Hand Tools
Are Hand Tools Tax Deductible?
If you own a business or are self-employed, you may be able to deduct hand tools, personal protective equipment (PPE), and other tools and equipment you need to do your job*.
These deductions can help with your tax burden since you don’t have an employer that pays part of your taxes. Before you know whether you can deduct hand tools from your tax return, you must know your tax status.
The information in this article is not tax advice, as we are not financial advisors, but only offer a glimpse of some possibilities to consider and investigate further. Seek the help of a licensed accountant or tax attorney in your state for definitive help with your taxes.
Who Can Deduct Hand Tools, PPE and Other Equipment?
In most cases, those who are self-employed or working as an independent contractor can deduct hand tools and other tools and safety equipment required to do your job. However, the Internal Revenue Service (IRS) is strict on who can claim deductions and what you can deduct.
Tax Status
Your tax status determines whether and how you can deduct hand tools and other equipment from your tax returns. Most self-employed people file a Schedule C with their 1040s. S corporations, C corporations, partnerships and limited liability companies usually use a different form or file their taxes separately.
Self-Employment
Because business taxes, even for an independent contractor, are often difficult, you should always consult with a tax professional for help filing taxes. For the IRS to consider you self-employed, you must “Carry on a trade or business as a sole proprietor or independent contractor.” Certain partnerships are considered as self-employed status, as well as gig workers.
Deductions for the Self-Employed or Independent Contractor
If you are self-employed or an independent contractor, you can take many deductions, including hand tools. Your accountant or tax attorney will have a complete list, but here are some common deductions you may be able to take:
- Advertising and marketing expenses.
- Bank fees.
- Business insurance premiums.
- Rent for your shop.
- Repairs and maintenance for your shop or home office.
- Safety supplies and equipment, such as personal protective equipment.
- Certain state fees.
- Hand tools, including:
- Torque wrenches.
- Screwdrivers and other driver tools.
- Sockets and ratchets.
- Wrenches.
- Pliers and clamps.
- Hammers, punches and pry bars.
- Insulated tools.
- Pullers.
- Diagnostic equipment and tools.
- Large tools and equipment, such as tire machines, wheel balancers, lifts and more.
- Certain travel expenses.
- Uniforms.
- Utilities.
- Vocational training.
Depreciation for the Self-Employed or Independent Contractor
You can also depreciate many tools, including hand tools. Depreciation spreads the cost of assets over the time the asset is used. Large equipment should be depreciated over several years, usually the expected life of the equipment.
Hand tools are usually depreciated under the IRS’s de minimuis safe harbor election rules. These rules allow a business to deduct tools that cost $2,500 or less, including hand tools such as torque wrenches, impact drivers, jacks, socket sets and more. Your business must meet the requirements to qualify for this type of depreciation.
If a tool or piece of equipment does not qualify under the safe harbor election rules, you could depreciate it under Section 179. This allows you to deduct 100 percent of the cost of certain property for the tax year you put the tool in service. The maximum amount you can take for Section 179 depreciation changes each year. In 2022, it was $1,080,000. It is also limited based on your business’s taxable income for the year.
There are additional rules for Section 179 depreciation. You can also use other methods of deduction of certain equipment.
Bad Debt
You can also claim bad debt – you worked on someone’s vehicle and they didn’t pay you, a check bounced, or they reversed a credit card payment. Generally, you must use the accrual method of accounting rather than the cash method.
If you use the accrual method, you most likely paid taxes on the money you did not receive. If you use the cash method, you only pay taxes on the income you receive; thus, you would not have claimed it on taxes prior to losing the income.
Supplies
Items that last less than 12 months, including tools, are considered supplies. You can deduct them for their total cost. Supplies might include:
- Shop rags.
- Paper and other office supplies.
- Work mats.
- Plastic one-use tools such as certain clutch alignment tools.
- Grease / lube.
- Fluids used for topping off customer vehicles.
Many of these are often included in a catch-all charge labeled “Shop Supplies” on a customer’s invoice.
Vehicles
If you have a shop car that you use only for the shop, a wrecker, or any other vehicle used only for shop business, you could deduct the full cost of the vehicle over time. You can’t use it for personal use and deduct the full amount.
If you use your personal vehicle for shop business, you could deduct expenses such as fuel and maintenance or mileage. You cannot deduct both. Also, if you choose the mileage deduction, you can only deduct miles you drove for business.
Uniforms, Clothing and PPE
You already know you can deduct this if you own a business. However, what if you work for someone? If your employer requires you to purchase your own uniforms and PPE and does not reimburse you for it, you can deduct it on your taxes. However, the clothing cannot be suitable to wear off the job.
Contact Abolox
Abolox carries many quality brands of hand tools and personal protective equipment for auto repair technicians. You can deduct many of these tools, supplies and other business expenses on your taxes. Keep your receipts and turn them in to your accountant or tax attorney when you turn in your other tax information.
Visit Abolox today to order the hand tools you need, whether you need a tool you don’t have or need to replace a tool you lost or broke.