Deducting business expenses isn't just for the self-employed. Taxpayers classified as employees can also deduct some of their unreimbursed business expenses.
Beginning in 2018, unreimbursed employee expenses are no longer eligible for a tax deduction on your federal tax return however, some states such as California continue to provide a deduction on your state tax return if you qualify.
Paying taxes is inevitable—but finding extra tax deductions is enviable. If you’re a salaried employee, you may be surprised to learn that your deductions include certain job-related expenses.
The importance of the 2% floor
To deduct workplace expenses, your total itemized deductions must exceed the standard deduction. You must also meet what’s called "the 2% floor." That is, the total of the expenses you deduct must be greater than 2% of your adjusted gross income, and you can deduct only the expenses over that amount.
Once you are sure you qualify to deduct work-related expenses as an employee, you’ll have to be sure your deductions qualify. All 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: In IRS-speak, a necessary expense is simply one that is helpful and appropriate for your business. And, of course, the costs can’t be reimbursed by your employer.
Here are some of the more common workplace deductions. As with all deductions, it’s important to keep detailed records and/or receipts.
Auto and travel expenses
Business travel expenses are some of the most frequent work-related deductions.
Deductible auto costs include expenses for traveling between one workplace and another (not including a home office), visiting clients, going to a business meeting away from your regular workplace or getting to a temporary workplace. If you work in two places in one day, whether or not for the same employer, you can deduct the cost of going between them.
If you have no permanent office and work regularly within your metropolitan area, you can deduct the cost of travel outside that metropolitan area. You cannot, however, deduct typical commuting costs within your metropolitan area.
For commuters, the costs of traveling to and from work, whether by train, car, cab or bus, 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.
If you use your car for business purposes you can deduct either the standard mileage rate (53.5¢ per mile in 2017) 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.
Work-related travel expenses are deductible, as long as you incurred the costs for a taxi, plane, train or car while working away from home on an assignment that lasts one year or less. You can also deduct the cost of laundry, meals, baggage, telephone expenses and tips while you are on business in a temporary setting.
You have a choice about how to deduct the cost of meals that are business-related, or eaten while on an unreimbursed 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.
Other common deductions
Here are some other business expenses employees can deduct on their tax return:
- 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.
Not sure if your business expenses are deductible? TurboTax will ask you simple questions about your expenses and tell you which ones you can deduct, or if you are better off taking the standard deduction.