Were Trump's Business Tax Deductions Legitimate?

Readers were stunned by a New York Times article revealing how little the President paid in taxes, claiming many questionable business deductions. So, was it legal, and is grooming ever considered to be a true business expense?

Oct 5th 2020
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The New York Times for September 28th, 2020 published a major investigative report that President Trump paid no federal income taxes for 10 of the 15 years before 2017. The 9,800-word article’s key detail: The self-proclaimed billionaire paid only $750 in taxes for 2016, the year he won the presidency. Ditto for 2017, his first year as president.

The Times’s bombshell report on the president’s 1040 forms article also delved into, among other things, what the Trump Organization’s entities decided they could deduct as business expenses. Presumably, those entities used return preparers who were aware of and understood themselves to be in compliance with Internal Revenue Code Section 162. It specifies that expenditures pass muster only if they’re ordinary and necessary.

The article zeroed in on deductions for haircuts and makeup. There were payments of more than $70,00 for haircuts and hairstyling for TV when Mr. Trump starred on NBC’s “The Apprentice,” as well as payments of at least $95,464 to First Daughter (similarly self-proclaimed) Ivanka Trump’s favorite hair and makeup artist.

Many tax professionals commented on those outlays. An example: When Yahoo Finance’s “The Ticker” interviewed Thomas Cooke, a professor of business law at Georgetown University’s McDonough School of Business, he said that the deductions for haircuts and makeup were likely not legitimate business expenses.

Professor Cook mentioned what goes on in his classes when the discussion gets around to Section 162. “We will go through a list of what’s ordinary, necessary business expense. That would more likely tilt the needle towards not appropriate. Do you know anybody else spending that kind of money on haircuts? I think the answer is probably not.” I’m on board with his answer.

Let’s look at several Tax Court decisions that concerned payments of hairdressing and makeup costs. All the payments were chump change, compared to those made on behalf of Mr. Trump and his daughter. Also, unlike the Trumps, the taxpayers weren’t A-List celebrities.

Margot Sider wrote off the cost of 45 extra beauty-parlor visits. They were made, she told the court, only because her hairstyle was an integral part of her job demonstrating and selling "a high-priced line" of cosmetics in a department store to a "sophisticated clientele." As soon as she stopped selling, she went back to a simpler style.

At her trial, Margot cited a 1963 Supreme Court decision written by Justice John Marshall Harlan: "For income-tax purposes Congress has seen fit to regard an individual as having two personalities: One is a seeker after profit who can deduct the expenses incurred in that search; the other is a creature satisfying his needs as a human and those of his family but who cannot deduct such consumption and related expenditures."

Margot maintained she'd spent the amount in issue as a "seeker after profit", not as "a creature satisfying her own needs." That satisfied the judge, who ruled she was entitled to fully deduct expenditures beyond "the ordinary expenses of general personal grooming."

Money Magazine’s September 1979 issue noted that actress September Thorp persuaded the court that she was entitled to deduct $465 for makeup. September’s slam-dunk summation: "I'm in Oh! Calcutta! and I have to appear nude onstage every night, so I cover myself with body makeup. I go through a tube every two weeks, and it's very expensive."

The Trumps shouldn’t be buoyed by back-to-back triumphs for Margot in 1978 and September in 1979. Both wins were outliers. Usually, the court and the IRS read the rules the same way. 

Segue to 1981, when the court disallowed grooming expenses claimed by Vivian Thomas, a private secretary for an attorney who required her to be perfectly coiffed at all times while in the office. Vivian deducted the cost of twice-weekly trips to the beauty parlor. Sorry, said the court, but a secretary's coiffure maintenance costs aren’t allowable—even in her case.

Similar outcome in 1987, when the court decided big-name-fashion-designer Mary McFadden couldn’t deduct $4,415 for hairdressing expenses in 1982 and $3,495 for 1983. Mary got exactly nowhere with her argument that she’s “noted professionally for her distinctive hair style.”

Ditto in 2011. The court nixed deductions for makeup, manicures and teeth whitening claimed by Anietra Y. Hamper, an anchor for morning and noon news programs at WBNS, Channel 10, in Columbus, Ohio. It mattered not that WBNS required her to maintain a professional appearance.

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