Can I Deduct My Prada Bag This Year?
It’s tax season.
You’re ogling a fabulous new designer bag, wondering if you can justify the purchase. And you wonder, could this possibly be used as a tax write-off?
For business deductions, understanding what flies (or doesn’t) can be considered more of an art than a science.
But guidelines set out by the IRS can help you determine how to categorize your purchase.
The Rules of Deductions
According to the IRS, a purchase must be both ordinary AND necessary to qualify for a tax deduction.
“Ordinary” is defined as “common and accepted in your business.” Think paper coffee cups at your local cafe.
“Necessary” is defined as “helpful and appropriate” for your business. It might be tricky to serve that Ethiopian roast to customers sans cup, so “coffee cups” meet the criteria of both ordinary AND necessary for the business of selling java.
Is Your Deduction Lavish & Extravagant?
Have you heard about the exotic dancer who sued the IRS to deduct the cost of her breast implants? Or the New York CPA who tried to write off yachting expenses by flying a “1040” flag on his mast?
The IRS has a storied history of audacious tax deduction attempts. Most cases fall in their favor, although a few unusual rulings have slipped through. (The dancer won, by the way. The yachter lost.)
So where is the line drawn?
Typically, expenses that are “lavish and extravagant” are fair game for the IRS. The actual definition of this phrase, however, seems to be left open for debate.
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Let’s Talk Prada
But back to your bag.
Imagine the following:
Your Bag is Nice. Like, Really Nice.
You might argue that your designer handbag or briefcase is higher quality, and not necessarily lavish, given that you could maintain the bag for several years. In this case? Deductible.
Your Bag is Actually An Asset!
You might also argue that if the price of the bag exceeds $2,500, then it becomes an asset, which must be filed as a depreciating value over the lifetime of the bag. This scenario? Deductible.
Your Bag is Designer, i.e. Fancypants Elitist (According to the IRS)
In this case, the IRS might argue that your bag’s designer label makes it available only to the wealthy, and therefore is not deductible.
Don’t Mix Business and Pleasure
If the line between business and personal use is blurred, it’s better to err on the side of caution and avoid claiming the bag.
If in doubt, ask yourself if the design is for business or personal use. Does the bag have inner pockets to fit a standard sized laptop? Is the bag marketed as a “work” bag, specifically?
Questions like these can help you determine if your write-off is legit.
Trust Your Tax Professional
At the end of the day, understanding business deductions is usually best left up to the pros, which is why hiring a trusted tax expert is ideal. When in doubt, your tax professional can guide you through complex tax code, helping your business come out better financially at the end of the year.
Let’s work together
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