What expense category do clothes come under?

Clothing expenses can be puzzling to categorize in your business accounting. Knowing where these costs fit helps keep your financial records accurate and ensures you're compliant with tax regulations.

Classifying clothing expenses

When it comes to categorizing clothing expenses, consider the purpose behind the purchase:

• Uniforms and work-specific attire: If the clothing is required for the job and isn't suitable for everyday wear, it falls under business expenses.
• Promotional clothing: Items featuring your company logo used for marketing are classified as advertising or marketing expenses.
• Inventory: For clothing retailers, clothes purchased for resale are categorized as inventory and included in the cost of goods sold.

Examples of clothing expenses

Remember that standard business attire that can be worn outside of work typically doesn't qualify as a business expense. Here are some examples to help you categorize clothing costs:

• Work uniforms: Specialized gear like medical scrubs or construction safety attire that are required for the job.
• Branded apparel: T-shirts or hats with your company logo given to customers or employees.
• Retail stock: Clothing items purchased by a boutique to sell to customers.

For instance, purchasing $500 worth of branded polo shirts for your sales team would be categorized as a marketing expense.

Tax implications of clothing expenses

Understanding how clothing expenses impact your taxes is important:

• Deductible expenses: Uniforms required for your job and unsuitable for everyday wear can be deducted.
• Advertising deductions: Branded clothing used for marketing purposes is deductible under advertising expenses.
• Inventory costs: For retailers, the cost of clothing inventory is accounted for in the cost of goods sold.
• Non-deductible expenses: Regular business attire that can be worn outside of work isn't tax-deductible.

Properly recording these expenses ensures accurate tax reporting and maximizes your allowable deductions.

Let Ramp automate your expense process

Managing and categorizing clothing expenses doesn't have to be a hassle. Ramp automates the expense process, helping you accurately track, categorize, and manage these costs with ease. Streamline your accounting and stay on top of your finances with Ramp.