There’s been a firestorm of media attention on Gov Palin’s new $150,000 wardrobe. It was purchased by the Republican National Committee and she’s stated that she’s going to donate it to charity at the end of the campaign.
Putting aside any discussion of whether it’s right or whether she spent too much money, what are the tax consequences of this? Typically if someone gives you a gift that is more than $12,000, then the gift is taxable to the donor. If you trade your services for something other than money, it’s considered income to you and is taxable. In other words, if you make the argument that Gov. Palin’s job right now is running as VP, then the clothes could be considered a form of compensation.
And then there is the argument that it’s not taxable because she’s planning to donate the clothes. That’s the argument that I hope the Republicans continue to stick by and win. That’s because that’s something all of us business owners could use!
Right now in order to get a deduction for clothes that you purchase by your business the clothes must be either uniforms (with some kind of insigna or identifying brand) or safety related. Even that has been challenged. In one case, a worker was required to have closed toe boots and he didn’t get the deduction for those as safety.
But, if all you have to do is donate your clothes at the end of their useful life (to you), well, I think all business owners just picked up a deduction. In my case, I buy clothes specifically to wear on stage for seminars. I might very rarely wear them outside of that function. After a few years, I donate them. Right now I don’t take a deduction, but, boy, I’d like to.
I’ll be watching this one carefully as it develops.