Can You Claim Tools for Work on Taxes?

Understanding how work-related expenses, such as tools, impact your taxes can be complex. Tax laws are subject to frequent changes, which can significantly alter what you can claim. Grasping current regulations is important to determine potential tax benefits. This article clarifies the rules surrounding the deduction of tools for work, focusing on who is eligible and how these deductions are calculated and reported.

Determining Your Eligibility

Eligibility for deducting work tools on your tax return largely depends on your employment status. The Tax Cuts and Jobs Act (TCJA) of 2017 suspended the deduction for unreimbursed employee business expenses for tax years 2018 through 2025. This means most W-2 employees who pay for tools and are not reimbursed generally cannot deduct these costs. This suspension applies to miscellaneous itemized deductions previously subject to a 2% adjusted gross income (AGI) limitation.

However, this suspension does not affect all taxpayers. Self-employed individuals, such as independent contractors, freelancers, or sole proprietors, who report their income and expenses on Schedule C (Profit or Loss from Business), can still deduct the cost of tools used in their trade or business. For these individuals, tools are considered a business expense that reduces their net business income.

Beyond self-employed individuals, a few specific categories of W-2 employees may still be able to deduct certain work-related expenses, including tools, on their federal tax returns. These exceptions include qualified performing artists, fee-basis state or local government officials, and individuals with disabilities who incur impairment-related work expenses. The most important consideration for any taxpayer is their primary employment classification when assessing eligibility for tool deductions.

Defining Deductible Tools

For those eligible to claim a deduction for tools, understanding what types of tools qualify is important. Tools must be “ordinary and necessary” for your business or profession. An ordinary expense is common and accepted in your industry. A necessary expense is helpful and appropriate for your trade or business, though it does not have to be indispensable.

The tools must also be directly used for earning business income. This means there must be a clear connection between the tool and the income-generating activities of your business. Tools used for personal purposes do not qualify for a deduction.

Examples of deductible tools can vary widely by profession. A carpenter might deduct specialized hand tools or power saws, while a mechanic could deduct diagnostic equipment. A graphic designer might claim software necessary for their work, and an artist could deduct brushes, sculpting tools, or other art supplies.

Calculating and Reporting Your Deduction

Accurate record-keeping is fundamental for any tax deduction, especially for tools. You should maintain meticulous records, including receipts, invoices, and proof of payment, for all tool purchases. These records should clearly show the date of purchase, the cost of the tool, and its business purpose, as they are essential for substantiating your deduction if the IRS has inquiries.

Eligible taxpayers have several options for deducting the cost of tools. Smaller, inexpensive tools can often be expensed in the year of purchase under the de minimis safe harbor election. For tax years beginning in 2024, this allows you to immediately expense items costing up to $2,500 per invoice or item if you do not have an applicable financial statement, or up to $5,000 if you do. This election simplifies record-keeping for low-cost assets.

For more substantial tool purchases, Section 179 deduction or bonus depreciation may be available. Section 179 allows eligible taxpayers to deduct the full cost of qualifying tools in the year they are placed in service, rather than depreciating them over several years. For tax years beginning in 2024, the maximum Section 179 expense deduction is $1,220,000, and this limit begins to phase out if the total cost of Section 179 property placed in service exceeds $3,050,000. Bonus depreciation is another option for immediate expensing, allowing businesses to deduct a percentage of the cost of qualifying new or used property in the first year. For property placed in service in 2024, the bonus depreciation rate is 60%, phasing down in subsequent years.

If tools are not fully expensed using the de minimis safe harbor, Section 179, or bonus depreciation, their cost must be depreciated over their useful life. Most tools are categorized as 5-year or 7-year property for depreciation purposes under the Modified Accelerated Cost Recovery System (MACRS). This means the cost is spread out and deducted over several years. For self-employed individuals, all these deductions for tools are typically reported on Schedule C, Profit or Loss from Business, reducing their taxable business income.