When it’s time to tally up your business expenses, there are some expenses that just aren’t deductible. To help us make taxes this year a bit easier, we’ve asked our friends at Track to shortlist 10 of the most common attempted business expense deductions that won’t make it with the IRS. Check out the top 10 deductions freelance creatives should take this year.
Wardrobe, Fashion & Beauty
In 2016, a successful event planning consultant in New York City, attempted to deduct the purchase price of a $25,000 Hermès Birkin handbag, justifying she “only used it to carry [her] laptop and papers for work.”
Thinking about writing off
• That designer suit you wear “only for meetings”?
• The running shoes you bought to (professionally) walk dogs?
• The manicure, haircut, or personal training you had before your big presentation?
Those are not going to be tax deductible expenses. Unless that polo shirt has your company’s logo on it, any clothing or fashion accessory that you bought (even “just for business”) is not on the IRS’ list of acceptable expense deductions for your business.
A rare example of an acceptable fashion expense deduction: if you purchased “theatrical clothing” (aka clothing you would not be able to reasonably wear in the place of regular clothing). Think monster costume — not Chanel dress or Zenga suit.
Here are a few questions the IRS may ask you in an audit, to determine if your wardrobe expenses are deductible:
• Did someone other than yourself (ie: your client) instruct or require you to purchase this wardrobe item in order to perform work for your client?
• Does the clothing clearly feature your business name or logo (or that of your client)?
• Is the item only for intended for reasonable use in the course of normal business?
• Is the item otherwise unsuitable for everyday wear, or can not take the place of your regular clothing?
“No” answers to any of the above would significantly reduce the likelihood the IRS would accept these expenses as being deductible. (For more specifics, check out IRS Publication 529).
Charity, Donations & Giving
In 2013, a well intentioned photographer in California contributed $25,000 to a local “nonprofit” environmental organization. Unfortunately, she didn’t realize she had “donated” to an organization that did not yet hold tax-exempt status with the IRS. The result? The photographer’s taxable income was $25,000 more than she reported.
Donations that are not considered tax-deductible:
• Contributions to organizations that do not hold tax-exempt status
• Contributions to a political party, candidate or political action committee.
• Donating “your time” (ie: claiming a monetary value for the time you volunteer with an organization).
Claiming above fair market value for the belongings you donate to a thrift store, charity, church or other non-profit organization.
Check out more specifics in IRS Topic No. 506 Charitable Contributions.
The membership dues of joining or belonging to a club, regardless of the promising client referral opportunities, are not deductible.
Examples of memberships that are not considered tax-deductible:
• Fitness clubs
• Social or dining clubs
• Country clubs or yacht clubs
Some memberships (like qualified professional organizations, ie: AIGA if you’re a graphic designer) may be deductible. To find out more, see IRS Publication 526.
Fines & Penalties
Paying off your parking ticket is not considered tax deductible.
No matter how many speeding tickets you racked up getting to your client’s location or parking tickets when you stay late, the IRS won’t cut you any slack on these. Also, don’t even go there if attempting to deduct anything in connection with anything you’ve done illegally.
Examples of costs rising from penalties, fines or otherwise violating the law not considered tax-deductible include:
• Parking or speeding tickets
• Late fees
Unless you pass the IRS’ “For-Profit Endeavor Test,” your hobby is not tax deductible, even if you sell several bespoke scrapbook layouts to friends.
If you make a living as a photographer, you can’t deduct charging your friend to DJ at their party or for one-off jobs.
The IRS clearly defines the difference between a hobby and a job.
Excessive meals & entertainment
You can only deduct 50% of the value of your legitimate business meals or entertainment expenses.
No matter how much you want to impress your clients, if taking them out to dinner, you can only deduct 50% of your meals and entertainment costs. Abuse or over-utilization of this category greatly increases your chances of getting further audit review.
Good news: most accounting apps will automatically deduct only 50% if you categorize the expense to “Meals & Entertainment.”
Avoid the following tax-traps:
• Deducting the entire value of the meal or entertainment receipt.
• Deducting what the IRS considers a “lavish or extravagant.”
Learn more details on the IRS’ rules for meals and entertainment.
Diet, fitness & coaching
Unless your doctor order it, your personal trainer doesn’t count as a deduction.
Expenses incurred for healthy lunch on your own, gym fees, yoga class, running shoes, or coaching costs are not deductible as they fall squarely in the personal expense category.
Examples of diet, exercise or fitness expenses that are not considered tax-deductible include:
• Healthy meals or snacks
• Gym membership fees or classes
• Personal trainers, instructors
• Fitness equipment or apparel
To learn more, see IRS Publication 502.
Flying to Hawaii won’t count as a business expense just because you spent five minutes in a meeting. You need to demonstrate a reasonable intention that the travel was primarily intended for business.
If you want to be able to deduct your travel costs, be able to demonstrate that at least one of the exceptions below to be true:
• You did not have substantial control over the timing and logistics of the trip, destination transit. (Note: Being self-employed, you probably shouldn’t try to claim this exception.)
• If traveling outside the US, you were not abroad for more than 7 days.
• If traveling outside the US and you were abroad for more than 7 days, you spent less than 25% of your time on personal activities.
• Vacation was not a major consideration.
To learn more about the nuances of acceptable travel expense deductions, see IRS Topic No. 511.
No matter how stressful your journey from your home to your office is, it’s unfortunately not deductible.
Although you can deduct the costs for traveling between your home and your client’s site, you can’t deduct the cost of traveling between your home and your office (or coworking space, or coffee shop).
For more info, see IRS Topic No. 515.
Discretionary, luxury costs are generally not deductible. Even if you’re a fashion blogger, purchasing a new handbag “for research” is almost always not an acceptable expense deduction. Unless you are in a for-profit profession selling the produce you grow on your property, you can’t deduct the costs of growing your fruit or vegetables. No you can’t deduct the cost to stable your riding horse, groom your purebred show dog, or keep your art glass collection clean.
Check out the top 10 deductions freelance creatives should take this year.
This article is intended for general educational purposes based on generalizations and does not replace professional accounting, investment, legal, tax or business advice and is based on the IRS guidance for tax year 2017. You should employ the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.