The federal government allows electricians to deduct an array of work-related expenses. However, the types of expenses and the deductible amounts may be different depending on whether you own the business or work as an employee. Generally, more deductions are available when you work for yourself.
Employee Work Vehicle
Most electricians have to travel every day to service customers. If your employer requires you to use a personal vehicle for local travel and does not reimburse you for those travel costs, then you can deduct the actual cost of gasoline, oil, parking and tolls. To simplify your recordkeeping, the IRS allows you to use the standard mileage rate for each work-related mile you drive in lieu of deducting the actual cost of gas and oil. Although the amount changes each year, in 2010 you can deduct 50 cents per mile. To claim this deduction, you must be eligible to itemise deductions on Schedule A. Your total mileage costs are part of your miscellaneous deductions, of which the total is only deductible to the extent it exceeds two per cent of your adjusted gross income.
If you are a self-employed electrician, you can choose to use the standard mileage rate, but in most cases, you can increase your deduction by using actual costs. Your deductions for the vehicle can include gas, oil, tolls, parking, insurance, lease payments or depreciation, tires, registration and all repairs. Provided you use the vehicle solely for the business, all expenses are 100 per cent deductible. However, if you use the vehicle for personal purposes as well, you must allocate the expenses between the uses. For example, if the vehicle is used solely for work Monday through Friday and for personal use on the weekends, a fair allocation is to only claim 5/7 of the costs as a business expense.
Electricians typically use a lot of equipment and tools. If you are an employee, you can deduct the cost of these tools if your employer requires you to purchase them and does not reimburse you. Generally, if the tool is only expected to be useful for a year or less, you can deduct the total cost as a miscellaneous expense. Otherwise, you may need to take the deductions over the useful life of the tool. If you are self-employed, you are generally allowed to deduct the full cost in the year of purchase, regardless of its useful life and provided your annual equipment and tool purchases do not exceed £162,500. Purchases in excess of this amount must then be depreciated over time.
Electricians who operate their own business can fully deduct all compensation they pay to employees. The only requirement is that the salary be reasonable. There is some flexibility in what is considered reasonable. However, it is unlikely that the IRS will consider a £325,000 salary to a newly-licensed electrician as reasonable. Electricians who are employees must include their entire salary in taxable income for the year.