Navigating the world of taxes can feel like a labyrinth, especially when it comes to claiming all the deductions you're entitled to. Work expenses, in particular, can significantly reduce your taxable income, putting more money back in your pocket. But how exactly do you add them on TurboTax? Don't worry, we're here to break it down for you, step by step.
Ready to unlock those tax savings? Let's dive in!
Understanding Your Work Expense Landscape
Before we even touch TurboTax, it's crucial to understand what constitutes a deductible work expense and who can claim them. The rules around this changed significantly with the Tax Cuts and Jobs Act (TCJA) of 2017, effective from 2018 through 2025.
The Crucial Distinction: W-2 Employee vs. Self-Employed/Independent Contractor
This is the most important distinction when it comes to deducting work expenses.
W-2 Employees: If you receive a W-2 form from your employer, generally, unreimbursed employee expenses are NOT deductible on your federal tax return from 2018 through 2025. This means common expenses like uniforms, professional dues, unreimbursed travel, or home office expenses for W-2 employment generally can't be claimed federally.
However, some states still allow these deductions! TurboTax will typically guide you through this in the state portion of your return if your state permits it.
Exceptions for W-2 Employees: There are very specific exceptions for certain professions, such as:
Armed Forces reservists
Qualified performing artists
Fee-basis state or local government officials
Individuals with impairment-related work expenses (if you are disabled)
Self-Employed Individuals/Independent Contractors (1099-NEC Income): If you receive a 1099-NEC (or have other self-employment income), this is where the significant deductions come in! You can deduct ordinary and necessary business expenses on Schedule C, Profit or Loss from Business. This includes a wide array of costs directly related to earning your self-employment income.
What are "Ordinary and Necessary" Expenses?
The IRS defines these as:
Ordinary: An expense that is common and accepted in your trade or business.
Necessary: An expense that is helpful and appropriate for your trade or business. It doesn't have to be indispensable to be considered necessary.
Step 1: Gather Your Documents and Determine Your Status
So, you're looking to claim work expenses, eh? Fantastic! The very first thing you need to do is get organized. This isn't just about having receipts; it's about having a clear picture of your income and employment status.
Determine Your Employment Status:
Are you primarily a W-2 employee? Check your pay stubs and year-end tax documents.
Do you receive 1099-NEC forms, work as a freelancer, gig worker, or run a small business?
Do you have a mix of both? This is common, and TurboTax can handle it, but you'll need to separate your expenses accordingly.
Collect All Relevant Receipts and Records: This is critical. The IRS loves documentation. For every expense you plan to claim, you should have:
Receipts: Keep digital or physical copies.
Bank Statements/Credit Card Statements: These can help corroborate expenses, especially if a receipt is lost, but a detailed receipt is always best.
Mileage Logs: If you use your personal vehicle for business (self-employed), detailed logs are a must.
Invoices: For services you paid for.
Bills: For utilities, rent, etc., if claiming a home office.
Pro Tip: Consider using an expense tracking app throughout the year. It saves a lot of headaches come tax season!
Step 2: Accessing the Correct Section in TurboTax
Now that you're armed with your documents, let's open TurboTax. The path you take will depend on your employment status.
Sub-heading 2.1: For Self-Employed Individuals (1099-NEC Income)
If you're self-employed, an independent contractor, or a small business owner, you'll be entering your income and expenses primarily through Schedule C (Profit or Loss from Business).
Log in to TurboTax: Access your account.
Navigate to the Income Section: Look for a section related to "Income & Expenses" or "Wages & Income."
Find Self-Employment Income: You'll typically see a prompt to add income from self-employment, independent contracting, or small business. Select this option.
Enter Business Information:
TurboTax will ask you to describe your business or line of work.
You'll also enter any 1099-NEC income you received.
Locate the "Expenses" Section: After entering your income, TurboTax will guide you to a section specifically for business expenses. This is where the magic happens! You might see a prompt like "Add expenses for this work" or similar.
Sub-heading 2.2: For W-2 Employees (Limited Deductions)
If you are a W-2 employee, remember that federal deductions for unreimbursed employee expenses are largely suspended. However, TurboTax will still have a section for "Deductions & Credits" where state-specific deductions for these expenses might be entered.
