Deducting The Cost Of Unreimbursed Work Expenses

Posted on: 18 July 2017

Some employed individuals occasionally spend their own money while performing work duties for their company. The expense might be unanticipated, but necessary to get the job done. Other employees may routinely incur costs while traveling for the benefit of their company. In either scenario, the employee may be able to deduct the cost of unreimbursed business expenses on their taxes.

Expenses paid by an employee that are reimbursed are not deductible on the employee's tax return. If the expenses are not reimbursed, they are deductible because the cost paid is necessary to produce taxable income. Although many workers incur some type of expense in connection with their job, deducting the personal outlay is practical for only a portion of those employees.

Itemized deduction threshold

Unreimbursed employee business expense is an itemized deduction. As such, the expense is combined with other itemized deductions such as mortgage interest and charitable contributions. Unless the itemized deduction total exceeds the standard deduction for your filing status, you are generally better off claiming the standard deduction. For some employees, however, sizable unreimbursed business expenses can make the difference between itemizing or not.

Itemized deductions are claimed on IRS Schedule A. Your unreimbursed job expenses are reported as a miscellaneous itemized deduction on Schedule A. If you received no partial reimbursement and have no travel expenses, you can report the cost of tools, supplies, or safety equipment directly on Schedule A. If you received partial reimbursement or had travel expenses, an additional form is necessary.

Form 2106

IRS Form 2106 is needed to report travel costs such as meals and vehicle expenses. Form 2106 is also used to report an employer reimbursement and calculate the net deductible expense. Commuting is not deductible, but you may deduct the cost of running errands for your employer. Other than local errands, travel expenses generally become deductible when your duties require you to be away from home long enough to need sleep or rest.

Actual vehicle operating expenses can be calculated, but it is usually much easier to keep track of deductible mileage and apply the standard mileage rate. Form 2106 clearly displays the standard mileage rate for the applicable year, making the calculation fairly straightforward. Form 2106 is also designed so that, for most tax filers, only 50 percent of the unreimbursed meal expense total is deductible.

Form 2106 contains other entry lines for fully deductible travel expenses such as lodging and airfare. The final result from Form 2106 is added to any other unreimbursed work expenses, and that total is entered on Schedule A. Before deducting job expenses, make sure to fully review the extent of any company reimbursements.