Can You Write Off Tools For Work On Taxes 2021: A Comprehensive Guide

The tax season can feel like a daunting time, especially for those who use tools in their profession. Understanding what you can and cannot deduct can significantly impact your bottom line. This guide dives deep into the specifics of deducting work tools on your 2021 tax return, providing clear explanations and practical examples. Let’s get started.

What Qualifies as a Work Tool for Tax Deduction Purposes?

Essentially, a “work tool” encompasses items you must use for your job, and that aren’t typically considered general-purpose equipment. Think of specialized instruments, equipment, and supplies that are essential for performing your duties. The key here is necessity and direct connection to your work. If the tool is required for you to do your job, then it is likely tax-deductible.

Defining Work Tools: Examples Across Different Professions

The definition of a work tool varies greatly depending on your profession.

  • Tradespeople (e.g., Carpenters, Electricians, Plumbers): This includes hand tools (hammers, screwdrivers), power tools (drills, saws), and specialized equipment (multimeters, pipe wrenches).
  • Artists and Designers: Art supplies, drafting tables, software subscriptions, and even specialized cameras used for professional purposes.
  • Healthcare Professionals: Stethoscopes, diagnostic equipment, and specialized medical supplies.
  • Writers and Journalists: Computers, software, and recording equipment used for research and writing.
  • Remote Workers: If you are a remote worker, this can also include items like a dedicated monitor, ergonomic chair, and even a portion of your internet bill.

The IRS looks at the specific requirements of your job to determine if a tool is essential.

Understanding the Rules: Employee vs. Self-Employed

The ability to deduct work tools significantly differs depending on your employment status. This is crucial to understand.

Employee Deductions: The Elimination of Unreimbursed Employee Expenses

For the 2021 tax year, employees could no longer deduct unreimbursed employee expenses such as the cost of work tools. This change was a result of the Tax Cuts and Jobs Act of 2017. This means that if you were an employee, you likely couldn’t deduct the cost of your work tools unless your employer reimbursed you for them.

Self-Employed Deductions: The Flexibility of Business Expenses

Self-employed individuals, on the other hand, have more flexibility. As a business owner, you can typically deduct the cost of work tools as a business expense. This is a significant advantage. You would report these expenses on Schedule C (Form 1040), Profit or Loss from Business. This is where you list all your business income and expenses.

Deducting Work Tools: Choosing Between Depreciation and Expense

There are two primary methods for deducting the cost of your work tools: depreciation and expense.

Immediate Expense: The Section 179 Deduction

The Section 179 deduction allows you to deduct the entire cost of a work tool in the year you purchase it, up to certain limits. This is a powerful tool that can significantly reduce your taxable income in the current year. However, there are limitations. The total amount you can deduct under Section 179 is capped, and it can be reduced if you purchase a large amount of business property during the year.

Depreciation: Spreading the Cost Over Time

If you don’t qualify for the Section 179 deduction or if you choose not to use it, you can depreciate the cost of your work tools. Depreciation allows you to deduct a portion of the cost each year over the useful life of the tool. The useful life is determined by the IRS and depends on the type of tool. For example, computers and certain equipment usually have a 5-year depreciation schedule.

Important Considerations: Record Keeping and Documentation

Regardless of your employment status, meticulous record-keeping is absolutely essential.

Keeping Accurate Records: Receipts and Invoices

You must keep detailed records to support your deductions. This includes receipts, invoices, and any other documentation that proves you purchased the work tools and that they were used for business purposes. Organize these records systematically. Consider using a dedicated folder, a digital filing system, or accounting software.

The Importance of Substantiation: What the IRS Looks For

The IRS may request substantiation for your deductions. This means you’ll need to provide evidence that your claims are accurate. This is where your records come in handy. Be prepared to show that the tools were necessary for your job and that the expenses were ordinary and necessary.

Examples of Deductible Work Tool Expenses

Let’s look at some specific examples:

  • A carpenter purchases a new table saw for $1,500. They can potentially deduct the entire cost under Section 179 (if they meet the requirements) or depreciate the cost over the asset’s useful life.
  • A freelance writer buys a new laptop for $2,000. They can deduct the cost, potentially depreciating it or using the Section 179 deduction.
  • A graphic designer subscribes to Adobe Creative Suite. The subscription fees are deductible as a business expense.

These are just examples; the specifics will vary based on your individual circumstances.

Common Mistakes to Avoid When Deducting Work Tools

Avoid these pitfalls to stay on the right side of the law.

Overstating Expenses: Be Realistic and Accurate

Don’t inflate your expenses. Be honest and accurate in your record-keeping. The IRS is skilled at identifying inflated deductions.

Failing to Keep Adequate Records: The Importance of Documentation

As mentioned, keeping accurate records is critical. Without proper documentation, your deductions may be disallowed.

Mixing Business and Personal Use: Understanding Allocation

If you use a work tool for both business and personal purposes (e.g., a computer), you can only deduct the business-use portion. You must allocate the expense accordingly.

Don’t forget about other potential deductions that might apply to you, in addition to tools.

Home Office Deduction: If Applicable

If you work from home and your home office is used exclusively and regularly for business, you may be able to deduct a portion of your home-related expenses.

Other Business Expenses: Supplies, Training, and More

Consider other business expenses, such as office supplies, professional development courses, and even the cost of protective equipment.

Frequently Asked Questions (FAQs)

Here are some frequently asked questions to further clarify the subject:

Can I deduct the cost of a new phone if I use it for both personal and business purposes?

You can only deduct the portion of the phone’s cost (and related expenses, like service fees) that is used for business. Keep track of your business usage to determine the deductible percentage.

What if I bought a work tool in December 2021, but didn’t start using it until January 2022?

Generally, you can deduct the expense in the tax year the tool was placed in service, meaning it was ready and available for use. If it was purchased in 2021 but not used until 2022, the deduction would likely be claimed on your 2022 tax return.

Does the type of tool matter in terms of deductibility?

The type of tool is less important than its connection to your work. The IRS will assess if the tool is ordinary and necessary for your job.

Can I deduct the cost of replacing a broken tool?

Yes, the cost of replacing a broken or worn-out tool is generally deductible as a business expense.

Where do I report my work tool deductions on my tax return?

Self-employed individuals report their tool expenses on Schedule C (Form 1040).

Conclusion: Mastering Work Tool Deductions for 2021

Navigating work tool deductions can be complex, but understanding the rules is essential for maximizing your tax savings. For employees, 2021 was a year of limited deductions, while self-employed individuals retain the flexibility to deduct work tools as business expenses. Remember to maintain meticulous records, understand the difference between immediate expense and depreciation, and be aware of the limitations. By following these guidelines, you can confidently handle your work tool deductions and ensure you’re in compliance with IRS regulations.