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Know how your expenses are reimbursed to be sure you get the right deductions.
Most employers reimburse employees for expenses they incur while conducting business. These reimbursements can be for mileage, automobile expenses, business meals, travel, supplies, or CE. Some employers even provide a business allowance as a perk. Understand the tax rules so that you meet the IRS requirements and earn the deductions you're entitled to.
Deducting your expenses
If you're an employee and you've incurred business costs without reimbursement, you can deduct these expenses on your personal tax return as "miscellaneous itemized deductions." These expenses are deductible only if they, along with your other miscellaneous deductions, exceed 2 percent of your adjusted gross income. Consider that "miscellaneous itemized deductions" are one of the key triggers of the alternative minimum tax—in which case you wouldn't get the deduction.
Gary I. Glassman
If you have expenses that your employer won't reimburse, consider negotiating with him or her to get these expenses paid for and take a reduction in pay. An income reduction is the same as getting 100 percent of the deduction—without any of the other possible negative consequences. When you take the pay reduction, you have less income to report. It's the same as having more income and getting the full deduction without limiting the expense on your personal tax return. Your employer will reduce your pay so he or she doesn't have any costs.
One way your boss can reimburse your expenses is with an accountable plan. This allows him or her to reimburse you or pay you an allowance, but it also requires that you submit receipts, the expense amount, time and place, and business-related nature of the expense. If your boss provides you an allowance and you can't account for the full amount, you must reimburse your employer for what you don't spend. If you're reimbursed under an accountable plan, your employer must keep your documentation for proof of the expense and you don't need to report anything on your tax return.
Your employer can also reimburse you with a non-accountable plan. In this arrangement, any reimbursements or allowances you receive from your boss must be included in your income as part of your W-2 wages. Then you can separately deduct the expenses as "miscellaneous itemized deductions" subject to the 2 percent of adjusted gross income limitation. Non-accountable plans are an employee perk.
Gary I. Glassman, CPA, is a partner with Burzenski and Co. PC in East Haven, Conn., and a Veterinary Economics Editorial Advisory Board member. Catch his talk, "Start-ups and Buy-ins: What You Should Know," April 17 at CVC East in Baltimore.