Tax Tips: Un-Reimbursed Business Costs

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You can deduct as miscellaneous expenses un-reimbursed costs you incur that are necessary to carry out your job.

Obviously you can't deduct expenses for which you were reimbursed by your employer under an accountable plan, but if your employer pays you a flat weekly or monthly expense allowance, and you are not required to account to your employer for the actual expenses or to return any excess allowance, the amount you receive will be included in your taxable W-2 wages. In such a case you can deduct all of your appropriate job-related expenses, even though they were covered by your allowance.

Many municipalities pay their police officers and fire fighters a flat “uniform allowance” of $500 or more each year. This allowance is included in the taxable wages reported on Line 1 of the W-2 for these employees. If Officer Joe spends $463 during the year on uniforms he can deduct this amount as a business expense on Schedule A assuming, of course, that the total miscellaneous expenses exceed 2% of his Adjusted Gross Income.

While employee business expenses are ultimately deducted on Schedule A, you must use a Form 2106 to report your expenses if:

  1. You claim a deduction for travel or transportation, including business use of your automobile, meal or entertainment expenses, or
  2. Your employer reimbursed you for any of your expenses (and the reimbursement is not included in federal taxable wages on Form W-2).

New Jersey tax pro Robert D. Flach has been preparing 1040s for individuals since 1972.

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