Tax Strategies & Credits

Tax Planning: Can You Deduct Employee Expenses?

by
Sonu Shukla
on
10/22/2016
Tax Planning: Can You Deduct Employee Expenses?

Some employees incur no expenses. They show up to work each day and do their jobs without ever having to lay out any of their own money. But for those employees who do incur expenses, the question of what can be deducted on their tax return is a matter of both interest and confusion. The tax laws regarding employee expenses can be complicated, and there are a lot of individual factors that need to be understood before proceeding. 

One of the most important things to remember about employee expenses is that a lot of them can only be deducted if they were incurred for the “convenience of the employer” or as a “condition of employment”. Though this is one of the most essential things that must be considered before attempting to take an employee expense deduction, there are other questions you need to ask yourself, including: 

  • Do I itemize? Employees who itemize their deductions are able to write off qualifying business expenses, but for those who simply use the standard deduction, that tax benefit is not available. Another aspect of your individual tax status that comes into play is whether or not the miscellaneous itemized deductions (which is the appropriate category for employee expenses) that you intend to write off add up to more than two percent of your adjusted gross income (AGI). Tax law requires that you calculate your AGI and then determine what 2 percent of that number is. Expenses within that first two percent will not qualify for a write-off.
  • Did my employer offer to pay the expense and I said no? The only employee expenses that can be written off are those that an employer did not pay or offer to pay. If you were offered reimbursement or initial payment for the expense and you opted to pay for it yourself, then you can’t write it off.
  • Am I subject to the Alternative Minimum Tax (AMT)? Unfortunately, those who are subject to the AMT are not able to itemize miscellaneous deductions. 

IRS Requirements for Employee Expenses

After answering these basic questions, there may still be a number of expenses that you believe you can write off on your individual tax return. Here is a quick guide to the rules and requirements for some of the most commonly deducted employee expenses:

  • Computer – Did you purchase a computer or some other piece of equipment that you use in the course of doing your job? When you buy individual property, you are able to either depreciate it or write it off as an employee expense if buying it was either required for the job or is for the convenience of your employer. Deciding to check on your email from home does not count if that’s something you choose to do on your own: but if your boss tells you that it’s part of the job and you have to have certain equipment to access information or fulfill job responsibilities, then you can write it off. That being said, if you use any of the equipment for personal use in addition to business use, you need to prorate the use and reflect that in your deduction.
  • Home Office – Many people are choosing to work from home, and therefore they believe that they are able to write off the costs of a home office. A home office is only deductible for an employee if they are at home as part of the job requirement of the employer – in other words it has to be at the convenience of the employer, and you may be asked to provide proof of that. Though there are certainly jobs that ask employees to work from home, many do not, as it makes things more complicated in terms of liability and labor laws. Those employees whose employers’ do ask them to work from home are required to adhere to all of the home office requirements that the IRS has set forth regarding usage.
  • Special Work Clothes and Uniforms – The issue of purchasing and maintaining work clothing can be difficult to understand. Though there are some items that a job requires – such as helmets, work gloves, safety shoes and oil clothes – that can be written off, other work clothes such as work shoes can’t be. The rules state that the costs can be deducted if:
    • The special apparel or equipment is a condition of employment and required as part of the job
    • The items of clothing that the employee needs on the job can’t also be worn as street clothing
  • The special apparel or equipment is a condition of employment and required as part of the job
  • The items of clothing that the employee needs on the job can’t also be worn as street clothing
  • The special apparel or equipment is a condition of employment and required as part of the job
  • The items of clothing that the employee needs on the job can’t also be worn as street clothing
  • Work Expenses Related to Impairment – Employees who incur expenses related to a disability in order to do their job are able to deduct the cost of those expenses. These expenses can accommodate either a mental disability or a physical disability.
  • Education Costs – Some education expenses are deductible as employee expenses, but the rules regarding what can and cannot be written off are quite complex. If an employee’s professional skills are improved or maintained as a result of the courses that they choose to take, of if their employment requires them to take the courses, then the expense is deductible.  Courses that give a person the ability to meet the standards for a job that they are trying to get are not deductible, and neither are those that provide them a better chance at a promotion or to switch to another profession or trade. Education expenses that meet these standards can be written off on the individual tax return, or if the employer pays the employee back after they have incurred these education expenses, the reimbursement does not need to be reported as income.  If you do incur educational expenses, be sure to check with a tax professional to see whether you may qualify for additional benefits or deductions.
  • Job Search Expenses – If you have lost your job and incur expenses in the course of searching for a new one, these costs may be deductible, even if your search is not successful. The limitation on this deduction is that the job search must be for a position in the same field or occupation as the taxpayer’s previous employment. Job search expense for a first job cannot be written off, and neither can searches after a significant period of time has passed after the job loss.

The information provided here is strictly a guideline. Every situation is different, and there may be circumstances in an individual employee’s life or line of work that make deductions available to them that may not be available to other employees. If you have specific questions regarding your eligibility to write off employee expenses, we strongly suggest that you seek guidance from a tax professional.

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Sonu Shukla

Sonu Shukla

Sonu Shukla is a CPA, accountant, and tax preparer based in Orlando, FL. Sonu Shukla can assist you with your tax preparation and planning needs. Sonu is more than just another accountant in Orlando, Florida; he is a small business owner himself. It is a position in life that grants him the perspective and insight to emphasize with his clients, bringing them the best service possible. A Certified Public Accountant and a Certified Financial Planner, Sonu possesses the skills, education and experience to demonstrate unerring business acumen and passionately planned financial strategies. Being proactive is key for Sonu, tailoring highly efficient tax plans for his small business clients, all in a one on one environment where he and the client can bounce ideas around until every detail is worked out.

SONU SHUKLA, CPA, P.A.
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