When you’re working for your employer on the road or from a home office, you’re likely to run up a lot of expenses, some of which may not be reimbursed by your employer. It is crucial that you do not throw away the receipts for those expenses.
By keeping track of your business expense documents, you can add them to your itemized deduction, which will increase your tax refund. These expenses are included in the miscellaneous itemized deductions at the bottom of your Schedule A.
Any amount exceeding 2% of your adjusted gross income (AGI) can be added to your itemized deduction amount. Even small amounts can add up fairly quickly over the course of the year, and there may be more deductible expenses than you realize.
Although most people buy supplies or other items that they use at work, these purchases must meet a few different requirements in order to be considered eligible for this deduction:
- You must have paid for the purchase during the current year. For example, if you order a new desk in December 2011 but don’t receive it until January 2012, the purchase will go on your 2011 taxes.
- The purchase must necessary for your to carry out your duties as an employee. Something that you purchase for home that you only sometimes also use for work is not considered required for your duties at work.
- The item must be ordinary and necessary for your line of work, so it must be something that most other people who do your same job could reasonably use.
The most common unreimbursed employee expense is travel. The costs associated with travel are rising, so if you are required to travel on business, it can quickly become expensive. However, you can deduct most of the costs of business-related travel. In order for the travel to be classified as tax-deductible, you must actually be asked by your employer to travel to another location.
If you are driving your own car, you can deduct 50 cents per mile, and you can deduct the entire cost of your train, bus or airplane ticket. (Remember that you can also deduct 50 cents per mile for driving your car to the airport where you caught the flight.) Taxi, car service, bus or airport shuttle fees are also fully deductible. The costs of shipping necessary items – such as samples or a tradeshow setup – are included, as are your hotel expenses. Meals are included, but there are limits on the amount that you can deduct, since presumably you would need to eat anyway. Visit the IRS Website for details.
One frequently overlooked expense is commuting mileage. Although coming from home to the office does not qualify for a tax deduction, you can certainly deduct the miles that you drive your car from the office to other places on business, such as making deliveries, service calls, or sales calls. Especially if you do a lot of driving during the day, this can really add up. The standard mileage rate for 2012 is 55.5 cents per mile (2013 mileage rates) when you are driving your own car. Alternately, you can deduct the actual cost of gas and oil that your car required to get from place to place. This is definitely an area where keeping a log book is worthwhile, since even a few miles here and there will add up nicely at the end of the year.
Those who normally work from a home office get special treatment for their commuting miles. If your home is your normal workplace, you can also deduct the miles that you rack up going out on business calls, including times that you might meet with other company employees at a company location.
Also, if you normally work at one location but are temporarily assigned to another location that is farther from home than the old one, you can deduct the extra mileage. For example, if your normal place of work is 10 miles from home, and you’re temporarily assigned to work at a location that is 15 miles from home, you can deduct $15.3 per day in commuting costs. (That’s 15 miles there and 15 miles home, at 51 cents per mile.)
However you commute, you’ll want to keep a good log book of your mileage, as well as keeping your receipts if you choose to deduct the actual cost of gas. If you’re audited and you can’t provide these records, the IRS is likely to toss out your commuting costs.
Other Tax-Deductible Expenses
Examples of additional tax-deductible employee expenses that you might incur include:
- A phone, fax or Internet connection required to do your job
- A computer or phone required for your job (although it may have to be depreciated)
- Business cards
- The cost of required medical examinations
- Dues for professional societies, including business leagues or chambers of commerce, if it is helpful in your line of work
- Office furniture for a home office (even if you can’t take the home office deduction)
- The cost of a passport you were required to obtain for a business trip
- Employment-related classes, certifications, or other education, including the cost of books
- Job search expenses if you are staying within your field
- Legal fees related to your job, or keeping your job
- Any license fees, regulatory fees, or other taxes related to doing your job
- Insurance premiums, including business liability or malpractice premiums
- Subscriptions to professional publications such as trade journals related to your line of work
- Supplies, tools, postage, or other office necessities used in your work
- Uniforms required for your job, plus the cost of repairing and cleaning them
If you work primarily from home, you may also qualify to take the home office deduction. This deduction is more valuable than the unreimbursed employee expense deduction, so you should lump as many expenses as applicable onto the home office deduction worksheet.
You cannot “double dip” and take tax deduction for something that you were reimbursed for (since your employer will also be taking a deduction for the cost as a business expense on their own taxes.) But on the flip side, you also should not have the reimbursements added to your W-2 as wages. If this is occurring, you should check with your company’s HR department. Your company is likely to have policies regulating what you can and cannot receive reimbursement for, so if you purchase something that falls outside of these policies but meets the guidelines below, you should save that receipt. Even though it was not considered reimbursable by your company, it still qualifies as a business expense on your part and can be deducted.
Some companies will give their employees an allowance or advance of money so that they can pay their expenses out of that money instead of paying out of pocket and getting reimbursed. In order for this plan to be accepted by the IRS, it must only permit purchases you made as an employee, you must be required to account for your purchases within a reasonable time frame, and you must return any money that you didn’t spend. If the IRS deems your company’s prepayment method to not meet these guidelines, the money they gave you will be treated as income, and you will have to deduct all of those expenses as unreimbursed business expenses on Schedule A.