Six Tips You Should Know about Employee Business Expenses

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If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you can claim allowable expenses if you itemize on IRS Schedule A, Itemized Deductions. You can deduct the amount that is more than two percent of your adjusted gross income.

Typical employee business expenses that could be used for this deduction include cell phone and internet usage and mileage, said Mark von Rotz, a Tax and Advisory Services Partner at WNDE.  “But the key is to keep good records, so in the case of an IRS audit, the deduction can be justified.”

Six facts filers should know about this deduction, von Rotz said, include:

  1. Ordinary and Necessary.  You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.
  2. Expense Examples.  Some costs that you may beidentify possible deductins able to deduct include:
    • Required work clothes or uniforms not appropriate for everyday use.
    • Supplies and tools you use on the job.
    • Business use of your car.
    • Business meals and entertainment.
    • Business travel away from home.
    • Business use of your home.
    •  Work-related education.

This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more, check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463, Travel, Entertainment, Gift and Car Expenses.

  1. Forms to Use.  In most cases, you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction.
  2. Educator Expenses. If you are a K-12 teacher, you may be able to deduct up to $250 of certain expenses you paid in 2015. These may include books, supplies, equipment and other materials used in the classroom. You claim this deduction as an adjustment on your return, rather than an itemized deduction. For more on this topic see Publication 529.  Teachers are good candidates for this deduction, von Rotz said, as “every teacher I’ve worked with has spent more than $250 in his or her classroom.” document out of pocket expenses
  3. Keep Records. You must keep records to prove the expenses you deduct. For what records tokeep, see Publication 17, Your Federal Income Tax.
  4. IRS Free File. Most people qualify to use free, brand-name software to prepare and e-file their federal tax returns with IRS Free File. Free File software will help you determine if you can deduct your expenses. It will do the math, fill out the forms and e-file your return – all for free. Check your other e-file options if you can’t use Free File.

von Rotz noted that the use of the employee business expenses deduction can be limited for higher earning individuals.  He advised filers to consult their tax professional.

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Manager Profile: Marjorie Wilson

Marjorie Wilson is a Senior Tax Manager who works in WNDE’s Carlsbad office.  Her primary areas of practice are providing...