As a small business owner, deductions and credits can have a big impact on your tax bill. One question that often comes up is whether you can deduct a purse as a business expense. The answer depends on how you use the purse.
The Requirements for Deducting a Purse
To deduct a purse as a business expense, you must meet a few requirements:
- You must use the purse exclusively for business purposes
- The purse must be an ordinary and necessary business expense
- You must keep detailed records to prove business use
If you do not meet these tests, the IRS will disallow the deduction. Let’s look at each requirement in more detail:
Exclusive Business Use
To deduct a purse, you must use it 100% for business purposes. If you use the purse for both business and personal reasons, none of the cost is deductible. However, you can designate multiple purses for different uses. For example:
- Purse A is used 100% for business. The full cost is deductible.
- Purse B is used 50% for business and 50% personal. None of the cost is deductible.
Ordinary and Necessary Expense
The purse must be an ordinary and necessary expense for your business. This means the cost is common and appropriate for your trade or business. Factors include:
- Your type of business
- Your role and duties
- The purse’s intended function
A basic purse for carrying daily essentials is likely ordinary. But an expensive luxury designer bag may not be seen as necessary.
Proof of Business Use
You must have evidence to prove business use of the purse. This includes detailed records showing:
- The amount paid for the purse
- When and where you used it for business
- What business items you carried in it
The more detailed your records, the better in case of an audit. Photos and receipts of items carried can help. A calendar or log of usage is also useful.
Examples of Deductible Purses
If you meet the requirements, here are some examples of purses that may qualify as deductible business expenses:
Nurse’s Medical Bag
Nurses often carry medical bags or purses containing items like:
- Bandages
- Gauze
- Scissors
- Thermometers
- Reference books
As long as the purse is used 100% for business, it can be deducted as an ordinary and necessary business expense.
Contractor’s Tool Pouch
Tradespersons like electricians often carry leather tool pouches containing items like:
- Wrenches
- Pliers
- Screwdrivers
- Flashlight
- Pens
Used exclusively for business, the pouch can be deducted. Make sure to track when it’s used for each client or job.
Artist’s Supply Bag
For artists that work on-site, a bag carrying supplies can be deducted. For example, it may hold:
- Paint brushes
- Pencils
- Charcoal
- Sketchpad
- Camera
Keep a log documenting use of the supply bag for each commission or project.
Real Estate Agent’s Open House Tote
Real estate agents often use open house totes imprinted with their photo, name, and contact. Contents may include:
- Flyers
- Business cards
- Listing sheets
- Buyer questionnaires
- Pens
The tote is deductible if used exclusively for open houses and showings.
Examples of Non-Deductible Purses
On the other hand, there are many instances where a purse would not qualify as deductible. For example:
Everyday Commuting Purse
An everyday purse you carry back and forth to the office is not deductible. Even if it holds items like:
- Wallet
- Keys
- Phone
- Tablet
- Water bottle
These are considered personal items, making the purse non-deductible.
Business Owner Status Purse
Expensive designer purses are often seen more as status symbols and not ordinary business expenses. Unless used 100% for critical business functions, deductibility could be challenged.
Dual Use Purse
If you use the same purse for both business and personal use, none of the cost qualifies for a tax deduction.
What About Repairs and Maintenance?
Necessary repairs and maintenance on a deductible purse can also be written off as a business expense. However, routine upkeep or improvements may need to be capitalized.
Deductible Repairs
Repairs simply restoring the purse to normal operating condition are currently deductible. Examples include:
- Replacing a broken strap
- Fixing a torn lining
- Re-stitching seams
- Polishing scratched hardware
- Dyeing a stained exterior
Capital Improvements
Upgrades and improvements may need to be capitalized and depreciated over time. For example:
- Replacing cheap hardware with expensive metal parts
- Adding extra compartments or features
Consult your accountant on when repairs can be expensed vs. capitalized.
Substantiation Requirements
To deduct a purse, you must meet strict substantiation requirements under the tax rules. This includes proof of:
- Amount paid
- Purchase date
- Description of the item
- Business purpose
- Extent of business use
It’s critical to keep detailed, contemporaneous records. Allowable methods include:
Itemized Receipts
Obtain an itemized receipt showing:
- Seller’s name
- Date of purchase
- Amount paid
- Description of the item
Usage Log
Maintain a log documenting usage, including:
- Date
- Business activity
- Business purpose
Items carried
Photos
Take periodic photos of the items carried inside the purse.
The more proof, the better. Lack of substantiation is one of the main reasons purse deductions are denied.
How Much Can You Deduct?
If you qualify to deduct a purse, the allowed deduction depends on:
- Cost – The total amount you paid to acquire the purse
- Business use percentage – Documented percentage used for business vs. personal
- Depreciation – Cost must be spread over the IRS recovery period
Let’s look at each factor:
Cost
This includes the purchase price plus sales tax, delivery fees, monogramming, and any other costs incurred to acquire the purse and put it into service.
Business Use Percentage
You can only deduct the portion of costs equal to the documented business use percentage. For example:
- 75% business use – Deduct 75% of total cost
- 60% business use – Deduct 60% of total cost
- 50% or less business use – No deduction allowed
Depreciation
You cannot immediately deduct 100% of the purse cost. Instead, you must spread deductions over the IRS recovery period, which is typically 5 years for most assets.
Use IRS Form 4562 to calculate the annual depreciation deduction for 5 years or the life of the purse, whichever is shorter.
Recordkeeping Tips
Deducting a purse requires rigorous recordkeeping. Follow these tips:
- Save itemized purchase receipts
- Take periodic photos of the purse’s contents
- Keep a detailed usage log
- Calendar usage for each client/job/project
- Segregate personal outings in the usage log
Electronic and paper records are fine. Just be consistent and thorough.
Also note that heightened substantiation rules apply to certain luxury brand purses exceeding $500 in cost.
Impact on Your Tax Bill
If you qualify to deduct a purse, the tax savings can add up over time. For example, let’s assume:
- Purse purchase price: $1,000
- Business use: 75%
- Tax rate: 24%
Here is the potential tax deduction:
| Year | Depreciation Deduction | Tax Savings |
|---|---|---|
| 1 | $200 | $48 |
| 2 | $160 | $38 |
| 3 | $128 | $31 |
| 4 | $102 | $24 |
| 5 | $82 | $20 |
| Total | $672 | $161 |
As you can see, deducting the purse over 5 years yields total tax savings of $161. Make sure to maintain thorough records to support your deduction.
The Bottom Line
Deducting a purse as a business expense can provide valuable tax savings. But you need to meet several requirements:
- Exclusive business use
- Considered ordinary and necessary
- Proper substantiation of details
Purses that function as medical bags, tool pouches, supply kits or open house totes are often deductible. But everyday commuting purses and status symbol bags typically don’t qualify.
Consult a tax professional to assess whether your specific purse can be deducted as a business expense. With careful recordkeeping and compliance, the tax benefits can be significant.