Employee Expenses and Job Deduction
Routinely, as an employee or business owner you will be faced with certain expenses
throughout the year that are necessary to your status as an employee or a business
owner. According to
IRS Publication 529 you may deduct only unreimbursed employee expenses that
are:
- Paid or incurred during the current tax year.
- A necessary expense for your employment or business status.
- Ordinary and necessary expenses related to routine business.
Expenses that are ordinary and necessary normally are expenses that are common and
accepted in your trade, business, or profession, or helpful in conducting a successful
business practice. Note that an expense does not have to be required to be considered
necessary.
Below is a list of expenses that may be deductible and classified as an unreimbursed
employee expenses :
Business Bad Debt of an Employee
A business bad debt is a loss incurred from a debt acquired in your trade or business.
Any additional bad debt is classified as such only if there is a close relationship
between the debt and your trade or business. There must be a business reason for
incurring the debt in order for it to be classified as related to your trade or
employment status.
Example. You make a bona fide loan to the corporation you work
for as a requirement to maintain your employment. If you do not receive proper reimbursement
for such loan, it is classified as a business bad debt.
More information about business bad
debts.
More information on non-business bad debts.
Business Liability Insurance Premiums
Insurance premium payments paid for protection against personal liability for wrongful
acts on the job are tax deductible.
Damages Paid To
a Former Employer for Breach of an Employment Contract
If you break an employment contract, you may deduct any damages you pay your former
employer if the damages are attributable to the pay you received from that employer.
Depreciation on
a Computer or Cell Phone Your Employer Requires You To Use in Your Work
You can claim a depreciation deduction for a computer or cell phone that you use
in your work as an employee if its use is:
- For the convenience of your employer, and
- Required as a condition of your employment.
For the convenience of your employer. Use of your computer or cell
phone during your regular working hours to carry on your employer's business is
generally for the convenience of your employer.
Required as a condition of your employment. Equipment is
required if you cannot properly perform your duties without such equipment. Whether
you can properly perform your duties without it depends on all the facts and circumstances.
It is not necessary that your employer explicitly requires you to use your computer
or cell phone, and it is not enough that your employer merely states that your use
of the item is a condition of your employment.
Example. You are an engineer with an engineering firm. You occasionally
take work home at night rather than work late at the office. You own and use a computer
that is similar to the one you use at the office to complete your work at home.
Since your use of the computer is not for the convenience of your employer and is
not required as a condition of your employment, you cannot claim a depreciation
deduction for it.
Which depreciation method to use. Equipment depreciation depends
on whether you meet the more-than-50%-use test.
More-than-50%-use. This requirement is met if you use your equipment
more than 50% of the time in your work. If you meet this test, you can claim accelerated
depreciation under the General Depreciation System (GDS). Additionally, you may
be able to apply section 179 deduction for the year you place the item in service.
Less-than-50%-use. If you do not meet the more-than-50%-use requirement,
you are limited to the straight line method of depreciation under the Alternative
Depreciation System (ADS). You also cannot claim the section 179 deduction. (But
if you use your computer in a home office, see the exception listed below.)
Investment use. Use of a computer or cell phone in connection with
personal investments (reference Other Expenses section for more information) is
not considered work-related use. However, you may combine your investment use with
your work use in calculating your depreciation deduction.
Exception for computer used in a home office. The more-than-50%-use
rule is not applicable to a computer used only in a part of your home that meets
the Home Office use requirement (see Home Office section). You can claim accelerated
depreciation using GDS for a computer used in a qualifying home office, even if
you do not use it more than 50% in your work. You also may be able to take a section
179 deduction for the year that the computer is in service.
Business furniture and equipment information.
Reporting your depreciation deduction. Use Part V of Form 4562
– Depreciation and Amortization – to claim the depreciation deduction
for a cell phone or for a computer that you did not use only in your home office.
Complete Form 4562, Part I, if you are claiming a section 179 deduction. However,
if you file Form 2106 or 2106-EZ, claim your depreciation deduction on that form
rather than Form 4562.
Computer used in a home office. Use Form 4562, Part III, to claim
the depreciation deduction for a computer you placed in service during 2009 and
used only in your home office. Complete Form 4562, Part I, if you are claiming a
section 179 deduction.
Do not use Form 4562 to claim the depreciation deduction for a computer you placed
in service before 2009 and used only in your home office, unless you are otherwise
required to file Form 4562. Instead, report the depreciation directly on the appropriate
form. But if you are otherwise required to file Form 4562, report the depreciation
in Part III, line 17.
You must keep records to prove your percentage of business and investment use.
