Sure, real estate agents and business owners should dress their best when meeting clients or attending business functions. They want to make a good impression and solidify their brand. Some professionals, such as attorneys, may be required to wear suits in the courtroom. And many ministers sport three-piece ensembles when addressing their congregations. Individuals who work outside purchase gloves and coats when temperatures plummet. Those in the asphalt business have their work clothing ruined regularly. And, if you’ve ever worked in the flooring industry, you know how quickly the knees of jeans unravel.
Deduction Fallacy: Many business owners believe their business attire is deductible. Sure, they’re deductible - until an auditor denies the expense. The sad fact is that most work clothing is not a tax write-off. Those who test this fact nearly always lose during and audit. Those who protest in Tax Court lose by a wide margin. Why? Because a lawyer’s $2,000 Armani suit is no more a business expense than a $200 suit worn to a wedding or a funeral. Work jeans are just as fashionable in Walmart as they are on the job site.
Most Clothing Not Deductible: Only clothing required to be worn by your employer (which we do not cover in this article) or governing authority and is NOT suitable for everyday wear are deductible as a business expense.
The term “everyday” wear also includes special events such as weddings, parties, funerals, and other special occasions. As a result, most clothing that you can wear in nonbusiness situations is not deductible as a business expense, even if required. Are you required to purchase a suit, shirt, and pants of a particular style and color? It’s not deductible. What about less fashionable attire, like coveralls and overalls? Not deductible.
That’s the general rule - attire one can wear outside the workplace is not deductible. But, there are two exceptions: Safety Gear and Uniforms.
Clothing that qualifies as protective equipment are deductible for tax purposes. A few common examples are steel-toed boots worn on construction sites, work gloves, safety goggles, and hard hats. Reflective vests worn by those working on or near roadways are safety gear. Scrubs, masks, and face shields used in the medical field (and everyone else due to COVID-19) are also safety gear.
Real Estate Agents do not need a lot of safety gear to complete their jobs. Those selling new houses and homes under construction can deduct the construction gear mentioned above. An agent selling vacant land and wooded lots in certain regions could also expense a pair of Kevlar-lined boots to prevent snakebite.
Uniforms and the Logo Rescue
Uniforms required for one’s job are deductible by the self-employed (not until 2024 for employees due to the Tax Cut and Jobs Act of 2017). A perfect example of a deductible uniform is a police uniform. The position requires this attire. It lets the public immediately recognize the individual’s status. And it is not easily worn while off duty without people thinking they’re on duty. Both the uniform and care of the uniform are deductible.
In many other industries, finding an example of a deductible uniform is problematic. But there is a silver lining – the business logo’s power to transform a typical piece of clothing into a deductible business uniform.
The Powerful Business Logo: Adding a distinctive, attention-grabbing logo to your business attire serves several functions. First, it makes for great advertising – your business name and emblem go where you or your employees travel. As long the individual wearing it is acting appropriately, your clothing plants some helpful marketing seeds. Second, it transforms clothing into a uniform – a consistent reminder of whom the wearer represents. And finally, it transforms non-deductible clothes into tax-saving tools!
But, Don’t Get Too Excited: Turning business-ware into uniforms might be an excellent way to promote your business and expense some clothing. But, the tax-savings does not happen without some effort and expense. Although there are few explicit requirements for uniform creation, here are some common-sense items to consider:
- Make the Logo Prominent: Make sure the logo is large enough to be noticed by the general public. Merely embroidering your initials in small letters on your dress shirts’ breast pocket probably won’t fly. But, a business-card sized area that includes the title of “Realtor” under your first and last name might be highly effective and deductible.
- Make the Logo Permanent: Attaching a pin, name tag, a sticker, or anything removable to a shirt does not make it a uniform.
- Be Consistent: This suggestion is about marketing and tax. Remember – uniforms are consistent. They have a similar theme; a consistent color and style. Tagging all items in your wardrobe with a logo for a deduction makes little business sense, and an auditor might point this out. Best to pick out a consistent fashion message and color scheme.
- Uniforms Cost Money: The attire you purchase for your uniform will cost money. The design of your logo (if you hire a professional) costs money. And, affixing the logo to clothes costs money. Spending $25 extra dollars to save $10 in tax makes little sense – UNLESS it is an investment that generates more than $25 in new business and tax savings.
- Think “Above the Waist:” Unless you have a super-creative uniform, shoes and pants are difficult to brand with a logo tastefully. No logo means no deduction. Limit your uniform to shirts, jackets, hats, and similar items. Also, be careful when purchasing these branded items for giveaways. There are limitations. Check out our article, Deducting Promotional Items and Gifts, for more information.
- Be Reasonable: If there’s one phrase I preach when taking tax deductions, it’s this: “Be Reasonable.” Make sure your clothing choice matches your market and clientele. Your expenses must be ordinary, necessary, and not extravagant under the circumstances. A collection of $150 silk blouses might make sense for a realtor selling million-dollar homes. But it may not fly if most of your clients are first-time homebuyers, and a nice polo or dress shirt would work just fine.
Deducting Your Uniform
For Real Estate Agents and business owners who are sole proprietors, uniforms get deducted as an Other Expense on Schedule C, Profit Or Loss From Business. The cost of cleaning and alterations are also part of the expense. For more information on Other Expenses, please read our article, ironically entitled Other Expenses.
One could argue that uniforms are purchased to promote business, making it an advertising expense. That makes sense. But they’re still deducted as an Other Expense. Why? I believe it’s because the IRS wants the outlay to be easy to spot and investigate (that’s a rumor). So, be reasonable!
Summary and Invite: Deducting clothing is far more limited than many owners realize. I hope this article has clarified any confusion you may have had regarding the deduction while helping you maximize tax savings.
If you’d like some assistance cutting an agent’s highest cost - taxes, check out our FREE Real Estate Agent Tax Organizer. If you’re extra-serious about minimizing taxes, check out our Real Estate Agent Tax-Cut Library. It contains over eight hours of tax-cutting information broken into twenty-nine searchable volumes. It’s also tax-deductible and pays for itself with the deductions you will find. Want to share your tax-cut with the whole agency? Check out our Broker Version of the Library.