What can self-employed workers deduct?
Work clothes, supplies and medical expenses - finding the write-offs
(FORTUNE Small Business) -- Dear FSB: My husband is a self-employed construction worker. How can I determine what tax deductions we can take off? Our tax preparer mentioned work clothes and supplies? Can we use our medical receipts as a business deduction or can we only deduct insurance premiums?
- Tiffany, Holcomb, Mo.
Dear Tiffany: You are asking the right questions - determining what work expenses are deductible for the self-employed isn't easy and you should not just rely on a tax preparer. Do your own research as well.
There are several IRS publications that can help make filing your taxes easier. Thomas D. Klein, CPA and Professor of Accounting and Taxation at the University of Arizona, Eller College of Management, suggests you read Form 1518, "IRS Tax Calendar for Small Businesses and Self-Employed" and Form 535 "Business Expenses". Both documents are available at IRS.gov and are written in layman's terms.
Mark Nash, Partner, Private Company Services for PriceWaterHouseCoopers agrees that the IRS resources are a helpful, and suggests the next step is going to your tax professional with specific questions.
"A family's tax professional is the best resource to turn to because she is most familiar with the particular needs," Nash says.
To determine whether your husband's work apparel and supplies are tax deductible, ask yourself if items like steel-toed boots and work shirts can be worn outside working hours. If the answer is yes then they aren't tax deductible. If you have trouble answering, consider these examples from tax experts:
"A sales associate for a retail apparel company generally cannot deduct the clothes that he purchases for work because they can also be worn, whether they are or not, in non-work related situations," Klein says.
"If clothing items feature a company logo or colors, they are tax deductible because the worker isn't likely to wear those items off hours," Nash says. "A painter's plain white shirt and pants are not deductible, nor is a winter coat, because all may be worn off hours."
One hundred percent of the cost of medical insurance premiums are deductible for self-employed workers and their dependents, unless the self-employed individual's spouse is covered under a subsidized employment plan.
For example, If the wife is employed by a company, the husband will not be allowed to deduct medical expenses because he would be eligible for health insurance coverage under the employer's plan.
Klein says that other medical expenses - doctor's visits, prescriptions and the like - are self-employment expenses that are only tax-deductible if the taxpayer itemizes them and then only to the extent that they exceed 7.5% of the taxpayer's adjusted gross income, or the income amount before taking into consideration the standard deduction, itemized deductions and personal exemptions. He suggests checking the list of expenditures that qualify as medical expenses at the IRS website, IRS Topic 502 "Medical and Dental Expenses."