We're back with Amy Northard, a CPA for creative business owners, and today she's filling us in on the correct way to go about expensing coffee shop runs & clothing. Hopefully these tips help you in figuring out what is eligible to be written off and what isn't!
I think this question is secretly on all our minds. When can we deduct our Starbucks and clothing? The good news is that the answer isn’t “never!”
Coffee Shop Expenses
If you’re meeting a client or another vendor at a coffee shop your latte and muffin ordered during the meeting is a deductible business expense as long as you were meeting to discuss business.
If you’re just grabbing yourself a pick-me-up on the way to meet with a client, that would be considered a personal expense.
Working in the coffee shop? If you’re just there to get out of the house and have a different work setting, any drink and snack expenses during this solo work session needs to be paid with personal funds.
If you’re shopping for certain clothing to wear during client events or to wear at business functions, keep this rule in mind:
If it can be worn outside of work, it can’t be deducted as a business expense.
A few examples that come to mind are comfy shoes for being on your feet all day and a comfy dress (with pockets!) to blend into the background as you’re running the show. Even though the shoes and dress were purchased specifically for use on event days, they can’t be deducted because they could be worn outside of work hours.
If your business clothing expenses meet the following three tests, they can be expensed:
The clothing is required or essential for your job.
The clothing is distinctive or protective.
The clothes are not suitable for everyday wear outside work.
Let’s walk through an example that meets all three tests. A florist has assistants join her to help with the floral setup and she buys these assistants polo shirts to wear when they are at an event. This meets the first requirement because when the assistants are on site, they are instantly recognized by their branded uniforms. The logos on the polos help them meet requirement two because it makes them distinctive. The third requirement can fall into a grey area, but generally if you don’t wear the clothing outside of business hours, it will meet this test.
Now, instead of guessing, you’ll know when you can deduct your Starbucks and clothing. Just remember to keep those receipts!
This guest post was written by Amy Northard. Amy is a Certified Public Accountant (CPA) who has a passion for working with creative entrepreneurs all over the US and making the tax and accounting side of owning a business less stressful. For more tax tips and to learn about Amy’s Be Your Own CFO course, visit her website.