Where can I find the tax rules for deducting business expenses while a W2 employee?

Question

Hello,
I worked part of the time last year as a W2 employee. However, I was expected to pay all my travel expenses (such as airfare, lodging, and car rental). What are the rules around deducting such expenses?

Thanks!

Answer 1

You can report unreimbursed employee expenses on Form 2106. These expenses must be both ordinary and necessary, and paid in the same tax year (2006). However, these expenses are subject to 2% of your adjusted gross income (AGI). The amount in excess of the 2% threshold would be deductible. But if you do not itemize your deductions on Schedule A and instead take the standard deduction, then you will not be able to claim these expenses.

http://www.irs.gov/publications/p529/ar02.html#d0e415

Answer 2

You had to pay that type of expenses, and weren't reimbursed? Odd. Sounds like you got ripped off on that!

If you reported expenses to your employer and were reimbursed for those amounts, then you don't need to do anything, you've already been compensated.

If you really weren't reimbursed, or if you received some kind of travel allowance that was included as taxable income on your W-2, then you might be able to take a deduction for unreimbursed employee business expenses. You'd have to itemize to do that, which means that you'd have to have more total allowable deductions than your standard deduction would be. You'd show the expenses on form 2106, and the total from there would go on a schedule A. You can only deduct the amount that is over 2% of your AGI.

Answer 3

Try Publication 463 at the following link:

http://www.irs.gov/pub/irs-pdf/p463.pdf

Generally, your employee business expenses will be deducted as a miscellaneous itemized deduction on Schedule A, Line 20. This entire category of deductions is subject to a 2% of adjusted gross income limit. Thus, your deductions will have to exceed that limit to include any amount in your total itemized deductions (which should be compared with your standard deduction to see which benefits you the most).

You will likely want to use Form 2106 to identify, categorize, and accumulate them for reporting purposes. If your total employee business expenses don't exceed the 2% of AGI limit by themselves, the instructions ask that you not file the form. Here are links to that form and instructions:

http://www.irs.gov/pub/irs-pdf/f2106.pdf
http://www.irs.gov/pub/irs-pdf/i2106.pdf

Even if your employer doesn't reimburse you, consider the accountable vs. non-accountable plan rules discussed in the publication.

Answer 4

Refer to Form 2106 and its instructions.