Dues to A Chamber of Commerce and Professional
Societies, if Membership Helps You Do Your Job
Membership in an organization is normally viewed as a valuable resource in accomplishing
your job. As such, you may be able to deduct any dues or fees paid to professional
organizations (such as bar associations and medical associations) and to chambers
of commerce and similar organizations, if membership helps you carry out the duties
of your job or grow your own business. Applicable organizations include:
- Boards of trade,
- Business leagues,
- Civic or public service organizations,
- Real estate boards, and
- Trade associations
Dues that are not deductible include dues paid to an organization whose main purpose
is to:
- Conduct entertainment activities for members or their guests, or
- Provide members or their guests with access to entertainment facilities.
These include dues paid to airline, hotel, and luncheon clubs. See Club Dues under
Nondeductible Expenses section for more information.
Lobbying and political activities. Dues and contribution for certain
lobbying and political activities may not be deductible. See Lobbying Expenses section
under Nondeductible Expenses for more information.
Educator Expenses
If you were an eligible educator in 2009 you may qualify for education deductions.
You can deduct up to $250 of qualified expenses you paid in 2009 as an adjustment
to gross income, rather than as a miscellaneous itemized deduction. If you
and your spouse are filing jointly and both of you were eligible educators, the
maximum deduction is $500. However, neither spouse can deduct more than $250 of
his or her qualified expenses.
Eligible educator. An eligible educator is a kindergarten through
grade 12 teacher, instructor, counselor, principal, or aide who worked in a school
for at least 900 hours during a school year.
Qualified expenses. Qualified expenses include ordinary and necessary
expenses paid in connection with books, supplies, equipment (including computer
equipment, software, and services), and other materials used in the classroom. An
ordinary expense is one that is common and accepted in your educational field. A
necessary expense is one that is helpful and appropriate for your profession as
an educator. An expense does not have to be required to be considered necessary.
Qualified expenses do not include expenses for home schooling or for non-athletic
supplies for courses in health or physical education. You must reduce your qualified
expenses by the following amounts.
- Excludable U.S. series EE and I savings bond interest from Form 8815.
- Nontaxable qualified tuition program earnings.
- Nontaxable earnings from Coverdell education savings accounts.
- Any reimbursements you received for these expenses that were not reported to you
in box 1 of your Form W-2.
How the deduction is claimed. You must file Form 1040 (or Form
1040NR) to take this deduction. The deduction is claimed on Form 1040, line 23 (or
Form 1040NR, line 24), “Archer MSA Deduction.” Enter “E”
on the dotted line to the left of that line entry if claiming educator expenses,
or “B” if claiming both an Archer MSA deduction and the deduction for
educator expenses. If entering “B,” you must attach a statement with
a breakdown of the amount claimed for each deduction.
Home Office or Part
of Your Home Used Regularly and Exclusively in Your Work
If you use a part of your home regularly and exclusively for business purposes,
you may be eligible for the home office deduction. You may be able to deduct
a part of the operating expenses and depreciation of your home.
You can claim this deduction for the business use of a part of your home only if
you use that part of your home regularly and exclusively:
- As your principal place of business for any trade or business,
- As a place to meet or deal with your patients, clients, or customers in the normal
course of your trade or business, or;
- In the case of a separate structure not attached to your home, in connection with
your trade or business.
The regular and exclusive business use must be for the convenience of your employer
and not just appropriate and helpful in your job.
Principal place of business. If you have more than one place of
business, the business part of your home is your principal location of business
if:
- You use it regularly and exclusively for administrative or management activities
of your trade or business, and;
- You have no other fixed location where you conduct substantial administrative or
management activities of your trade or business.
Otherwise, the location of your principal place of business generally depends on
the relative importance of the activities performed at each location and the time
spent at each location.
You should keep records that will give the information needed to calculate the deduction
according to these rules. Also keep canceled checks, substitute checks, or account
statements and receipts of the expenses paid to prove the deductions you claim.
More information and a worksheet for figuring the Home Office deduction.
Laboratory Breakage
Fees
You may deduct any fees related to breakage of laboratory equipment.
Legal Fees Related to
Your Job
You may deduct any legal fees related to performing or maintaining your current
position.
Licenses and Regulatory Fees
You can deduct the amount of license and regulatory fees that you pay each year
to a state or a local government related to your trade, business, or profession.
Malpractice Insurance
Premiums
You can deduct what you pay for malpractice insurance related to your trade or business
for professional negligence resulting in injury or damage to patients or clients.
More information about Malpractice Insurance Premiums.
Medical Examinations Required
by an Employer
The cost of a physical examination required by an employer may be considered a medical
deduction. This can also be deducted as a medical expense if that is more
beneficial.
Occupational Taxes
You can deduct an occupational tax charged at a flat rate by a locality for the
privilege of working or conducting business in such locality. If you are an employee
of such locality, you may claim occupational taxes only as a miscellaneous deduction
subject to the 2% limit. Note: you cannot claim them as a deduction for taxes elsewhere
on your returns.
