As 2012 draws to a close, most of us are preparing to take time off
and enjoy friends and family. But there's one famous name who works
harder than any one else this time of year -- everyone's favorite fat
man in a red suit, Santa Claus.
When you think of Santa, you probably focus on what he gives. But have you ever thought about what he pays? You can be sure the grinches at the IRS do!
is most famous for his holiday gift-giving. His "North Pole Foundation"
is set up as a not-for-profit under Internal Revenue Code Section
501(c)(3). But Santa also operates a second, highly profitable business
focused on licensing and endorsements. (In that sense, he's like top
athletes whose off-the-field income from endorsements far outstrips
their on-field earnings.) So how can Santa shelter some of his own
Fortunately, Santa can take advantage of many of the same deductions as any other business owner. Those include:
Santa can choose to deduct "actual expenses" (maintenance, upkeep and
depreciation on the sleigh, reindeer chow, etc.) or the standard
allowance (currently 55.5 cents per mile). In Santa's case, the sheer
length of his trip around the globe to deliver toys to all the good
little girls and boys makes the allowance his best bet. (His sleigh also
qualifies as "energy efficient" -- it's 100% "green," running entirely
on reindeer power, and even Rudolph's nose is low-wattage.)
- Uniforms and work clothes.
Clothing Santa provides for himself and his elves are deductible so
long as they're not "suitable for ordinary street wear." This time of
year it seems like everyone enjoys a red coat and hat. Still, we feel
confident Santa's classic look is distinctive enough to pass the IRS
- Home office. Home offices are
deductible so long as they're used "regularly and exclusively" for work
and constitute the "principal place of business." Santa's North Pole
workshop certainly qualifies, which means he can write off depreciation,
utilities, cleaning and maintenance, and holiday decorations. Code
Section 132(j)(4) even lets him deduct an "on-premises employee athletic
facilities" for hosting reindeer games.
- Retirement. Santa sure seems to love his job now. But how will he feel about his long night's work as he ages? He'll probably want to stuff some cheer in his own
stocking. The problem is those naughty nondiscrimination rules that
force him to contribute on behalf of his elves, too. We recommend a
"safe harbor" 401(k) to maximize his own contributions without letting
the plan become as "top-heavy" as his sleigh.
- Family employment.
It's not clear if Mrs. Claus holds a formal position in Santa's
organization. However, putting her "on the books" would let Santa boost
the couple's qualified plan contributions. Perhaps he might even
establish a Section 105 medical expense reimbursement plan to write off
his cholesterol medication as a business expense.
This holiday season, we wish you and your family all the best. And remember, we're here for all your year-end tax questions -- unlike Santa, we don't quit after the holiday!
Kenneth Hoffman counsels Entrepreneurs,
Professionals and Select Individuals in taking control of their taxes,
and businesses. Discover how I can help you overcome your tax and
business challenges. To start the conversation or to become a client,
call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m.
to 1:00 p.m. for a no cost consultation, or drop me a note.