Employee Business Expense Deduction

Tax Planning form 2106

You may have been able to deduct expenses related to your employment such as vehicle expenses, travel or equipment. This was done in prior years with your itemized deductions on a Schedule A. You were able to deduct expenses that exceeded 2% of your Adjusted Gross Income (AGI) using a Form 2106. This meant that you may have exceeded the Standard Deduction for a smaller Tax Liability.

Employees would normally file this form to deduct ordinary and necessary expenses for their job.
• An ordinary expense is one that is common and accepted in your field of trade, business, or profession.
• A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

For 2018TY the Form 2106 has been disallowed. And any expenses that you incurred during your employment is not deductible. This may surprise the tax payer who is used to using Form 2106 to lower their Tax Liability and, in many cases, they will be surprised to learn that they have a Tax Due for 2018TY. If you find yourself in this situation there are options.

As an employee you can have your expenses reimbursed by your employer through a Reportable or Non-Reportable Business Expenses program. For Reportable instances the employee will file an expense sheet to the employer and will be reimbursed for those expenses. Usually separate from the regular paycheck. For Non-Reportable instances the employee receives a monthly amount for these expenses and has to report any excess as income on their tax return. The business-related expenses that are reimbursed are generally nontaxable funds. It changes when you see the funds and you won’t have that “bonus” during tax filing season for the “mad money”.

An employee who normally would have expected to use the Form 2106 should look at their W-4 Withholding form and make sure that they make the appropriate adjustments for that end of year “surprise”.

Just a reminder that an Employee will receive W-2 wages. A contractor or sole proprietor can still make the deductions on their Schedule C.

We are available to assist the Employee who might find themselves in this situation. Please call us at (989)859-0346 or email us at Taxes@micottagellc.com.