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Employee Business Expenses


What are Employee Business Expenses

  • While an employee is considered to be in trade or business, he is allowed only certain limited deductions in determining his adjusted gross income. Before considering these items, one must distinguish between reimbursed and unreimbursed expenses.
  • For all practical purposes, an employee may always deduct reimbursed expenses incurred on behalf of his employer.
  • These reimbursements must be included in his gross income.

The unreimbursed items that may be deducted are:


Travel, Meals and Lodging

All expenses incurred for travel, meals and lodging while away from home may be deducted.

Overnight Rule

The IRS insists that “away from home” means away from home overnight.

For eg. An executive files from New York to Chicago for business. If he leaves at 5:00 a.m. and returns at 11:00 p.m. He is not entitled to a deduction for the cost of his meals while in New York.

Home

When an employee goes away on a business trip for a short time, he is entitled to deduct his traveling expenses. No deduction is allowed for the travel expenses of a spouse, dependent, or companion unless that person is an employee of the taxpayer and has a bonafide purpose of traveling.

Note: If he stays away from home for many months, IRS may argue that he has shifted his “tax home” and might no longer be qualified for this deduction.


Transportation Expenses

All transportation expenses incurred for employer’s business are deductible (100%) except ordinary commuting expenses. This includes both out-of-town and local travel and automobile expenses. The standard mileage allowance changes every year.

Examples

  • An employee flies from LA to NY for business, airfare would be deductible.
  • An employee takes a cab from office to a client’s office. The cab fare is deductible.
  • An employee takes a cab from home to his office. The cab fare is not deductible as it is a commuting expense.
  • An employee takes a cab from his day job to his evening job. The expense is deductible.


Meals/Entertainment Expenses

In order to be deductible, entertainment expenses must either be directly related to or associated with active conduct of a trade or business. Only 50% of the cost of entertainment is deductible. Club dues are not deductible.


Forms

2106 – Employee Business Expenses
2106EZ – Unreimbursed Employee Business Expenses
Publication 463 – Travel & Entertainment
Publication 529 – Miscellaneous Deductions
Publication 587 – Business Use of Home

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