Passport for a Business Trip
You can generally deduct expenses paid to obtain a passport for business related
travel.
Repayment of an Income
Aid Payment Received Under an Employer's Plan.
An "income aid payment" is a payment received through an employer's plan
to help employees who have been downsized due to lack of work. If you repay a lump-sum
income aid payment that you received and included in income in an earlier year,
you may deduct the repayment on your returns.
Research Expenses of a College
Professor
As a college professor any expenses incurred due to research are deductible. This
includes travel expenses for teaching, lecturing, or writing and publishing on topics
related to your subject matter. Such deductible expenses must be in relation to
the duties expected of a professor and without expectation of profit. Note that
you may not deduct the cost of travel as a form of education.
Rural Mail Carriers'
Vehicle Expenses
If your expenses to use a vehicle while performing your duties exceed the amount
of your reimbursements, you can deduct any unreimbursed expenses.
Details concerning rural mail carriers' vehicle expenses.
Subscriptions
to Professional Journals and Trade Magazines Related to Your Work
You can generally deduct expenses for subscriptions to professional or trade publications
related to your work.
Tools and Supplies Used in Your Work
Tools used while performing your work generally fall under depreciation. However,
you may deduct any tool expense relative to accomplishing your job if the tools
wear out and are disposed of within one year from the date of purchase. You can
depreciate the cost of tools that have a useful life substantially beyond the tax
year.
Information about depreciation.
Travel,
Transportation, Entertainment, and Gift Expenses Related to Your Work
If you are an employee and have ordinary and necessary business-related expenses
for travel away from home, local transportation, entertainment, and gifts, you may
be able to deduct these expenses. Generally, you must file Form 2106 or 2106-EZ
to claim these expenses.
Travel Expenses
Travel expenses are sustained when traveling on business away from home for your
employer. While you may deduct travel expenses incurred in connection with a temporary
work assignment, you cannot deduct travel expenses paid in relation to an indefinite
work assignment.
Travel expenses include the following:
- The cost of getting to and from your business destination (air, rail, bus, car,
etc.)
- Meals and lodging while on travel
- Taxi fares
- Baggage charges
-
Cleaning and laundry expenses
Additional information about travel expenses.
Temporary work assignment. A job is temporary if your assignment
or job away from home in a single location is expected to last (and does in fact
last) for one year or less. This is the case unless there are facts and circumstances
that indicate that the job is not temporary.
Indefinite work assignment. A job is indefinite if your assignment
or job away from home in a single location lasts for more than one year. This is
the case whether the job lasts for more than one year or not. Please note that employment
that is initially temporary may become indefinite due to changed circumstances.
Federal crime investigation and prosecution. If you are a
federal employee participating in a federal crime investigation or prosecution,
you are not subject to the one-year rule for deducting temporary travel expenses.
This means that you may be able to deduct travel expenses even if you are away from
your tax home for more than one year.
To qualify for this deduction, the Attorney General must certify that you are traveling
for the following purposes:
- Traveling performing duties for the Federal Government.
- Performing duties for the Federal Government on a temporary duty status.
- Providing support services to the Federal Government for the investigation or prosecution
of a federal crime.
Local transportation expenses. Local transportation expenses
are expenses incurred while traveling from one workplace to another when you are
not traveling away from home. They include the cost of transportation by air, rail,
bus, taxi, and the cost of using your car. You can choose to use the standard mileage
rate to figure your car expenses. The current mileage rate
for business use of a vehicle are listed here.
Work at two places in a day. If you perform work at two separate
locations in a day, whether or not for the same employer, you can generally deduct
any travel expenses incurred while traveling between the two locations.
Temporary work location. You can deduct expenses incurred while
traveling between your home and a temporary work location if at least one of the
following applies:
- The work location is outside the metropolitan area where you live and normally work.
- You have at least one regular work location (other than your home) for the same
trade or business. (If this applies, the distance between your home and the temporary
work location is irrelevant.)
For this purpose, a work location is generally considered temporary if your work
there is realistically expected to last (and does in fact last) for 1 year or less.
It is not temporary if your work there is realistically expected to last for more
than 1 year, even if it actually lasts for 1 year or less. If your work there initially
is realistically expected to last for one year or less, but later is realistically
expected to last for more than 1 year, the work location is generally considered
temporary until the date your realistic expectation changes and not temporary after
that date.
Home office. You can deduct expenses incurred while traveling between
your home and workplace, if your home is your principal place of business for the
same trade or business. (In this situation, it is irrelevant whether the workplace
is temporary or full-time.)
Details about using your home office.
Meals and entertainment. You may deduct entertainment expenses
(including entertainment-related meals) only if they are directly related to the
active conduct of your trade or business. However, the expense only needs to be
associated with the active conduct of your trade or business if it directly precedes
or follows a substantial and bona fide business-related discussion.
