By: Jeremy Eldridge
Any so-called tax planner can advise on how to spend money to create tax deductions. A good tax planner can create tax deductions on money you’ll be spending regardless and can create tax deductions for items on which you want to spend money. If firearms purchases and firearms training were tax deductible, I’m certain business owners supporting the second amendment would be happy to reinvest their tax savings in additional firearms or training.
I am often pitched scenarios on whether an expense, especially an expense which is both personally enjoyable and professionally needed, is tax deductible. The answer to any tax question is always “it depends.” Theoretically any cash outlay is deductible to some taxpayer, because there are in infinite number of situations that create the circumstances which would allow any expense to be considered tax deductible. Firearms and tactical training could betax deductible, depending on the circumstance.
Per IRS code section 212:
“There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income; for the management, conservation, or maintenance of property held for the production of income; or in connection with the determination, collection, or refund of any tax.”
In layman’s terms, if a business owner expends cash in the regular exercise of a business, that expense will result in a deduction from income. Any ordinary and necessary expense incurred in the production of income or the management/conservation of property regularly used in the production of income will result in a tax deduction.
The question, one which despite being considered in a considerable number of tax court cases is still yet to be decidedly resolved, is what is ordinary and necessary? The problem with answering that question is, as indicated previously, there are an infinite number of businesses that are each surrounded by different facts and circumstances.
According to Justice Cardozo in Welch V Helvering (1933 US Supreme Court) on the meaning of the word ordinary:
“What is ordinary, though there must always be a strain of constancy within it, is non the less a variable affected by time and place and circumstance. Ordinary in this context does not mean that the payments must be habitual or normal in the sense that the same taxpayer will have to make them often.”
Justice Cardozo is saying that ordinary can mean both an expense that occurs with normal or rare frequency.
According to Justice C.J. Marshall in McCulloch v State of Maryland (1819 US Supreme Court) on the meaning of the word necessary:
“Does it always import an absolute physical necessity, so strong, that one thing, to which another may be termed necessary, cannot exist without that other? We think it does not…we find that it frequently imports no more than that one thing is convenient, or useful, or essential to another.”
Justice Marshall is saying that an expense does not have to be as necessary as if a business could not operate without incurring that particular expense, only that the particular expense was deemed necessary by the business owner.
So, if a business owner finds that an expense is convenient or useful in the production of income or the maintenance of income producing property it shouldbe a tax-deductible expense.
A business that has been or suspects it will be victimized in attempted robberies where its cash, property, or employees may be subject to theft or harm should be able to demonstrate the necessity for either armed guards, or tactical training for its employees. A business that suspects a key employee will be the subject of attempted kidnapping or other harm should be able to demonstrate the need for active protection and/or training of that key employee. There are likely a number of additional scenarios that would allow for the demonstration of the necessity of this training.
Business owners should always consult with qualified professionals experienced in tactical training and firearms instruction should they proceed with this investment. Qualified professionals not only know what they’re doing but also dealing with tactically trained professionals can help substantiate your business deduction. In the event of an audit the auditor will be much more likely to disallow a deduction for “training” from an unlicensed, inexperienced individual. If you can show that, in addition to the expense being ordinary and necessary, you sought out a qualified instructor you will have a better chance of winning that item in the audit.
Facts and circumstances change between different business, and what should be a tax deduction for some may not be a tax deduction for all businesses. This article is not an authoritative commentary on tax law (no commentaries, aside from those made by tax court judges in tax court opinions, are) and you should consult directly with a trusted tax advisor before deducting any expense not directly associated with the regular operations of a business.
Jeremy Eldridge is a practicing CPA in the state of Indiana. Jeremy has been a licensed CPA since 2011 and owns his own tax and small business consulting practice, The Eldridge Group (eldridgegroup.net). Jeremy works with a wide variety of business owners and loves being a trusted resource to his clients.