Our series on itemized deductions concludes today with this blog detailing the itemized tax deductions that can be taken out for unreimbursed employee business expenses. Discover how some unexpected expenses on the job can be deducted on your taxes.
Employees Often Give a Little Extra
If you are an employee who has literally given more (or paid out more) than you were reimbursed for you may be eligible for a tax break due to that extra professional dedication.
Many reimbursed employee expenses can be counted as miscellaneous deductions if you itemize on Schedule A.
If you opt to take these deductions they won’t do you any good until they total more than 2% of your adjusted gross income or AGI. For example a worker with an AGI of $30000 must have expenses of more than $600 before the expenses are deductible. Even then only the amount over $600 will be deducted.
Work Related Expenses
Although the requirement may seem out of reach there are many costs that workers overlook when totaling their business expenditures. Employee-paid expenses that the IRS allows you to consider toward the 2% limit include:
- Depreciation on a computer or cellular phone required to do your job
- Dues to chambers of commerce professional societies and unions
- Education that is employment related
- Home office/part of your home used regularly and exclusively in your work
- Job search expenses in your present occupation
- Legal fees related to doing or keeping your job
- Licenses and regulatory fees as well as occupational taxes
- Malpractice insurance premiums
- Medical examinations required by an employer
- Passport for a business trip
- Subscriptions to professional journals or trade magazines related to your work
- Tools and supplies used in your work
- Travel transportation entertainment and gift expenses related to your work
- Work clothes uniforms and their upkeep costs
Meeting IRS Work-Related Guidelines
There are some rules when it comes to determining whether or not these unreimbursed costs can be counted. Your expenses must have been required for you to carry out the job for which you were hired and must be what the IRS calls “ordinary and necessary.” This means the item or service is common and accepted in your line of work and is appropriate and helpful to your job.
Although it would seem logical that getting to your office is an ordinary and necessary activity all employees face you cannot write off the cost of getting there. Commuting expenses either by car or mass transit generally is not tax deductible even if you are conducting business via your hands-free cell phone on the way to the office.
Additional limitations are also put on items within allowable expense categories. For example although professional memberships generally are allowed the IRS will reject any dues you pay to a group whose main purpose is to provide entertainment activities for members and their guests. In that same category dues to airline hotel and luncheon clubs are not deductible.
Work clothing also has to meet certain standards before the IRS will allow it as a deduction. There are also additional limits on travel meal and entertainment expenses.
Unreimbursed employee expenses are entered on line 21 of Schedule A. Expenses will need to be detailed on either Form 2106 Employee Business Expenses or Form 2106-EZ Unreimbursed Employee Business Expenses. If you need to count the depreciated costs of any equipment used in your job you will also need Form 4562 Depreciation and Amortization. Be sure to keep good records throughout the year to add them to these forms.
Don’t let additional forms or the time consuming task of receipt gathering scare you off from itemizing these deductions. With the help of the Lindemeyer CPA staff the extra effort could be worth it if your unreimbursed employee expenses help you cut your total tax bill.
Image courtesy of Ambro/FreeDigitalPhotos.net