Can You Claim Work Expenses on Taxes? Here’s What to Know

Understanding whether you can claim work expenses on your taxes is essential for maximizing deductions and minimizing tax liability. This directly affects taxable income, influencing overall financial health. To navigate this area effectively, it’s important to understand the factors that determine eligibility for claiming such expenses.

Employment Status

Eligibility to claim work expenses depends significantly on employment status. Different rules apply to employees, independent contractors, and gig workers, each with distinct tax implications.

Employee

For employees, claiming work-related expenses has become more restrictive since the Tax Cuts and Jobs Act of 2017 (TCJA). Miscellaneous itemized deductions, including unreimbursed employee expenses, have been suspended until 2025. Exceptions exist for specific categories like educators or armed forces reservists. Educators can claim up to $300 for unreimbursed classroom expenses through the Educator Expense Deduction. Expenses reimbursed by employers under an accountable plan are excluded from taxable income, provided employees substantiate expenses and return any excess reimbursement.

Independent Contractor

Independent contractors can claim a wide range of business expenses on Schedule C of Form 1040. Deductible expenses include home office costs, travel, and supplies necessary for their work. The IRS requires these expenses to be ordinary and necessary for the trade or profession. For instance, a freelance graphic designer might deduct design software and a portion of their internet bill. Maintaining thorough records is critical as these deductions are often scrutinized. Additionally, contractors must account for self-employment tax, which includes a 15.3% tax for Social Security and Medicare.

Gig Worker

Gig workers, such as those operating through platforms like Uber or Upwork, are generally treated as self-employed for tax purposes. They must track and report earnings and expenses, as taxes are not withheld by the platforms. Gig workers can deduct expenses similar to independent contractors, such as vehicle costs or platform service fees. They are also responsible for quarterly estimated tax payments to avoid penalties. Detailed records of mileage, fees, and related expenses are essential for accurate reporting.

Common Eligible Expenses

Understanding which work expenses are deductible is key to optimizing tax filings. These must be ordinary and necessary for the taxpayer’s trade or business, as defined by the IRS.

Travel

Travel expenses are deductible when work requires being away from one’s tax home. These include transportation, lodging, meals, and incidentals incurred while conducting business. For instance, an independent contractor visiting a client can deduct airfare, hotel costs, and 50% of meal expenses. However, commuting costs between home and a regular workplace are not deductible. Substantiation with receipts and records is required, including details of the business purpose, dates, and locations. For 2023, the standard mileage rate for business use of a car is 65.5 cents per mile, which can be used as an alternative to actual vehicle expenses.

Professional Tools and Supplies

Professional tools and supplies necessary for work are generally deductible. While employees face restrictions, independent contractors and gig workers can deduct a broader range of items. For example, a photographer can deduct the cost of cameras, lenses, and editing software. Expensive items may be subject to depreciation rules, allowing deductions over several years. Section 179 of the Internal Revenue Code permits businesses to deduct the full purchase price of qualifying equipment in the year it is placed in service, up to $1,160,000 for 2023. Proper documentation, such as receipts and usage logs, is crucial.

Education and Training

Education and training expenses are deductible if they maintain or improve skills required for a current job or are mandated by an employer or law. For example, a software developer attending a coding bootcamp can deduct tuition and related fees. However, the education must not qualify the taxpayer for a new trade or business. The Lifetime Learning Credit offers up to $2,000 per tax return for qualified education expenses, benefiting both employees and self-employed individuals.

Reimbursed vs Non-Reimbursed Costs

Reimbursed costs covered by an employer or client through an accountable plan do not affect taxable income. For example, travel expenses reimbursed under such a plan are excluded from taxable income when proper documentation is provided.

Non-reimbursed costs, often incurred by independent contractors and gig workers, must be carefully tracked and reported to claim deductions. These include expenses like equipment purchases or professional memberships. The IRS allows these costs to be deducted directly from business income, reducing taxable income.

Record Keeping Essentials

Maintaining accurate records is essential for substantiating deductions and avoiding audits. The IRS advises keeping receipts, invoices, bank statements, and other supporting documents that clearly show the date, amount, and purpose of each transaction. For example, a mileage log or a categorized expense spreadsheet can simplify the process. Taxpayers should retain records for at least three years, though this period extends to six years in cases of underreported income exceeding 25% of gross income.

Effects on Taxable Income

Claiming work expenses reduces taxable income, lowering the amount of taxes owed. For self-employed individuals, eligible expenses are subtracted from gross income to determine net income. For instance, a freelance consultant earning $80,000 in gross income but with $20,000 in deductible expenses would report $60,000 in taxable income, potentially placing them in a lower tax bracket.

For employees, the impact is more limited due to the suspension of miscellaneous itemized deductions under the TCJA. However, targeted deductions like the Educator Expense Deduction can reduce adjusted gross income (AGI), which may increase eligibility for tax benefits like the Earned Income Tax Credit (EITC) or lower the phase-out of income-based deductions and credits.

Self-employed individuals should also consider how deductions interact with self-employment taxes. Business expenses not only reduce taxable income but also lower the income subject to the 15.3% self-employment tax. Additionally, eligible taxpayers may benefit from the Qualified Business Income (QBI) deduction, which allows a deduction of up to 20% of qualified business income, subject to income limits and restrictions.

Steps for Adjusting a Prior Return

Taxpayers who realize they failed to claim eligible expenses or made errors in their filings can amend prior returns using Form 1040-X. This form must be filed within three years of the original return or two years of the tax payment, whichever is later.

When amending a return to include work expenses, taxpayers should provide thorough documentation, such as receipts or mileage logs, to substantiate the changes. Affected forms or schedules, like Schedule C for self-employed individuals, must be attached. Amended returns are processed manually, often taking up to 16 weeks or more.

Amending a return may increase scrutiny from the IRS, particularly if it results in a significant refund. Ensuring accuracy and consistency with IRS guidelines is crucial. Consulting a tax professional can be helpful, especially for complex cases. Taxpayers should also check if state tax returns need to be amended due to changes in state taxable income. Retaining a copy of the amended return and supporting documentation is recommended.