Ms. Linda Smith, single, age 25 is a exotic dancer at an adult entertainment establishment located in New Orleans, Louisiana. Her first year in the business is 2012. Linda is considering having breast implants. Linda’s reasoning is that this “enhancement” will increase her income in her exotic dancing career. The cost of the surgery is approximately $8300. It is expected that the implants will have a useful life of several years.
Can Linda derive a tax benefit from the large amount she will have to pay for this surgery?
Linda Smith can deduct the $8300 expenses of surgery as a necessary and ordinary expense. Also, she can capitalize the cost of the surgery and they are depreciable.
I.R.C § 162(a)(2013) states that: “In general there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business….” In the line of her trade, the acquisition of breast implants serve as an improvement of an asset (breasts). Hence, as this is not a personal expense, the cost incurred on the breast augmentation could be considered as a “necessary and ordinary” expense in relation to the line of business Linda is in. In addition to that I.R.C § 167(a)(2013) states that: “There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) - (1) of property used in the trade or business, or (2) of property held for the production of income.” As we can see that in her line, the implants serve as a property used in trade or business, she can depreciate them. Also, the Treas. Reg. § 1.162-1 (as amended in 1993) states that “. Business expenses deductible from gross income include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer's trade or business, except items which are used as the basis for a deduction or a credit under provisions of law other than section 162.” Hence, as we can see that the breast…