Holidays are drawing near, and most of us are scrambling with shopping, parties, and visions of sugar plums dancing in our heads. But have you ever realized how busy Santa must be? His last-minute gift list puts yours to shame. Fortunately, he’s got an entire North Pole full of elves to help manage the work. He’s even got a staff of attorneys on call, just in case. (His Christmas night run involves a lot of breaking and entering. SO much breaking and entering.)

If you’ve ever seen the classic Rankin/Bass Christmas special, Rudolph the Red-Nosed Reindeer, you know about Hermey, the elf who wanted to be a dentist. Well, Hermey had a brother, Leopold, who wanted to do taxes. And while you don’t think much about what Santa pays, you can be sure the grinches at the IRS do. So here are some thoughts on Santa’s tax bill, with a helpful assist from Leopold.

Santa 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, very profitable business focused on licensing and endorsements. In that sense, he’s like top athletes whose off-field income from endorsements far outstrips their on-field earnings. So how can Santa shelter some of his own presents?

Fortunately, Santa can take advantage of many of the same deductions as any other business owner. Those include:

·         Transportation. Santa can choose to deduct “actual expenses,” including maintenance, upkeep, and depreciation on the sleigh and reindeer chow. Or he can choose the standard allowance of $0.67 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 for the Section 45W “commercial clean vehicle credit” under the Inflation Reduction Act. 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 test.

·         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 on both counts, 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 facility” 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), perhaps with a cross-tested profit-sharing contribution, to maximize his own savings without letting the plan become as “top-heavy” as his sleigh.

·         Family employment. It’s not clear if Mrs. Claus holds a formal position or title 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!