Log in to TurboTax: Access your account.
Go to Deductions & Credits: Look for a tab or section labeled "Deductions & Credits."
Search for "Job-Related Expenses" or "Employee Business Expenses": You may need to use the search function within TurboTax to find this specific category.
Understand the Limitations: TurboTax will likely remind you that these expenses are generally not deductible for federal purposes for tax years 2018-2025. It will then prompt you to see if your state allows for these deductions. If your state does, you will enter the information here, and it will flow to your state return.
Important Note: Do not try to force W-2 employee expenses into other categories unless specifically instructed by TurboTax for state purposes. Mischaracterizing expenses can lead to issues.
Step 3: Entering Your Work Expenses (The Core Process)
This is where you'll systematically input all the expenses you diligently gathered. TurboTax generally provides categories to help you organize.
Sub-heading 3.1: Common Self-Employed Business Expenses (Schedule C)
TurboTax will typically present you with a list of common business expense categories. Here are some of the most frequent, with tips on what to include:
Advertising & Marketing:
What to include: Costs for business cards, website development, online ads, social media marketing, brochures, flyers, and any promotional materials.
Styling tip: Remember to bold the amount you spent on that flashy new website!
Car & Truck Expenses (Business Use of Vehicle):
Option 1: Standard Mileage Rate: This is often the simplest. You deduct a set amount per mile driven for business purposes. You'll need your total business miles.
Option 2: Actual Expenses: More detailed, but can yield a higher deduction if you have high costs. You'll track gas, oil, repairs, insurance, vehicle registration fees, depreciation (or Section 179 deduction), and lease payments. You'll also need total miles driven (business and personal) to calculate the business-use percentage.
Styling tip: Keep a meticulous mileage log – it's your best friend here!
Commissions & Fees:
What to include: Payments to independent contractors, referral fees, payment processing fees (e.g., PayPal, Stripe), bank service charges related to your business.
Depreciation & Section 179:
What to include: This is for large asset purchases that will last more than one year, like computers, office furniture, equipment, or machinery. Instead of deducting the full cost in one year, you typically depreciate it over its useful life. Section 179 allows you to deduct the full cost of certain assets in the year they are placed in service, up to certain limits. TurboTax will guide you through this complex area.
Insurance (Other than Health):
What to include: Business liability insurance, professional malpractice insurance, property insurance for your business assets, etc.
Legal & Professional Fees:
What to include: Payments to attorneys, accountants, tax preparers (like the fee for TurboTax!), business consultants, and bookkeepers.
Office Expense / Supplies:
What to include: Pens, paper, printer ink, stationery, small office equipment (like a stapler or desk lamp that isn't depreciated), postage.
Rent or Lease (Vehicles, Machinery, Equipment, Office Space):
What to include: Payments for renting office space, equipment leases, or vehicle leases used for business.
Repairs & Maintenance:
What to include: Costs to keep business property in good operating condition (e.g., computer repair, office equipment maintenance). Improvements are usually depreciated, not expensed.
Supplies:
What to include: Materials and supplies directly used in performing your services or producing your goods. This can overlap with office supplies but is often more specific to your trade.
Taxes & Licenses:
What to include: Business licenses, permits, real estate taxes on business property, sales tax collected and remitted. A portion of your self-employment tax is also deductible. TurboTax calculates this automatically.
Travel Expenses:
What to include: Costs for business trips away from your tax home. This includes airfare, train tickets, hotel stays, and generally 50% of business meal costs (100% for 2021-2022, but back to 50% for 2023 onwards).
Styling tip: Keep all your travel itineraries and hotel bills organized.
Utilities:
What to include: Electricity, gas, water, internet, and phone bills for your business location. If you have a home office, a portion of these may be deductible.
Home Office Deduction:
What to include: If you use a portion of your home exclusively and regularly as your principal place of business, you may qualify. TurboTax offers two methods:
Simplified Method: Deduct $5 per square foot of your home used for business, up to 300 square feet ($1,500 maximum). This is much simpler.
Actual Expense Method: Deduct a percentage of actual expenses for your home, such as mortgage interest, real estate taxes, utilities, homeowner's insurance, and repairs. This requires more detailed record-keeping.
