Tax Court Tailors Outcome to Fit Clothes Deduction

Under prior law, an individual could deduct the unreimbursed cost of clothing or uniforms used for business that weren’t suitable for everyday wear. In a new case, Romana, TC Summary Opinion 2022-9, 6/16/22, the Tax Court allowed a nurse to deduct the cost and upkeep of scrub-like clothing that she purchased for herself. 

This was an aggressive approach by the taxpayer that resulted in a somewhat surprising tax victory. 

Background: Prior to 2018, an individual itemizer could deduct the cost of qualified miscellaneous expenses to the extent that the total exceeded 2 percent of adjusted gross income (AGI) for the year. For example, if you had an AGI of $100,000 and incurred $3,000 in miscellaneous expenses, your deduction was limited to $1,000. If you had only $1,500 in miscellaneous expenses, no deduction was allowed. 

However, the Tax Cuts and Jobs Act (TCJA) suspended the deduction for miscellaneous expenses from 2018 through 2025. So, even if you qualify under the regular rules, you can’t deduct any miscellaneous expenses in 2022. The deduction is scheduled to be reinstated in 2026.

For our purposes, the list of miscellaneous expenses encompasses employee business expenses, like office supplies and tools, that you pay for out of your own pocket. It also includes work attire that (1) is required to be worn as a condition of your employment and (2) is not suitable for everyday wear.

Facts of the new case: While she was at work in a plastic surgery clinic, a nurse wore clothing that resembled scrubs. She had purchased the clothing at her own expense at local department stores. In the operating room, she was required to wear scrubs provided by the clinic. Depending on the operating schedule for the day, she changed back and forth between her scrub-like clothing and the employer-provided operating room scrubs.

During 2017, the nurse also purchased, at her own expense, a white lab coat with embroidering on it. She bought it as part of a bulk purchase that included similar items fellow staff members bought. The lab coat cost approximately $45, and the nurse had it dry cleaned multiple times during the year. Otherwise, the costs of her work clothing can’t be precisely determined.

Tax result: The nurse was required to dress professionally and comfortably for her job. To do so, she purchased shirts and pants at department stores and an embroidered lab coat. Because the clothing resembled scrubs, the Tax Court determined that it wasn’t adaptable to general use as ordinary clothing outside of her employment.

Accordingly, the costs of the clothing and dry cleaning are deductible. Using its best estimate, the Tax Court allowed an overall deductible amount of $500 for the scrub-like clothing and lab coat.

Caveat: The Tax Court was more lenient than it has been in numerous prior cases. Notably, it allowed a deduction for “scrub-like” clothing that could easily have been characterized as being suitable for everyday wear. Keep this in mind for future situations involving your clients