What!? I couldn’t believe the recorded message. A Fortune magazine writer left me a message requesting my opinion on the tax treatment of some rappers deducting tens of thousands of dollars on strippers. After a few comedic quips, I actually answered his questions. I forgot the whole interview took place until this: Fortune Magazine, April 29, 2012. My friend Seena text-ed me from an airport in Atlanta stating that my comments had appeared in Fortune.
But what does this short blurb say or not say about tax deductible items? It is true that the entertainment industry does offer tax deductions that other industries may not offer just by it’s nature. For example: Most industries would be challenged to deduct movie tickets and pay per view movies. Yet, for a producer these expenses are a necessity. Or, take a stuntman, they can make a good case for deducting gym expenses. However, an accountant was denied such deductions in recent memory.
Generally, tax deductions must be ordinary and necessary to the conduct of your business. Sometimes, you cannot deduct an expenditure (completely) in the year you spent the money because it may have a “tax life.” An example would be a building, furniture, and automobiles. There are some elections you can make that can even allow you to deduct some of these though in the first year.
These concepts should be something that you should be thinking about during the tax year, not after it when you are preparing your tax return.
In the case of the rappers they were drawing a nexus between then tipping the strippers and the rappers’songs they were dancing to. I heard that they felt it was necessary to tip the strippers in order to get their songs played.
In law, there is such thing as public policy. Sometimes, the spirit of the law trumps a literal application of it. The IRS and the tax court may say that these kind of expenses are against public policy, not to mention, unsubstantiated. You also may be required to show a connection between the expense and its ultimate generation of income or publicity. In other words, if audited, you may get caught with your pants down. Be careful.
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