The Influencer Tax Rules Are Just the Tax Rules

How many of you have had a client tell you they drove “about” 3,000 miles or spent “around” $8,000 in materials for their side hustle? In their minds, that answer is good enough to put tax season behind them. But is it good enough to pass muster under audit? Of course not, but how can you convey that to a client without knowing their eyes have glazed over in utter boredom? Likening their tax return to a game of horseshoes or hand grenades might wake them up a little, but real-world cases of taxpayers losing to the IRS are a sure-fire way to get their attention.

"Murder is legal…until you get caught"

A tongue-in-cheek joke my father used to say when a client tried to pass something off that they really shouldn’t on their tax return. As cringeworthy as it was to hear multiple times every day of tax season, it was not too far from the truth; if you cannot substantiate a deduction or position, you cannot and should not take it. Putting aside this morsel of wisdom, where this phrase failed to communicate the most important message was found in the client’s response: laughter. A chuckle might show that you have their attention, but without follow up, all they are left with is a funny line from their tax guy.

So how can we take this teaching moment and use it to bring our clients into the process? Instead of playing the comedian, play the storyteller.

What happened in Sami v. Commissioner?

Suleiman Sami, a full-time IT audit manager located in New York, claimed a variety of deductions spanning the three years under examination, including event tickets, celebrity meet-and-greets, various streaming subscriptions, and tens of thousands of miles driven for his luxury transportation and concierge business. The IRS challenged the deductibility of these seemingly personal expenses, leaving the Tax Court to decide where business promotion ended and personal consumption began.

What makes this case different is that Sami created a presence on social media through TikTok and Instagram to market his services, marking the first time the Tax Court has ruled on a case involving a social media influencer. Sami purchased, posted, and deducted experiences like catching passes from Tom Brady and Drew Brees, returning a serve from John McEnroe, and participating in a Tiger Woods-led golf clinic, claiming they helped his brand and services reach his high-net-worth clientele.

Sami's dubious deductions got mixed results

Ultimately, the judge ruled against the taxpayer, disallowing a combined $97,505 in claimed advertising expenses after finding that the celebrity experiences were undertaken primarily for personal rather than business purposes. The important part for practitioners is that the Court did not create a special standard for influencers. The same ordinary-and-necessary business expense rules, along with the prohibition against deducting personal expenses, apply regardless of how modern the business model may be. Combine this interpretation with the lack of formal books, commingled account usage, and missing Forms 1099 and W-9 for his subcontractors, and it starts to feel a whole lot more familiar to our own problem clients.

However, it was not all bad news for Sami: the one place he kept meticulous records was his trips as a driver. Each ride ended with his passenger exiting his vehicle and Sami notating the details of the trip, including the start and end points, itemized costs incurred on the way, and the client’s name. While these slips excluded the normally required odometer readings, the judge ruled that since his fleet of vehicles were used primarily in the transportation of passengers for compensation, section 274(d) did not apply, and the thousands of slips provided a reasonable basis for estimating deductions under the Cohan doctrine. This practice saved over $72,000 in vehicle-related deductions related to the transportation of passengers.

That result deserves a giant asterisk. Sami is not an authority for telling every gig worker that mileage logs are optional. His vehicles fell within a specific exception, meaning the strict substantiation rules of section 274(d) did not apply. An influencer driving to a photo shoot, a contractor driving to a job site, or a delivery worker using a personal vehicle should not assume the same treatment applies. Even thousands of contemporaneous records did not produce a perfect result; the Court still gave the deductions a 20% haircut because of their inexactitude.

From there, it was a mixed bag. Streaming subscriptions were denied, only 25% of his cell phone expenses survived, and ticket costs claimed as cost of goods sold failed for lack of proof that the tickets were actually resold. The same problem sank payments to relatives who covered driving shifts: the Court found their testimony credible but still lacked documentation establishing how much Sami actually paid them. On the other hand, credit card processing fees were allowed, and the Court confirmed that his transportation and ticket-resale activities remained qualified trades or businesses for purposes of the §199A deduction.

Poor records did more than cost Sami deductions. The Court also sustained the accuracy-related penalties. His background actually worked against him as a taxpayer with two accounting degrees who managed to preserve thousands of contemporaneous trip records had a difficult time arguing reasonable cause for failing to maintain books and documentation elsewhere. For our clients, that is another reminder that “I didn't know I needed records” becomes much less persuasive when their behavior demonstrates otherwise.

Half measures earn half results

The gig economy changes how business happens, but it does not change the tax rules. For preparers, that means working through a few basic questions before accepting a deduction:

1. Is this actually a business expense?
   A concert, sporting event, streaming service, vacation, or luxury purchase does not become deductible just because a client calls it “content.” Ask what the business objective was and how the expenditure is connected to the business.
2. Can the client prove it?
   Good substantiation cannot rescue a fundamentally personal expense, just as a legitimate business expense can still be lost without adequate records. Sami’s thousands of contemporaneous trip records saved a significant portion of his vehicle-related deductions, while undocumented payments to relatives were denied even though the Court found their testimony credible.
3. Is the business actually operating yet?
   Calling yourself a creator, consultant, or influencer does not automatically make every pre-revenue expenditure currently deductible. The Court noted that expenses incurred before an influencer activity becomes an operating business may instead fall under the startup-cost rules of section 195.
4. Are you capturing the income side too?
   The creator economy is not just about deductions. Products, services, travel, or experiences received in exchange for promotion may create taxable income even when no cash changes hands.

None of this should surprise anyone who prepares small business returns. The idea that becoming an influencer unlocks a different set of deductions is officially dead, and this time, the murder really was legal.