There are many advantages to working as a freelancer or independent contractor, though when it comes time for tax season many cringe at the thought of handling self-employment returns.
Since freelancers receive all their earnings straight away, unlike W-2 earners, the quarterly tax payments or end of year payments back to the IRS are often drastic.
The one advantage self-employed individuals have come tax season is the number of tax deductions that are available to them. There are many costs that can be partially or fully deducted as business expenses including food, lodging, mileage, rent, utilities, and office supplies. But what about clothes?
Are work clothes tax deductible if you have a small business? What about for independent contractors and freelancers?
Factors that Determine Work Clothes
According to the IRS, certain factors determine whether an article of clothing is defined as one for work or one that is for personal use.
The cost of clothes or uniforms for work, as well as the cost of upkeep (dry cleaning, etc.), depends on if:
- The job requires that you wear special clothing, such as a uniform.
- The clothes are not suitable for everyday wear. For example, an article of clothing with a company logo printed or sewn onto the attire would qualify as a deduction since you probably would never wear it outside of work.
In short, if the clothes are designed and only used for work purposes than they are tax deductible.
Work Clothes vs. Clothes for Personal Use
Part of the confusion with deducting clothing expenses for self-employed individuals is the wording the IRS provides.
For example, a uniform that you wear based on company standards is acceptable as a tax deduction. However, say you work an office job, and it is expected that you wear a suit every day. Unless that suit has a company logo sewn on it, the clothing is technically not work clothing because the IRS assumes you could also wear the suit for personal use, and outside company time.
So if you want to remain fully compliant with the IRS than you need to exercise caution when you deduct clothes as a work expense, especially if the items could be worn outside the job.
Work Clothes Related to Self-Employment Jobs
The problem is that people that work for themselves, such as those that are self-employed, have no company standard or policy they need to follow. For example, Wal-Mart will require you to wear a uniform. It’s part of their policy.
Yet when you work for yourself, you may need work clothes to perform a job as a plumber, yet there is no company policy in place that says the clothing is mandatory.
Once again, if you follow the IRS manual word-by-word than it will tell you the work clothes and accessories must be related to the job and not suitable for everyday wear.
Therefore, a plumber can make the argument that the clothes are necessary to complete the job and would not be worn otherwise, even if the items are missing a company logo.
Like a lot of tax deductions related to self-employment, some personal judgment and logic are necessary. If you need the items to complete your job professionally and appropriately, then they qualify as tax deductions. However, if you are using the items as an excuse to catch a tax break than it will likely eventually catch up to you.
Does the IRS Audit for Self Employment Tax Deductions?
Getting audited by the IRS is a noteworthy concern for the typical American. In fact, according to a recent study by NerdWallet, one in four Americans are worried about a tax audit.
Ironically, the risk of getting audited is far lower than you might expect. During the last several years the IRS has reviewed approximately one percent of all returns, and a considerable part of that has to do with limited IRS resources.
Therefore, the IRS will not target you merely because they question the amount you deducted for work-related clothes. Nor will it scrutinize every other dollar you claimed as business-related expenses and tax deductions for self-employed individuals.
Of course, the target on your back gets larger the more income you earn and report each year, but the IRS is so overworked that they do their best to trust self-employed earners are telling the truth about their deductions.
It is not to suggest that you can get away with murder, yet if you have some articles of clothing that you need to complete a job, and wouldn’t otherwise (or rarely use outside a job) — then using the clothing as work-related expenses is acceptable.
How to Correctly Deduct Work Clothes from Self Employment Tax?
People that work for another employer file a work-related clothing deduction differently than those that work self-employed. While traditional employees will report the deduction as a “miscellaneous itemized deduction,” self-employed individuals use what is defined as a “business expensive” on their returns.
The good news is unlike W-2 earners you do not need to itemize every single item and are also not subject to the two percent limitation of those that are seeking a work-related reimbursement from the IRS.
To protect yourself in the event of an audit, it is critical that you save every receipt related to a purchase for any business expense, work clothes included.
It doesn’t matter if you purchase the clothing with cash, a personal debit card, or a business card. What matters is that you have written proof of the transaction in case the IRS wants to verify that you did spend money on new work clothes.
Staying organized with your receipts and business expenses is not only important when you first purchase the clothes, but also if you spend money for upkeep.
For example, someone that works a particularly dirty or greasy job may get their work uniform professionally cleaned. These expenses are work-related if the clothing is only used for the job, so you may claim them as well on a return but make sure you have receipts as well.
Work clothes are 100 percent deductible from your return. So if you spent $20 on the outfit, and it qualifies under the IRS definition of ‘work clothes,’ then you may deduct the entire amount.
Does the IRS allow other work-related accessories and tools as tax deductions?
In addition to clothing or uniforms that are work-related, self-employed earners may deduct other accessories and tools that are required and used for the job.
A hard hat and safety glasses are two favorite work accessories that independent contractors claim all of the time. They are required to be worn by law, and the client you are working for will rarely provide them free of charge.
Tools apply to blue collar jobs where it is clear you are using the items for work only purposes, and not just blowing $100 on a new tool set that you can write off as a legitimate business expense.
The same can be said of white collar jobs. For example, a person that has a home office can deduct not only a portion of rent/mortgage payment, utilities, cell phone bills, and mileage, but also office supplies and other materials needed to complete the job.
Utilize Your Tax Deductions to Lower the Amount You Owe the IRS
The IRS taxes self-employed earners substantially. As a result, freelancers should have tools at their disposal to help cut down on the tax they will owe the IRS.
Business expenses like work-related clothes is a luxury you should take advantage of. Most jobs, regardless if you are employed by a company or work on your own, require some clothing, accessories, tools, or supplies that you would not otherwise use for personal means.
By taking advantage of these deductions, you can lower the amount you owe the IRS since they tax self-employed individuals far higher than W-2 earners.