Employee Business Expenses

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If you are an employee, you may be able to deduct your work-related expenses as an itemized deduction (subject to limitations) on Schedule A, Form 1040 (PDF). These employee business expenses include the cost of business travel away from home, local transportation, entertainment, gifts, and other ordinary and necessary expenses related to your job.

Deductible travel expenses are the ordinary and necessary expenses of temporarily traveling away from your tax home overnight on business. They include the cost of transportation, meals (subject to certain limits), lodging and other expenses related to your business travel. For travel expense purposes, generally, your tax home is the entire city or general area where your principal place of business is located, regardless of where you maintain your family residence. Refer to Business Travel Expenses for additional information on business travel expenses.

Although commuting costs are not deductible, some local transportation expenses are. Deductible local transportation expenses include the ordinary and necessary expenses of going from one workplace (away from the residence) to another. If you have an office in your home which is maintained for the convenience of your employer and that is used exclusively on a regular basis as your principle place of business (e.g., if your employer does not provide you with office space), you may deduct the cost of traveling between your home office and work places associated with your employment. Refer to Business Use of Home for information on home offices. You may deduct the cost of going between your residence and a temporary work location outside of the metropolitan area where you live and normally work. If you regularly work at one or more regular business locations away from your residence, you may deduct the cost of going to a temporary work location in that business within your metropolitan area. For these purposes, a temporary work location is a location where you realistically expect to work for 1 year or less. Transportation expenses include the cost of transportation by car, air, rail, bus, taxi, etc. For information on transportation expenses related to your car, refer to Business Use of Car.

Business entertainment expenses and business gift expenses may be deductible, but subject to certain limits. For information on business entertainment expenses, refer to Business Entertainment Expenses. Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses, for additional information on business expenses.

You must keep records to prove the expenses you deduct. For general information on record keeping, refer to Recordkeeping.

If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that is treated as paid under an accountable plan, the payment should not be shown on your Form W-2 (PDF) as pay. You do not include the payment in your income.

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules:
  1. You must have paid or incurred expenses that are deductible while performing services as an employee.
  2. You must adequately account to your employer for these expenses within a reasonable time period, and
  3. You must return any excess reimbursement or allowance within a reasonable time period.

If your employer's reimbursement arrangement does not meet all three requirements, the payments you receive should be included in the wages shown on your Form W-2. You must report the payments as income, and you must complete Form 2106 (PDF) or Form 2106-EZ (PDF) and itemize your deductions to deduct your expenses.

If you were reimbursed for travel or transportation under an accountable plan, but at a per diem or mileage rate that exceeds the Federal rate, the excess should be included in the wages on your Form W-2. If your actual expenses exceed the Federal rate, you must itemize your deductions to deduct the excess. For information about the Federal per diem rates, refer to Publication 1542 and for information regarding mileage rates refer to Publication 463.

Generally, you must use Form 2106 or 2106-EZ to figure your deduction for employee business expenses and attach it to your Form 1040 (PDF). Your deductible expense is then taken on Schedule A, Form 1040, as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. Miscellaneous Expenses and Publication 529, Miscellaneous Deductions also discusses the 2% limit and explains some of the other expenses that are deductible as employee business expenses.

Source: IRS.gov

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