Employees could often encounter many legitimate business expenses, however, not all employees will pay for these expenses. There is a special tax deduction to help taxpayers who encounter unreimbursed business expenses. This provides more information about deducting unreimbursed employee business expense.
What are unreimbursed business expenses?
Unreimbursed employee expenses are treated in a manner very similar to normal deductible business expenses. Meals and entertainment expenses are subject to the 50 percent limit. Total unreimbursed employee business expenses are usually reported as miscellaneous itemized deductions subject to the 2 percent-of-AGI floor. If the employee could have received, but did not seek, reimbursement for whatever reason, none of the employment-related expenses are deductible. Unreimbursed employee expenses fall into a number of potential categories.
Deducting Unreimbursed Business Expenses on Tax Return
You can deduct only unreimbursed employee expenses that are:
- Paid or incurred during your tax year,
- For carrying on your trade or business of being an employee, and
- Ordinary and necessary.
What is Form 2106-EZ?
Form 2106 (Employee Business Expenses) or Form 2106–EZ (Unreimbursed Employee Business Expenses), and Schedule A (Itemized Deductions) for nonaccountable plans and unreimbursed employee expenses. There is also a simple version of the form, Form 2106-AZ. You can use Form 2106-EZ if you did not receive any employer reimbursements for the expenses you claim, and if you are using the standard mileage rate for the use of your car.
Deducting Unreimbursed Employee Business Expenses
Taxpayers maybe be able to deduct many different types of unreimbursed employee business expenses depending on their line of work. In order to qualify for a deduction from Form 2106-EZ, the employee cannot have been reimbursed by the employer for the expenses.
What are deductible unreimbursed employee expenses?
You may be able to deduct the following items as unreimbursed employee expenses.
- Business bad debt of an employee.
- Business liability insurance premiums.
- Damages paid to a former employer for breach of an employment contract.
- Depreciation on a computer your employer requires you to use in your work.
- Dues to a chamber of commerce if membership helps you do your job.
- Dues to professional societies.
- Educator expenses.
- Home office or part of your home used regularly and exclusively in your work.
- Job search expenses in your present occupation.
- Laboratory breakage fees.
- Legal fees related to your job.
- Licenses and regulatory fees.
- Malpractice insurance premiums.
- Medical examinations required by an employer.
- Occupational taxes.
- Passport for a business trip.
- Repayment of an income aid payment received under an employer’s plan.
- Research expenses of a college professor.
- Rural mail carriers’ vehicle expenses.
- Subscriptions to professional journals and trade magazines related to your work.
- Tools and supplies used in your work.
- Travel, transportation, meals, entertainment, gifts, and local lodging related to your work.
- Union dues and expenses.
- Work clothes and uniforms if required and not suitable for everyday use.
- Work-related education.
Tax Planning Strategies for Unreimbursed Business Expenses
Employees may want to seek reimbursement from their employer rather than taking the miscellaneous itemized deduction on their tax return. However, the 2 percent floor for unreimbursed employee business expenses offers a tax planning opportunity for married couples. If one spouse has high miscellaneous expenses subject to the floor, it may be beneficial for the couple to file separate returns. If they file jointly, the 2 percent floor is based on the incomes of both. Filing separately lowers the reduction to 2 percent of only one spouse’s income.
Most Commonly Deducted Using Form 2106-EZ
- Vehicle expenses
- Parking fees, tolls, and transportation including trains and buses but not related to commuting or overnight travel
- Travel expenses while away from home overnight
- 50% of the amount paid for meals and entertainment while you were away from home on business
- Many other business expenses.