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Deduction Dangers, Part 2: Job Expenses

Find out which job expenses are tax deductible -- plus, some costly mistakes to avoid! 

By
Laura Adams, MBA,
March 30, 2012
Episode #261

Page 1 of 3

In the first installment of this 3-part series about tax deduction dangers, I gave you common mistakes to avoid when claiming the mortgage interest deduction. In this episode, I’ll tell you about another tax break that could put money in your pocket: job-related expenses.   

Rules for Deducting Job-Related Expenses 

Remember those uniforms you had to buy or the professional dues you had to pay to keep the boss happy? Well, if you weren’t reimbursed for those expenses, they could help you pay less tax.  

The reason you should pay attention to tax-deductible expenses is because they reduce your taxable income. The less taxable income you have, the less you’ll owe Uncle Sam. 

Some tax deductions are subject to certain conditions, and that’s the case with job-related expenses, which the IRS calls “employee business expenses.” You have to jump over the following 2 hurdles to claim them:

  1. You must file taxes on Form 1040 and itemize deductions on Schedule A.
  2. You can only claim the total amount that exceeds 2% of your adjusted gross income or AGI.

For example, if you have AGI of $40,000, 2% is $800. That means only the amount of employee expenses above $800 are tax deductible. If your job-related expenses total $1,000, you could only deduct $200 ($1,000 - $800)—not $1,000. And if your total expenses are $800 or less, you’re out of luck. 

Additionally, there are some employee expenses that have further restrictions, and I’ll cover those in just a moment. 

Examples of Tax Deductible Employee Expenses

The types of expenses you can deduct for your work must be considered “ordinary and necessary” to perform your job or trade. But what you need to keep in mind is that they don’t have to be required by your employer to be considered necessary. Here are some of the many expenses that you might be able to write off:

  • Dues to a chamber of commerce or professional organization
  • Subscriptions to trade magazines or professional journals 
  • Work clothes and uniforms (if required and not suitable for everyday use)
  • Protective clothing like safety glasses, shoes, or hard hats
  • Union dues and expenses
  • Work-related education expenses 
  • Licenses, regulatory fees, and occupational taxes
  • Medical exams required by an employer
  • Passport fees for a business trip
  • Depreciation on a computer you’re required to use for your job
  • Tools, supplies, and safety equipment
  • Travel, lodging, meals, entertainment, and gifts related to your work
  • Home office expenses
  • Job search expenses

This isn’t a complete list, so be sure to refer to IRS Publication 529, Miscellaneous Deductions for more information.

The last 3 categories of expenses that I mentioned—related to travel, working at home, and searching for a new job—have special requirements, so let’s dive a little deeper into what you need to know about them.

How to Deduct Travel Expenses

If you’re an employee and travel for work, you can deduct unreimbursed expenses for your hotel, airfare, ground transportation, and laundry services. But note that the costs of commuting between home and your job don’t qualify as a deduction.

Meals and entertainment are also allowable deductions—but you can only deduct 50% of them. To claim your travel-related expenses, you also have to complete Form 2106 and submit it with your tax return.

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