Travis H. Long, CPA, Inc. Blog

Originally published in the Cedar Street Times

March 6, 2015

Looking back over the past four months in our Back To Basics series, we have covered the 1040, Schedule A – Itemized Deductions, Schedule B – Interest and Ordinary Dividends, Schedule C – Profit or Loss from Business, Schedule D – Capital Gains and Losses, Schedule E – Supplemental Income and Loss (i.e. – rental properties), and Schedule F – Profit or Loss from Farming.  If you would like to catch up on our Back to Basics series on personal tax returns, prior articles are republished on my website at www.tlongcpa.com/blog .  We are now going to shift our attention to a few common supporting forms in your tax returns.

Form 2106 – Employee Business Expenses is our topic today.  Unreimbursed employee business expenses documented on this form feed into the section near the bottom of Schedule A called Job Expenses and Certain Miscellaneous Deductions.  Any expenses you incur that are necessary and ordinary to your profession for which you are not reimbursed by your employer are potentially tax deductible.  Note that these expenses do not have to be required by your employer.  They can be common and expected expenses in your profession, or they could simply be items that are helpful and appropriate.  Clearly there is a lot of judgement in this standard, but it is not a blank check.

Common expenses include the use of your vehicle for work purposes (other than to and from your home), 50 percent of meals and entertainment expenses (often in sales related positions), union dues, educational conferences, trade magazines, books, classes, etc. in your job field.  Overnight travel expenditures such as lodging, meals (50 percent), airfare, and car rentals could be deductible.  A portion of your cell phone or internet service fees could be deductible.  If you have a home office in lieu of a regular office and it is for the convenience of the employer (not for your convenience), then a percentage of the expenses of maintaining your household could be deductible.  (This is actually documented on a separate Form 8829.)

There are also areas of abuse that have led to rules that prohibit specific things that might otherwise be deductible.  One of these areas is clothing.  You might think that your business attire should be deductible, unfortunately it is not if it can be worn in public and not be clearly identifiable as a uniform.  Your employer must also require you to wear it.  For instance, a nurse or police officer clearly has a deductible uniform, but business people, even if they have to “look nice” for clients and wear suits, for instance, cannot deduct the cost of their clothing.  I unfortunately, cannot deduct my bowties, even though it is a bit of a trademark look for me!

If you have logoed clothing with your business name, however, you would likely not have a problem if your employer requires you to wear it.  A number of years ago I gave this speech to a client that was a business owner; the next year he came into my office, turned around, and sure enough, he had his business name logoed on the seat of his pants!  If you do have a uniform or logoed clothing, you can also deduct the cost of laundering these items.

Logically, to the extent you are reimbursed for your expenses, you cannot deduct them.  If, however, your employer includes your reimbursements in your W-2 box 1 taxable wages, you would need to claim the expenses.  Also, if your employer has an accountable plan where they will reimburse you for expenses and you simply fail to submit for reimbursement, you are out of luck, and cannot deduct the expense.  If the employer will not reimburse you, but you still deem the expense as helpful and appropriate, you can claim the expense.

Calculating deductible vehicle expenses can get quite complicated. The 2106 is a two page form and the entire second page is devoted to figuring out the vehicle expenses.  In addition, there are other forms for the depreciation.  The simplest method is to use the standard mileage rate (currently 56 cents a mile) and tracking your business miles.  You can only use the standard mileage rate if you started using that method in the first year you placed the vehicle into business use.  For expensive vehicles or low mileage use, this generally does not pay off.  The actual expense method involves tracking all the receipts for gas, repairs, insurance, DMV fees, lease or finance payments, etc. as well as calculating and tracking depreciation expense on the vehicle.  But if you have an inexpensive vehicles that you will drive a lot for a long time, you would likely be better off with the standard mileage method.

Form 2106 is the full version of the form, which allows you to not only document hard costs, but also handle vehicle expenses either through standard mileage or actual expense and depreciation.  It is also used when you receive partial reimbursements from an employer.  The 2106-EZ is a one page form that can be used if you do not have employer reimbursements to report and you do not use the actual expense method for calculating vehicle expenses.  If you do not have vehicle expenses at all or reimbursements, you can report the hard costs directly on the schedule A, and you do not need a 2106 or 2106-EZ.

As previously mentioned, these expenses flow into the Schedule A as Miscellaneous Itemized Deductions Subject to 2% along with a few other things such as tax preparation fees and investment expenses.  This means they are subject to a two percent of adjusted gross income (AGI) threshold. For example, if your AGI is $100,000, the first $2,000 of these expenses do not even count as an itemized deduction.  In addition, you have to have enough itemized deductions to get over the standard deduction (2014 – $6,200 for Single and $12,400 for Married Filing Joint) before they will reduce your taxable income.

Generally, a better strategy is to get your employer to pay for these expenses, even if it means you take a lower salary as a trade-off.  You are better off since you will not be subject to a two percent floor!

As with everything there are exceptions.  People in the military reserves, for instance, are not subject to the two percent floor.  Detailed IRS publications exist on all the rules if you are looking for some more bedtime reading!

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.