Styling tip: The home office deduction is a big one for many self-employed individuals, so make sure you qualify and claim it if you do!
Other Expenses:
What to include: This is a catch-all for legitimate business expenses that don't fit neatly into other categories. Be prepared to describe these if the IRS asks. Examples might include professional development courses, subscriptions to industry publications, or specific software.
Sub-heading 3.2: Entering the Details in TurboTax
As you go through each category, TurboTax will prompt you for the specific amounts.
Follow the Prompts: Read each question carefully. TurboTax is designed to guide you.
Enter Amounts Accurately: Double-check your figures against your receipts.
Be Truthful: Only deduct legitimate business expenses. Keep your records in case of an audit.
Don't Overlook Small Expenses: Even small purchases add up! Every deductible dollar reduces your taxable income.
Step 4: Review and Verify Your Entries
Once you've entered all your work expenses, TurboTax will compile them.
Review the Summary: TurboTax will provide a summary of your business income and expenses, showing your net profit or loss.
Check for Accuracy: Take a moment to review all the entered amounts. Are there any typos? Did you accidentally omit anything?
Ensure Proper Categorization: While TurboTax helps, it's good to ensure you've put expenses in the most appropriate categories.
Understand the Impact: See how your deductions affect your overall tax liability or refund. This is the moment to appreciate all your hard work!
Step 5: Finalizing Your Return
After reviewing your expenses and the rest of your tax return, you'll proceed to finalize and file.
Run Error Check: TurboTax has built-in error checks. Address any warnings or errors it flags.
Proceed to Filing: Follow the on-screen instructions to e-file your federal and state returns.
Save Copies: Always save a digital and/or physical copy of your complete tax return, including all schedules and worksheets. Keep your expense records for at least three years, or longer if they relate to assets.
Frequently Asked Questions (FAQs) - How to Add Work Expenses on TurboTax
How to determine if I'm a W-2 employee or self-employed for expense purposes?
You receive a W-2 form if you are an employee. If you receive a 1099-NEC form or generate income as a freelancer, contractor, or business owner, you are generally considered self-employed for tax purposes.
How to deduct unreimbursed employee expenses on my federal return?
Generally, you cannot deduct unreimbursed employee expenses on your federal return for tax years 2018 through 2025 due to changes in tax law, unless you are in specific professions like Armed Forces reservist, qualified performing artist, or a fee-basis government official.
How to enter self-employment expenses on TurboTax?
In TurboTax, navigate to the "Income & Expenses" section, find your self-employment income entry, and then you'll be prompted to "Add expenses for this work." This typically leads to Schedule C categories.
How to claim the home office deduction in TurboTax?
For self-employed individuals, after entering your business income, TurboTax will offer the home office deduction as a specific expense category. You can choose the simplified method ($5 per square foot) or the actual expense method.
How to track mileage for business expenses on TurboTax?
While TurboTax doesn't track mileage, it will ask for your total business miles if you choose the standard mileage rate deduction. You should use a separate app or a manual logbook throughout the year to record your business miles.
How to differentiate between business expenses and personal expenses?
An expense is deductible if it is "ordinary and necessary" for your trade or business. If an expense benefits you personally, it's generally not deductible. Keep personal and business finances separate.
How to handle large asset purchases (e.g., a new laptop) for my business?
For self-employed individuals, large assets like computers or equipment that will be used for more than one year are usually depreciated. TurboTax will guide you through either Section 179 expensing (deducting the full cost upfront) or traditional depreciation.
How to deal with a mixed-use expense (e.g., personal phone used for business)?
You can only deduct the business portion of a mixed-use expense. For a phone, you'd calculate the percentage of time it's used for business calls and data, and deduct that percentage of the bill.
How to ensure I have proper documentation for my expenses?
Keep all receipts, invoices, bank statements, and mileage logs. Digital copies are acceptable. The key is to have clear evidence that the expense was incurred and was directly related to your business.
How to get help if I'm unsure about an expense in TurboTax?
TurboTax offers built-in help features, explanations for each deduction, and links to IRS guidelines. For more complex situations, you can upgrade to TurboTax Live for expert assistance or consult a qualified tax professional.
