All too frequently, I find myself having to explain to a client that the deduction they want to claim is, in fact, not a deduction at all. Often, this explanation is prefaced by the client telling me "my buddy/friend/co-worker/cousin/neighbor/trusted-adviser told me that I could write off..."
Case in point: the lovely Unreimbursed Employee Business Expense (or UEBE, for short).
The purpose of the UEBE is to allow employees to deduct job-related expenses that are not reimbursed by their employer. The actual result is that all too often employees try to deduct expenses that don't qualify. Legitimate expenses here include Union Dues, Trade Publications, Education Expenses and Meal and Entertainment Expenses. There's also the ability in most tax software to add 'other' expenses.
The problem is that people liberally define terms. Take 'business and trade publications'. It's one thing to subscribe to the Journal of Accountancy if you're a CPA - after all, it's not exactly a person's first choice (or even their eighth choice) in the doctor's office. It's quite another to - as one client of mine tried - deduct your People subscription because, as she put it "I need to be informed when I talk to my customers". She was a hairdresser. I've seen people try to justify deductions of Newsweek, Time, the local newspaper, US, and numerous other publications as 'business' or 'trade' related (one actor claimed that his deduction for Entertainment Weekly was a necessary expense, because he had to know what was going on in his business). Even your subscription to Money doesn't fall here (at best, it's a deduction under investment expenses).
And then there are the 'grey-area' things. Take flight attendants, for example. They love to deduct everything even remotely related to their job, because they feel they make so little money anyway. Some of their expenses - such as uniforms and union dues - are explicitly permitted, while others - such as luggage, the cost of trip trades, tips to drivers who pick them up at the hotel - fall under the 'ordinary and necessary' guide lines. Some, such as wristwatches, are explicitly prohibited. But others - such as nylons/support hose, shoes, makeup, manicures/pedicures, and the cost of hairstyles/cuts - fall into that 'grey area'. Sure, you can make an argument that they are ' common and accepted in your trade, business, or profession' and 'appropriate and helpful to your business,' both of which must be met to have a deductible expense. In fact, I've had several flight attendants tell me that they are required to wear makeup on the job. But...does it make the make up a deductible expense?
Sadly, no. What makes this difficult to comprehend for most people is that the IRS gives little comprehensive guidance as to what can and cannot be deducted by profession, so most people are left to interpret on their own what is a true expense. Hence the myth of 'my buddy told me...'
The IRS disallows as a deduction work clothing that is 1) not required by the employer and 2) suitable for everyday wear. As a result, an attorney cannot deduct the cost of a suit, even though it's foolish to show up in court with anything less (pro se litigants excepted). And since makeup, manicures/pedicures, and hairstyles and cuts are definitely 'suitable for everyday wear' (and since the impact of the mani/pedi and haircut last more than a day) they are non-deductible. The tougher argument is for nylons or shoes - flight attendants argue over these items as well, claiming that they don't wear the nylons/shoes elsewhere. However, this is a loser too, since the IRS specifically says that '[t]he clothing must not be suitable for taking the place of your regular clothing.' So even though you only wear those shoes on the plane, if there's any way they could be worn off the plane, you can't deduct them. Just because you choose not to wear them elsewhere is irrelevant. You could, so it's not a deduction.
So is the UEBE ever useful? And when? That's Part II.