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.
Key Takeaways
- You can use IRS Form 2106 if you're an employee who itemizes deductions for unreimbursed work-related expenses, like travel and meals, for tax years through 2017.
- Taxpayers in certain occupations can still take unreimbursed work-related expense deductions.
- You can deduct car expenses by tracking work-related miles with the IRS standard mileage rate or by saving receipts for actual costs, plus parking and tolls.
- Work-related travel and entertainment expenses, including transportation and hotel stays, are deductible, but meals and entertainment are only 50% deductible if they have a business purpose.
For tax years through 2017, if you itemize deductions and they include some work-related expenses for travel, meals, entertainment or transportation, including use of your own car, and you don’t receive reimbursement, then you may need to submit IRS Form 2106 with your tax return.
However, these deductions are miscellaneous expenses that are only deductible to the extent the total exceeds 2 percent of your adjusted gross income (AGI). If you can’t claim these deductions because of the AGI limitation, then Form 2106 isn’t necessary.
You must be an employee
The first thing that may be obvious when preparing Form 2106 is that you must incur your deductible expenses as an employee. This means that you must receive your wages or salary directly from your employer who issues you a W-2 at the end of the year. If you are an independent contractor or a sole proprietor, you may still be able to deduct these expenses, but not on Form 2106.
Expenses related to your car
There are two ways you can calculate the deduction for using your car for the benefit of your employer. You can keep track of each work-related mile you drive and multiply the total by the IRS standard mileage rate, or you can save the receipts for the actual cost of gasoline and oil.
Regardless of the method you choose, you can always claim an additional amount for parking charges and tolls associated with work-related travel. One benefit to using the standard mileage rate is that you can report your expenses on the simpler Form 2106-EZ.
TurboTax Tip:
Unreimbursed work-related expenses are miscellaneous deductions and only count if they exceed 2% of your adjusted gross income (AGI).
Work-related travel expenses
When you travel for work, whether it is local or long-distance, you can claim a deduction for your transportation costs, such as taxi fare, train tickets and airfare. There is no limit on these costs as long as all transportation is necessary and relates to your job. For example, this includes transportation to and from an airport, to the work location and back and forth to your hotel each day if the business trip requires you to stay overnight.
You can also deduct your stays in a hotel as long as it’s not unreasonably luxurious. Also included are incidental expenses such as paying to use the hotel’s business center, providing reasonable gratuities to hotel staff and the cost of dry cleaning, to name just a few.
Entertaining clients and dining out
To claim a deduction for the meals you purchase while on an overnight business trip or the cost of entertaining clients, you must report the expenses on Form 2106. When you purchase meals just for yourself, you can calculate your deduction using the actual cost or you can use the IRS daily per-diem amount. However, regardless of the method you choose, your deduction is always limited to 50 percent of that amount.
The same limitation applies to entertaining clients, which may or may not include a meal. These entertainment expenses are only deductible if there is a legitimate business purpose for the occasion. For example, if you take a client out for dinner, but only discuss personal issues unrelated to your job, then the meal is not deductible and you should not report it on Form 2106.
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