Another Halloween is in the books. Your kids are still working their way through their full-size bars and leaving those lame "fun-sized" bits at the bottom of their bags. They won’t even notice if you swipe a few unless they’ve gone and inventoried their candy on a spreadsheet, in which case, congratulations, they’re growing up to be accountants. The National Retail Federation estimates that Americans spent $10.6 billion to celebrate spooky season this year. That includes $29.51 per household for candy, $31.59 for decorations, $33.75 for costumes, and $5.30 for greeting cards. (That decorations line item goes way up if you scored one of Home Depot’s 12-foot skeletons.)
All that spending means revenue for retailers, and naturally, the trick-or-treaters at the IRS make out like bandits gobblin up their share. State and local authorities divvy up nearly a billion more in sales taxes. But last month, Google Trends released their list of the 25 most popular costumes. So I thought it would be fun to check out how some of the favorites fare at tax time:
- Witches generally elect to be taxed as sole proprietors, which means reporting income and expenses on Schedule C. Eye of newt, toe of frog, and other potion ingredients go under "Cost of Goods Sold" in Part I, Line 4. Witches live deep in the forest, so travel expenses can be high. When it comes to deducting those costs, they can choose the actual cost of buying a broom. Or they can take the same 62.5 cents/per mile allowance as the rest of us.
- Spider-Man was bitten by a radioactive spider when he was just 15 years old. That means he was still Aunt May’s dependent because he wasn’t providing more than half of his own support. Bad news: the 2017 tax act eliminated Aunt May’s personal exemptions. Good news: that same act doubled the child tax credit to $2,000 and made $1,400 of it refundable. Peter can still earn up to $12,950 in tax-free income, which is the standard deduction for a single taxpayer.
- Dinosaurs don’t pay taxes. Don’t be ridiculous.
- "Eleven" from Stranger Things pays a confusing range of 80s-themed taxes. When Ronald Reagan took office in 1981, the first thing he did was cut the top rate from 70% to 50%. In 1986 (months after Metallica released "Master of Puppets"), Washington cut it even further to 28%. Here’s hoping El stuffed as much as she could in her IRA early, when rates were higher!
- Arrrrgh! Pirates don’t pay tax on their booty – which is just as well because they’d sooner cut your eye out. Instead, the captain and the quartermaster skim the ship’s expenses off the top before divvying up whatever’s left over. But if pirates did pay taxes, they would report their income on Schedule Sea. (And does anyone else find it ironic that the Pirates of the Caribbean DVD comes with an anti-piracy warning?)
- Playboy Bunnies work for tips. That means they report whatever they find in their garter at the end of the night to their employer, who adds those amounts to their credit card tips and reports the total on Box 7 of Form W-2. Bunny costumes, including fluffy cottontails, used to be deductible because they were not "suitable for ordinary street wear" (except on October 31). Unfortunately, the 2017 tax act eliminated deductions for unreimbursed employee business expenses.
Four out of five dentists surveyed agree it’s a good thing that Halloween comes just once a year. Unfortunately, that’s not the case for taxes. That’s why planning is such an important part of your year-round financial responsibility. We promise we’ll make it all less scary!