Employee Business Expense Income Tax Deduction

JC Leahy, MA Accounting

If your employer does not reimburse all of your employment-related expenses, you might be able to deduct them on your federal income tax return. They would go on your Schedule A (Itemized Deductions), line 21, “un-reimbursed employee expenses.” 

Two Hurdles for You to Jump

In order to deduct employee business expenses, you must jump over 2 hurdles: the 2% Floor and the Standard Deduction.  “The 2% Floor" is 2% of your Adjusted Gross Income.   Your un-reimbursed employee business expenses must total greater than 2% of your Adjusted Gross Income. You can deduct only the expenses over that amount.  The second hurdle is your Standard Deduction.  All of the deductions listed on your Schedule A generally must exceed your Standard Deduction.  The amount of your Standard Deduction generally depends on your filing status.  For tax year 2012, the standard deduction amounts are:

• $11,900 married filing jointly
• $5,950 married filing separately
• $8,700 head of household

(One wrinkle in this picture is that if you are married filing separately and your spouse itemized, you also must itemize.)

Commuting Costs

You cannot deduct the typical costs of traveling to and from work within your metropolitan area.  This includes costs for automobile travel, parking train, car, cab or bus.  These expenses are called commuting costs.  They are considered personal expenses—even if you do work on the trip. The cost of parking at your permanent place of work is not deductible, but parking to attend a business meeting is. Similarly, tolls and gas are not deductible for regular transportation to work, but are deductible for work-related trips.  Note, however, that once you arrive at work, if you have to travel between offices or to client sites that cost is deductible.

If you use your car for deductible business purposes you can deduct either the standard mileage rate (55.5¢ per mile in 2012) or actual car expenses for the year. For leased cars, whichever method you choose in the first year is the one you will be required to use for the remaining years of the lease.

All of your un-reimbursed employee business expenses must be incurred during the tax year, must be trade-or business-related, and must be “ordinary and necessary.” The expenses don’t have to be required, however: "Ordinary and necessary" means that they are helpful and appropriate for your business.

Here are some of the more common employee business deductions.

If you use your car for deductible business purposes you can deduct either the standard mileage rate (55.5¢ per mile in 2012) or actual car expenses for the year. For leased cars, whichever method you choose in the first year is the one you will be required to use for the remaining years of the lease.

 

Other Common Deductions

• Out of town work related travel. This includes  taxi, plane, train, car, laundry, meals, baggage, telephone, and tips while you are on business in a temporary setting.   For meals,you have a choice about how to deduct the cost of meals. They must be business-related, or eaten while on an un-reimbursed travel excursion. You can deduct 50% of the actual meal cost, or take 50% of the per diem rate for the location of your travel. A list of these cities is available on the IRS web site at www.IRS.gov.  See my earlierarticle on deductible travel expenses.
• Dues to professional societies, excluding lobbying and political organizations.

• Home office costs. The office must be your principal place of business and be for the convenience of your employer—not just helpful in conducting your job.
• Job search expenses in your current occupation, even if you don’t land a new job. This includes everything from the cost of producing and copying your resume to travel expenses you incur while interviewing or searching for a job.
• Legal fees related to doing or keeping your job.
• The cost of a passport for a business trip.
• Union dues and expenses. However, you cannot deduct the portion of the fees that pays for sick, accident or death benefits or for a pension fund, even if the fees are required dues.
• Work clothes and uniforms that are not suitable for everyday use and are a condition of your employment.