If you’ve worked for any extended length of time for an employer, at some point you’ve probably paid out of pocket for something associated with doing your job. It may be a meal while on the road, business supplies, use of your personal property in some form or going someplace to take care of a business need. If your employer didn’t reimburse you for this cost, you may be eligible to include in your income tax filing as a tax deduction.
The thinking here is similar to that of a business. If you’re paying money out of pocket to help a business, then you’re losing income that you could be using for your own personal needs. If that’s the case, then you’re getting penalized twice: once by the taxes on your earnings, and a second time by the business need. To offset this situation, the tax code allows you to take a deduction in certain cases to reduce your taxes on the earned income in the first place. However, this benefit does not apply to every expense out there. And it does not reimburse you fully for what you paid. That said, getting something back is usually better than nothing at all.
Eligible expenses frequently seen and approved include instances were you have to spend out of pocket doing the business activity. This can include paying for travel away from your normal work location and commute. It can include the use of your personal vehicle for business errands or paying for meals or entertainment at a business meeting. In some instances, if you need to use your home for the benefit of an employer, then that cost can be deductible as well. You may have to incur more training or educational costs for your job requirements, which are included. Another common cost included tends to be any equipment, supplies, or tools you bought for the business but were never reimbursed.
This deduction is not available for those who spend personal money on their own business. Those costs should be accounted for and included on an IRS Schedule C form, as a separate filing.
To properly claim and account for your employer business expenses, you need to keep receipts of what was spent, including enough detail to show the dollar amount and what it was for. Any expenses claimed in a deduction can be question under review or an audit, and you will need to be able to provide copies of the documentation to back up your figures. Otherwise it will trigger an audit finding.
Remember, you can’t claim costs that you ultimately got paid back for by your employer, even if it took the business a while to send you the check or payment.
The reporting of business expenses for deduction occurs by filling our IRS Form 2106 or IRS Form 2106-EZ. These forms allow you to calculate your applicable deduction. The form is then attached to your IRS Form 1040 filed at tax time. Additionally, the expense total is already reported on your IRS Schedule A, also attached to the 1040. This form adds up all the deductions claimed by the individual in total when determining final, taxable income. Business expenses will fall into the miscellaneous itemized deduction. This deduction is adjusted then by 2% of your adjusted gross income. If your expenses in total exceed the 2 percent value, then the dollar amount can be subtracted from your gross income figure reported.
More detailed information on this topic can be found in two publications provided by the IRS. First there is IRS Publication 529 – Miscellaneous Deductions. Additionally, you should reference IRS Publication 552 – Recordkeeping for Individuals, as well. Both manuals can be downloaded via the Internet by going to the IRS website at www.IRS.gov. Alternatively, you can order hardcopies by phone at 800-829-3676.
IRS Publication 552, Recordkeeping for Individuals
IRS Publication 529, Miscellaneous Deductions