Tonight is the big night. You get to put on your hand made sequin and crystal encrusted corset and work the crowd. You have spent countless hours making this piece of art, pricked your finger a hundred times and glued your thumb to your forefinger on more than one occasion. Now you better work!!
But wait…how many dollars did you spend on supplies and materials to make your corset? How many hours did you spend and what, if any of this is tax deductible? The answer is that if you are treated as a contractor, drag is your full-time profession and the article you created can only be worn for shows, then you can deduct the cost of materials including, sequins, crystals, glue, and anything else you purchased to make it. You cannot, however, deduct any value for the number of hours it took to create the corset.
If you are a W-2 employee as a full time female impersonator, you itemize on your tax return and your total employee expenses are more than 2% of your adjusted gross income, you can also deduct the costs of production for the corset.
If drag is a hobby for you and not a job, then the expenses you deduct are limited to the amount of income you earn. Meaning that if you only perform a couple of times a year and you win $500 in a contest, then you can only claim up to $500 worth of expenses.
Items like makeup, hosiery, and anything that can be worn outside of the club in your regular life are not deductible. Supplies that you only use for shows can be deducted. If you wear makeup and other items outside of the club, make sure they are separate from those you use for shows. This way if IRS ever comes knocking, you can prove the items deducted are only for performance wear.
Miles back and forth from the house to the club do not count, but if you leave the club to make a run to a store for supplies and back to the club, those miles can be potentially deducted. IRS does not allow for commute to be counted in your deductible mileage. Make sure to maintain a log or write each trip on a calendar.
Travel to a conference and related expenses can potentially be deducted as well. Conference fees, hotel, transportation, including air, car rental, ground transportation like taxis or Uber, half of meals and conference related expenses all count. However, if the conference lasts 2 days and you decide to stay a few days extra, none of the expenses for the extra few days count as expenses, which could be deducted. Only those directly related to the conference and incidental travel are included. And no, you cannot deduct the costs for your sweet sugar daddy to come along with you. Nor can you deduct the expenses if paid for by said sugar daddy.
You probably work out six times a week to maintain that girlish figure. Sorry, honey, you cannot deduct the cost of your gym membership. I know you want to tell IRS ” Bye Felicia”, but those are the rules.
The closet full of wigs you purchased this year are deductible since they are part of your costume collection. However, if you wear them out in your life outside of the club and not just for shows, then they are not deductible as a business expense.
We all know it is expensive to look fabulous! Make sure you know what you can claim and what you cannot on your return. Many items can potentially be deductible. IRS is cracking down on erroneous business expenses, especially for those people who are self-employed (paid via contract). Maintain receipts and records for all expenses. This includes a mileage log or at least a calendar with a list of where you went each day to reference.
If you are not sure what expenses you are able to deduct, please see a professional who can assist you in sorting out your expenses and using them in the most appropriate tax manner.
HLM Financial Group is located in downtown Decatur and offers accounting, tax preparation and planning, financial planning and investing. www.hlmonestop.com.