Wiley Tax Preparer: A Guide to Form 1040

CHAPTER 26

Employee Business Expenses

An employee's deductible business expenses include work-related travel away from home, costs of local transportation, unreimbursed job-related expenses, and job-related education expenses. Employee business expenses are subject to the 2%-of-adjusted-gross-income (AGI) limitation. Thus, only the amount of these expenses (combined with other miscellaneous deductions) that exceeds the 2%-of-AGI limit is actually deductible.

Employee business expenses may be subject to other limitations before applying the 2%-of-AGI limit. For example, generally only 50% of business meals are deductible. Taxpayers deducting employee business expenses generally use either Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses. The net amount from Form 2106 (or 2106-EZ) is then entered on Schedule A, Itemized Deductions, of Form 1040, U.S. Individual Income Tax Return.

DEFINITION: Ordinary means common and accepted in the employee's industry.

Necessary means helpful and appropriate to the employee's job.

Overview of Employee Business Expenses

Taxpayers can deduct certain unreimbursed expenses incurred in the course of their employment (i.e., expenses incurred for their job). To be deductible, the expenses must be both ordinary and necessary. An expense need not be a required expenditure for the business expense to be treated ...