You can deduct only 50% of your business-related meal and entertainment expenses
unless the expenses meet certain exceptions. You apply this 50% limit before you
apply the 2%-of-adjusted-gross-income limit.
Meals when subject to "hours of service" limits. You
can deduct 75% of your business-related meal expenses if you consume the meals during
or incident to any period subject to the Department of Transportation's "hours
of service" limits. You apply this 75% limit before you apply the 2%-of-adjusted-gross-income
limit.
Gift expenses. You can deduct up to $25 worth of business gifts
you offer to an individual during the year. The following items do not count toward
the $25 limit:
- Identical, widely distributed items of $4 or less that have your name clearly and
permanently imprinted.
- Signs, racks, and promotional materials to be displayed on the business premises
of the recipient.
More information concerning expense reimbursement for travel, transportation,
meal, entertainment, and gift expenses.
Union Dues and Expenses
Dues paid for an initiation fee into a union are tax deductible. You may also deduct
assessments for benefit payments to unemployed union members. Union expenses that
are non-deductible include payments or contributions that provide funds for the
payment of sick, accident, or death benefits, and any contributions made into a
union pension fund even if the union requires you to make such contributions. Additionally,
you cannot deduct any contributions made to a union that are related to certain
lobbying and political activities.
Work Clothes and
Uniforms if Required and Not Suitable for Everyday Use
You may be eligible for the uniform deduction and deduct expenses related to the
cost and upkeep of work clothes if you meet the following requirements:
- Uniform or specific clothes must be worn as a condition of your employment.
- Uniform or work clothes are not suitable for everyday wear.
In order to be tax deductible, the clothing must be specifically required by your
employer. Additionally, the clothing must not be suitable for taking the place of
your regular wardrobe.
Examples of professions that may be able to deduct the cost of work clothes include:
- Delivery workers, firefighters, health care workers, law enforcement officers, letter
carriers, professional athletes, and transportation workers (air, rail, bus, etc.).
- Musicians and entertainers can deduct the cost of theatrical clothing and accessories
that are not suitable for wear outside of a performance setting.
However, please note that any work clothing consisting of white cap, white shirt
or white jacket, white bib overalls, and standard work shoes, (which a painter is
required by his union to wear on the job) is not distinctive in character or in
the nature of a uniform. Similarly, the costs of purchasing and maintaining blue
work clothes worn by a welder at the request of a foreman, are not deductible.
Protective clothing. Any protective clothing that is required by
your employer in order to accomplish your job properly (such as safety boots, safety
goggles, hard hats, gloves, etc.) is a deductible expense.
Examples of workers who may be required to wear safety clothing/items included:
carpenters, cement workers, chemical workers, electricians, fishing boat crew members,
machinists, oil field workers, pipe fitters, steamfitters, and truck drivers.
Military uniforms. If you are a member of the armed forces on full-time
duty, you generally cannot deduct the cost of maintaining your uniforms. Members
of reserve units, however, can deduct any expenses incurred in maintaining/purchasing
the uniform if military regulations restrict wearing the uniform except while on
duty as a reservist.
In determining any deductions related to your uniform, you must decrease the cost
by any amount of nontaxable allowance you may receive for these expenses. If local
military rules do not allow you to wear any military uniforms while off duty, you
can deduct any amount related to the cost of purchasing and maintaining these uniforms
that is above the uniform allowance that you receive. If you are a student at an
armed forces academy, you cannot deduct the cost of your uniforms if they replace
regular clothing. However, you may deduct the cost of any items related to your
uniform (such as insignia, shoulder boards, and other related items). Professionals
who are members of the civilian staff at a military school can deduct the cost of
their uniforms.
You can deduct the cost of your uniforms if you are a civilian faculty or staff
member of a military school.
Work-Related
Education
You may be eligible for education tax deductions and deduct education expenses,
whether they lead to a degree or not, if the education meets at least one of the
following two requirements:
- The education helps you maintain or improve skills required in your present occupation.
- The education is required by your employer or by the law to maintain your salary,
status, or position, and the requirement serves a business purpose of your employer.
If your education meets either of these requirements, expenses for tuition, books,
supplies, laboratory fees and similar items, and certain transportation costs, are
deductible.
If the education expense leads to either of the following two scenarios, you cannot
deduct these expenses for the education:
- The education is needed to meet the minimum educational requirements to qualify
you in your work or business.
- The education will help to qualify you in achieving
a new trade or business.
If the education qualifies you for a new trade or business, you cannot deduct the
educational expenses even if you do not originally intend to enter such trade or
business.
Travel as education. Travel that in itself constitutes a form of
education is not a deductible form of education expense. For example, a French teacher
who travels to France to maintain general familiarity with the French language and
culture cannot deduct the cost of the trip as an educational expense.
More information about work-related education expenses.
Click here
for a list of job expenses that you cannot deduct.
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