Employee business expenses

Do you have work-related expenses that are not reimbursed by your employer? Would you like to get a tax break for those expenses? If you answered “yes” to these questions, read what the Wisconsin Institute of CPAs has to say about employee business expenses.

Qualifying for the deduction

Not surprisingly, there are a few hurdles you will need to cross before you can deduct your unreimbursed employee business expenses. The first is the requirement that the work expenses you incur be both “ordinary and necessary.” According to the IRS, an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.

The second consideration is that only taxpayers who itemize their deductions can deduct unreimbursed business expenses – and only to the extent that those expenses, along with any other miscellaneous deductions, exceed 2 percent of your adjusted gross income. For example, if your adjusted gross income is $60,000, you may deduct only those miscellaneous itemized deductions that exceed $1,200. The following list will help identify the most common deductible job-related expenses.    

Travel and entertainment - Deductible travel expenses include the ordinary and necessary expenses of temporarily traveling away from your home overnight for business. This includes the cost of taxis, busses, limos, and operating your car. You may also deduct what you pay for hotels, telephone calls, tips, baggage handling, and 50 percent of the cost of qualifying meals and entertainment for yourself and your guests. The rules governing travel and entertainment expenses are complex and should be followed carefully.

BUSINESS GIFTS - You can deduct up to $25 in business gifts to any one taxpayer per year. There's no limit on how many customers you can give business gifts to during the year.

Job-related Education - The cost of seminars, workshops, and courses is deductible (1) when the education is required by your employer or the law to keep your present salary, status, or job, or (2) the education maintains or improves skills needed in your present work.

Job search expenses - Expenses you incur in looking for another job in your present occupation can be deducted, even if you don't find a new job. The costs of writing and printing your resume, using an employment agency, and traveling to interviews (only if the trip relates primarily to seeking a new job) qualify as deductible job search expenses.

OTHER JOB-RELATED AND MISCELLANEOUS EXPENSES – Additional job-related deductible expenses include dues to professional societies and unions, legal fees related to doing or keeping your job, subscriptions to professional journals and trade magazines related to your work, work uniforms, and tools and supplies used in your work. Once you’ve totaled your job-related expenses, don’t forget to add in the cost of other miscellaneous itemized deductions, such as investment-related expenses and the cost of tax advice and tax return preparation.

How to Claim Employee expenses

Your total unreimbursed business expenses are entered on Schedule A. In most cases, you’ll need to provide additional detail on Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. Contact your CPA to learn more about these and other requirements.

The WICPA is the premier professional organization for Wisconsin CPAs, with more than 8,200 members working in public accounting, industry, government and education.  Please include the CPA credential in source identification. Like other professionals, certified public accountants are required to obtain additional education, take a rigorous exam and become certified. Please identify all CPAs by including the credential with their names. This identification enhances the accuracy and credibility of your reporting.

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Produced in cooperation with the AICPA

©2006 The American Institute of Certified Public Accountants

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