As someone who's always been a W2 employee, I feel like I'm missing out on tax deductions that selfemployed people get. What are the best tax deductions that regular employees can actually claim? Things like unreimbursed work expenses, professional development, etc. Looking for income tax optimization tips that don't require being a business owner.
Unreimbursed employee expenses are no longer deductible for most employees due to the TCJA changes. However, there are some exceptions: certain educators can deduct up to $300 of classroom expenses, reservists traveling more than 100 miles, performing artists, and fee-basis government officials.
One often overlooked deduction is for job search expenses if you're looking for a new job in the same field. This includes resume preparation, career counseling, and travel expenses for interviews. However, there's a 2% of AGI floor and it's a miscellaneous itemized deduction subject to the TCJA limitations.
If you have a home office that you use regularly and exclusively for your W2 job (and your employer doesn't provide you with an office), you might qualify for home office tax deductions. But the rules are strict and this is a red flag for audits, so be careful and keep good records.
Moving expenses for a job relocation are deductible only for active duty military members moving due to a permanent change of station. For civilians, this deduction was eliminated by the TCJA except for those few exceptions. So that's one that used to be available but isn't anymore for most people.
The best tax deductions for W2 employees now are really the above-the-line deductions and credits: traditional IRA contributions if deductible, student loan interest, educator expenses, HSA contributions, and various credits like child tax credit, education credits, etc. The itemized deductions for employees got hit hard by TCJA.
Don't forget about state tax deductions that might still be available even if federal ones are gone. Some states still allow deductions for employee business expenses, union dues, professional licenses, etc. So check your state's rules for additional income tax optimization opportunities.