What Are Employee Expenses and Job Deductions?
As an employee or business owner, you will routinely be faced with certain expenses that are necessary to your work status. Note that a work expense does not have to be required by your employer to be considered necessary.
According to IRS Publication 529-Miscellaneous Deductions, you may only deduct 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 (common and accepted in your trade, business, or profession, or helpful in conducting a successful business practice)
When you prepare your tax return on efile.com, we will help you report your expenses on the correct tax form(s) based on your answers to several simple questions during the tax interview.
Below is detailed information on a variety of job and work-related employee expenses that may be deductible and classified as unreimbursed employee expenses:
What is Business Bad Debt?
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.
For 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.
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.
For 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 Do I Use?
Equipment depreciation depends on whether you meet the more-than-50%-use test or less-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.
How Do I Report My 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 efile it or 2106-EZ, claim your depreciation deduction on that form rather than Form 4562.
For a computer used in a home office, use Form 4562, Part III, to claim the depreciation deduction for a computer you placed in service during 2017 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 2017 and used only in your home office, unless you are otherwise required to file Form 4562 efile it . 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.
Can I Deduct Dues and Contributions for 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 - The Educator Expense Deduction
If you were an eligible educator, you may qualify for the Educator Expense Deduction. You may be able to deduct up to $250 of qualified expenses as an adjustment to gross income, rather than as a miscellaneous itemized deduction. If you are married filing jointly and both you and your spouse were eligible educators, you may deduct up to $500. However, neither spouse can deduct more than $250 of his or her own qualified expenses. You should keep receipts and records of all qualified educator expenses.
Who is an 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.
What Are 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 Do I Claim the Educator Expense Deduction?
You must file Form 1040 efile it (or Form 1040NR) to take this deduction. You do not have to itemize. If you use efile.com to prepare your tax return, we will take care of the correct forms for you.
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.
What is the 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.
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 malpractice insurance premiums related to your trade or business for professional negligence resulting in injury or damage to patients or clients.
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.
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 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.
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 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
What is a 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.
What is an 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.
What is a 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.
What Are 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. See the current mileage rate for business use of a vehicle.
Cnn I Deduct Expenses for Working 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.
Can I Deduct Expenses for Traveling Between My Home and a 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.
You can deduct home office expenses incurred while traveling between your home and workplace, but only 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).
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, steam fitters, 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.
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.
Learn more about potential student tax credits and deductions.
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.
Where Can I Find More Information on Employee Tax Deductions?