Here are a few typical expenses related to employees that you might have missed as business tax deductions.
Employee Uniforms
Your business may deduct costs for uniforms for yourself and employees if these are reasonable and necessary costs of doing business. For example, if you operate a restaurant, it is reasonable that employees wear a uniform while on duty. Some other examples of deductible uniforms and clothing are hard hats, theatrical dress, and other safety gear. You may not deduct costs for “street clothes” that you or your employees wear to work. For example, suits and general business attire are considered street clothes for both men and women. The “rule of thumb” is that if you can wear it anywhere and everywhere, it is not necessary as a business expense and is thus not deductible.
Tools and Equipment
Tools that employees are required to use for work are deductible, as well as required equipment. If you require employees to have specific tools or equipment, for example in a dental office, your business can deduct the cost of those tools. Employees should not be able to take tools or equipment home, for personal use. The 2017 Tax Cuts and Jobs Act removed computer and peripheral equipment (like copiers) from the definition of listed property, but company cars driven by employees are still in this category.
Subscriptions to Business, Trade, and Professional Publications
Businesses need well-informed employees who are up to date with the latest trends and technology in their fields. The cost of professional journals, trade publications, and business magazines, and books is well within the limits of “reasonable and necessary” business expenses, but be sure to include only business or professional publications.
Business Meals (But Not Entertainment)
For the 2021 and 2022 tax years, businesses can deduct 100% of the cost of food and beverages (along with taxes and tips) bought from a restaurant. Otherwise, you can usually only deduct 50% of the cost of the meal. Other business entertainment expenses are no longer deductible, as of 2018. Tickets to events, golf outings, and expenses for activities like fishing or sailing are no longer allowed.
How To Claim These Expenses on Your Business Tax Return
The most important tax responsibility of business owners, in addition to paying taxes, is to keep good records. You will need to:
Keep receipts of all these expenses, including details of the business purpose.Create a business policy and procedure manualthat spells out what your company provides to employees and restrictions such as the use of business-provided equipment or uniforms (like only wearing work uniforms on the job).
Where To Show these Expenses on Your Business Tax Return
For sole proprietors and single-member LLCs, show these expenses in the “Expenses” section of Schedule C. For partnerships and multiple-member LLCs, show these expenses in the “Deductions” section of Form 1065. For corporations, show these expenses in the “Deductions” section of Form 1120 or Form 1120-s for S corporations.
DisclaimerThis article presents general information and is not intended to be tax or legal advice. Consult with your tax preparer before attempting to deduct business expenses. Before you decide to require employees to pay these costs, check with your state department of labor; it may have different (higher) restrictions on requiring employees to pay these costs.
