If you work in the retail industry, you’re probably not pulling down the big bucks, even if you’re climbing the management ladder. The average annual salary for retail store mangers is $44,000; for general managers, it’s about $55,000; and district managers, just a hair above $71,000, according to February 2016 Payscale.com data. At the bottom rung, it’s much lower: Of the estimated 4.6 million retail salespeople, the annual mean wage is $25,760, according to the U.S. Bureau of Labor Statistics.
This makes every tax deduction crucial for those who plug away in the retail world. If the mean wage boils down to $10.29, as BLS figures show, then the strategy of learning and applying key deductions can easily amount to tax savings that match a full-time work week. Likewise, big mistakes and oversights can cost dearly. Here are five common tax mistakes to avoid that people who work in the retail industry make.
1. No Uniforms on the Tax Forms
The IRS rules for deductions based on clothing are fairly strict. Any clothing you can wear day-to-day outside of work cannot be deducted on your taxes. Incredibly, this also applies for pro athletes: As their warm-up outfits might be considered suitable for everyday wear, they likely wouldn’t qualify, either, according to tax-prep software website 1040.com.
That’s enough to scare away many taxpayers from making clothing deductions, but the rules change for many in the retail industry, said Ryan Brown, a partner at financial services firm CR Myers & Associates. “The cost of one’s uniform, and its respective dry cleaning, is one of many deductions that retail workers typically fail to consider when filing or preparing their taxes.”
Still, you need to be careful. “It’s not as simple as the fact that you don’t wear your clothes away from work,” said Andrew Oswalt, a tax analyst for Cedar Rapids-based TaxAct, a tax preparation software company. “So if your employer requires you to wear some spiffy new Steph Currys and they make your feet comfortable — as well as fashionable — you will still not be allowed the deduction.”
Safety clothing purchased for your job is deductible, according to the IRS. This includes hard hats, safety glasses, safety shoes or boots and work gloves.
2. Frittering Away the IRA
If a retail employer doesn’t set up a 401k for you, it’s up to you to create your own Individual Retirement Account, or IRA. On the one hand, you might feel that you need every penny you make just to pay the bills. But a few minutes crunching the numbers could turn up extra money to sock away that isn’t taxable.
“IRA contributions are a classic example of short-term pain, long-term gain,” said Scott Mazuzan, a certified financial planner and private client advisor for F.L.Putnam Investment Management Company. “Saving for retirement isn’t intrinsically or immediately rewarding, especially when every penny counts on a week-to-week basis. But IRA retirement accounts have unique characteristics that could present short- and long-term benefits to young savers in particular.”
3. Skipping the Tips and Slashing the Cash
Leaving tips and cash income off the books is a practice sometimes known as making money “under the table” — but it could seat you across the table from an IRS agent. “The IRS requires that individuals report all tip or cash income on their tax return,” said Mazuzan. “Failing to do so could result in an audit and further expenses down the line.”
Ironically, reporting the full amount could mean more money for you later on. “While it will cost more in the near-term, reporting tips and cash income could boost average earnings for Social Security purposes,” he said.
4. Not Springing for a Tax Pro
Although free tax software and search engines make it easy and cheap to file taxes by yourself, it’s no match for the sweet deductions — and sloppy mistakes — a skilled accountant or certified financial planner can uncover. “Finding a fee-only advisor or certified financial planner to weigh in can help an individual avoid expensive mistakes and identify key saving opportunities,” said Mazuzan.
5. Skipping the Line for a 1099
If you receive a 1099 form reporting your income to the IRS — or more than one because you hold down multiple jobs — it might be tempting to just throw a 1099 slip out and assume the IRS thinks you have only one job. Not so fast.
“After 2015, if a proper information return is not filed with the IRS, there are increased penalties,” said Grafton “Cap” Willey, CPA and managing director at CBIZ MHM. “Intentional failure to file will carry a penalty of $500 [per 1099]. The IRS is getting very serious about filing 1099s, and people being paid under the table run huge risks of penalties.”