
- Is the clothing not suitable for wear outside of work?
- Does the taxpayer in fact not wear the clothing outside of work?
What ultimately dooms most taxpayers, including Mr. Barnes, is the second requirement. A polo shirt wears nicely on almost any occasion, from playing 18 holes to verbally abusing the less fortunate kids at school. Similarly, a suit worn by a CEO can also be worn at his arraignment for insider trading. And a Beachbody coach can just as easily wear her yoga pants and running shoes on a trip to the mall as she can CRUSHING HER MORNING BODY PUMP.
As a result, the Tax Court made quick work of the issue, concluding that Barnes was not entitled to a deduction for the clothing. The lesson, of course, is that in order to get a tax break for work clothing, the clothing must be so specific, awful, or embarrassing that no well-adjusted person would dare to wear it outside of employment.
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