“The Implant” – Double Dipping

When George dips his chip a second time at the wake to memorialize his girlfriend Betsy’s aunt, Betsy’s brother Timmy accuses him of double dipping his chip. What’s so bad about double dipping anyway? Could double dipping be illegal?

We’re just lawyers here, so it’s not up to us to adjudicate social norms. Even though ew, gross. But, believe it or not, “double dipping” is actually a term in tax law to refer to when a taxpayer or tax entity gets a double benefit from the same taxable money by deducting the same expenses from taxable income twice under two separate labels.

Or, in non-legalese basic english, claiming two tax benefits for one expenditure. For instance, and most commonly, this comes up when a taxpayer may want to utilize one or more of the tax credits or tax deductions available when pursuing a higher education. A taxpayer cannot take multiple credits, or combine an education credit with the same tuition money being used under a qualified 529 tax deductible plan. Otherwise, this would be considered double dipping by putting the same money chips into two separate savings dips.

This can also play out in business expenditures as well. In a Seinfeldian example, let’s say Leslie the low talker wants to deduct all the expenses of manufacturing those trendy puffy shirts. She can do this in one of two different ways. She could either deduct the “costs of goods” (meaning the costs of the various materials used to make the shirts, employee salaries, shipping costs, and so on) from the sale value of each shirt so that she has a a profit number on each shirt sold, or she could deduct all these things as total business expenses from the total revenue. But Leslie can’t do both. That would be considered double dipping.

In 2020, this may become especially complex and relevant due to the various loans the Federal government has extended to help small businesses during the Covid-19 pandemic. Without wading into too many details, the Paycheck Protection Program issued various “PPP” loans to small businesses, which have the potential to be relieved in the 2021 tax-year. The money from these loans are used to pay typical business expenses, which ordinarily would be tax deductible. Since the PPP loan is expected to be forgiven in 2021, the business would be getting 2 tax benefits from the moneys from that loan – getting what is essentially a tax free loan and then deducting the expenses paid from that loan. It would amount, to you guessed it, a double dip by the taxable entity.

Tax law is really complicated and you should consult a real profession, not Barry Prophet, before making these decisions. But the simple rule is that you can’t double dip, and get 2 benefits from the same taxable moneys. Don’t be like George and shove your whole mouth in the bowl of tax savings. Like Timmy said….