Table of contents

1. Clothing, Beauty & Self-Care

2. Purchasing Products Where You Earn a Commission

3. Fitness/Nutrition Supplements

4. Network Marketing

Note: Business deduction rules are generally the same whether you file as a single-member LLC on Schedule C or as an S Corporation on Form 1120-S. The IRS requirements for what qualifies as a deductible business expense remain consistent across both filing methods—only the form where you report these deductions differs.

Overview:

We love our members that are crushing it as social media influencers. One common area of discussion is "What qualifies as a business expense?" since so much of your job crosses over into your personal life.

Our goal at Collective is to make sure we are staying on top of current IRS tax laws and court rulings that could affect our members. 

tldr: If the clothing or other similar expenses (makeup, hair, etc). is adaptable for general and personal use, the IRS does not allow it as a deduction, and we will not record it as a deduction on your books.

Clothing, Beauty & Self-Care

While we understand that you probably know other entrepreneurs who are writing off their clothing, makeup or nails as a business expense, that could be a risky move.

Many times the IRS will apply an exclusivity test to determine whether an expense qualifies as a business deduction. You might see this with your home office space, and it also applies here. Simply stated, the expense must be exclusively for business use and not cross into your personal life.

Historically, the IRS has denied expenses in tax court for clothing and other personal items that are suitable for wear outside of work. It doesn't matter if you purchased it for work, or to wear in a video or on TV, etc. If that purchase could be used outside of your place of work as a personal item (whether or not you actually wear it), it's not allowed as a deductible expense.

It's not worth taking the small deduction now. If the IRS is going to disallow those expenses in the future, they could charge you taxes, penalties, and interest on those invalid deductions.

Examples of clothing and beauty expenses that could be deemed exclusive for professional use:

1. Business uniform with company logo
   
   
2. Hazmat suit or safety gear needed to complete a job
   
   
3. Costume makeup for a photo shoot that would be removed after
   
   
4. Hair styling (not haircut) used for photo shoot only
   
   

Example of clothing and beauty expenses that are likely NOT deemed exclusive for professional use:

1. Haircuts or regular manicure/pedicures
   
   
2. Clothing purchased to wear to client meetings or events
   
   
3. Makeup and Skincare products
   
   
4. Clothing rental for business casual clothing
   
    
   
   

Generally, expenses for hair, makeup, nails, etc. will be categorized as personal expenses unless you can verify with your Accounting Advisor that they meet the exclusivity test.

If you're interested in reading IRS court records about this, check out these two cases:

• Rick Richards et ux. v. Commissioner (1999)
  
  
• Anietra Y Hamper v. Commissioner (2011)
  
  

Purchasing products where you earn a commission

The exclusivity test also applies here.

Example:

You purchase a water bottle and promote the water bottle on social media. Each water bottle sale earns you a commission from the water bottle brand.

While the commissions would be counted as earned income. The original purchase of the water bottle would not be considered a business expense if it can be used in the normal course of your personal life.

If it is an item that you do not keep, but is discarded after the content is created, then it could be a deductible expense. However, you must be sure that you aren't promoting the item in your content as something you use every day.

Fitness/Nutrition Supplements

Whether you are promoting yourself as a fitness influencer, nutrition expert, or personal trainer, the IRS does not allow deductions solely for staying healthy.

For example, professional athletes can deduct the cost of training, coaching or uniforms for events or competitions; however, they cannot deduct the expense for nutrition supplements because the benefits are also personal.

Similarly, if you are a personal trainer you could deduct the cost to rent out a specific space to hold a class. However, deducting your gym memberships may not be a business expense pursuant to tax law Section 274 (a)(2).

This also applies to clothing used to work out in or film content. You cannot deduct clothing as a business expense because the IRS could argue it can also be for personal as well as professional use.

Network Marketing

There are many successful multi-level marketing, direct sales or network marketing programs our members are a part of. Either as their sole business, or as a supplement to their business.

While your membership in this group could be deducted, as well as other normal expenses for running your business, if you are purchasing a product with the purpose of promoting the sale of that product, the product cannot be classified as a business expense.

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed  adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.