Can I deduct the cost of licenses for tools/utilities and services come tax time?

Question

I'm employed full-time (not a contractor).

I own my own licenses for tools like ReSharper, Beyond Compare, etc. In addition, I pay for various training and learning resources like Safari Books Online, Pluralsight and Code School.

The software tools, I use primarily at my full-time job but I do occasionally use them for side work. The training/learning resources I use on my own time for my own benefit.

I would like to know if licenses for tools and services like these can generally be claimed as deductions come tax time?

I was thinking about posting this over at programmers but seems more appropriate here. For tax purposes, I am in the US and more specifically, Florida. However, this question seems general enough.

Answer 1

Based on IRS Publication 529 (2011) it looks like you can claim these expenses as deductions, but you only get to claim any amount of Unreimbursed Employee Expenses that exceeds 2% of your adjusted gross income (Form 1040-line 38). So unless you are spending a LOT of money on software or have other expenses of this type, it probably won't be worth it.

Unreimbursed Employee Expenses

Generally, the following expenses are deducted on Schedule A (Form 1040), line 21, or Schedule A (Form 1040NR), line 7.

You can deduct only unreimbursed employee expenses that are:

• Paid or incurred during your tax year,
• For carrying on your trade or business of being an employee, and
• Ordinary and necessary.

An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary.

You may be able to deduct the following items as unreimbursed employee expenses.

• Depreciation on a computer your employer requires you to use in your work.
• Subscriptions to professional journals and trade magazines related to your work.
• Tools and supplies used in your work.
• Work-related education.

Note: I truncated this list to items most likely to be relevant to a programmer working for an employer. Follow the link above to see the fulllist.

Answer 2

I'm not sure you will be able to actually deduct these expenses. You need to figure out the following:

1. Does your employer require you to purchase these licenses and tools on your own?
2. Does your employer have an accountable reimbursement plan?

If you must purchase these licenses per your employer demand (and not, for instance, because these tools are convenient for you to use), and the employer doesn't have an accountable reimbursement plan - then you can use the unreimbursed employee expenses deduction. This may get audited, so make sure you can substantiate any expense, and show that the employer demands it from you without reimbursing you (or reimburses from a non-accountable plan, which is taxed).

From my experience, it is unlikely that you'd be able to deduct these expenses.

You should get a professional (EA/CPA) opinion on the matter before you file your taxes.