Question

??David, a CPA for a large accounting firm, works 10- to 12-hour days. As a requirement for his position, he must attend social events to recruit new clients. In addition to his job with the accounting firm, he also has private clients in his unincorporated marketing business. David purchased exercise equipment for $3,000. He works out on the equipment to maintain his stamina and good health that enable him to carry such heavy workload. What tax issues should David consider?

Answer 1

David operates in the capacities of both an employee of his company and as an individual business owner. His purchase of $3,000 worth of exercise equipment can be analyzed in many different ways. Sec. 62(a)(1) provides for AGI deductions of certain business expenditures, but only if the taxpayer is not engaged in services that which would constitute an employee status. Even though David, in one scenario acts as an owner/employee with regard to his unincorporated private practice, he would not qualify for Sec. 62 2(A) deductions for reimbursed employee expenses. Furthermore, this expense is neither ordinary, necessary, nor is it reasonable in amount. David would therefore not qualify for any “for” AGI deductions allowed in the IRC. Another option at this point is to try to deduct the expense under the rules of Sec. 212, which affords individuals the right to deduct ordinary and necessary business expenses for “(1) for the production or collection of income ;(2) for the management, conservation, or maintenance of property held for the production of income; or (3) in connection with the determination, collection, or refund of any tax.” As none of the aforementioned requirements are met, David would not qualify for a “from” AGI deduction either. The section of the IRC that relates to David’s scenario is Sec. 212, which states that unless expressly provided for, no deduction shall be allowed for personal, living, or family expenses. In my opinion, David’s purchase is personal in nature, as it does not directly provide for the production of income. It would also be deemed unnecessary for his line of work and consequently, the expense is not deductible for business purposes. The only option available to deduct the expense under Sec. 213(d)(1)(a) should the $3,000 cost exceed 10% of his AGI.