Does your business require employees to wear uniforms or other special clothing? Under the Tax Cuts and Jobs Act (TCJA), employees can no longer deduct out-of-pocket expenses for those items.
Strategy: Buy uniforms or clothes for employees. The cost is deductible as an ordinary and necessary business expense. Similarly, reimbursements for these expenses are deductible by your business and tax-free to employees.
Here’s the whole story: Previously, employees could generally deduct uniforms and special clothes required for work as miscellaneous expenses, subject to a threshold of 2% of adjusted gross income (AGI). But the TCJA eliminates most miscellaneous expense deductions, regardless of AGI, for 2018 through 2025. So, employers may pay for these expenses and factor the cost into employee compensation.
Typically, your business can deduct uniform costs if they are reasonable and necessary costs of doing business. For instance, if you own a restaurant, it’s reasonable to require employees to wear a uniform during business hours. Some other examples of deductible uniforms and clothing are construction hard hats, other safety gear, and theatrical dress.
However, you can’t deduct the cost of “street clothes” you or your employees wear to work. Suits and general business attire are considered street clothes for both men and women.
Tip: Your business can also deduct amounts paid to clean uniforms and special clothing.
Small Business Tax Strategies