Employee Expense Deductions
To be sure, people who have their own businesses have more opportunities to shift their expenses to Uncle Sam than do those who work for others. But you make a costly mistake if, as an employee, you assume you're out of luck.
To be sure, people who have their own businesses have more opportunities to shift their expenses to Uncle Sam than do those who work for others.
But you make a costly mistake if, as an employee, you assume you're out of luck. Yes, the notorious 2% rule creates a high hurdle: Most employee business expenses are considered miscellaneous expenses and are deductible only to the extent that all your miscellaneous expenses exceed 2% of adjusted gross income. If your AGI is $75,000, for example, the first $1,500 of miscellaneous expenses are not deductible. But don't assume the worst. Use that as a challenge to round up all possible write-offs, so you can pass the 2% test. (Unless otherwise noted, the expenses in this list are all subject to the 2% test, but there’s only 2% threshold. Add up qualifying expenses in all these categories to see if you pass the 2% test.)
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What's Deductible? -- A to Z
Armed Forces reservists. If you travel more than 100 miles away from home in connection with reserve duties that require an overnight stay, you can deduct food, lodging and transportation costs as an adjustment to gross income rather than as an itemized deduction. This deduction is not subject to the 2% rule.
Business bad debt. If you make a loan to the company you work for and it fails to repay you, the loss can qualify as an employee expense.
Cell phone. If your employer requires you to have a cell phone to perform your duties -- but doesn't pay for it -- you can depreciate the cost as an employee business expense.
Cell phone service. If your employer requires you to have a cell phone to perform your duties -- but doesn't pay for your service -- you can deduct the business portion of your monthly bills as an employee expense.
Commuting to temporary job site. The cost is a deductible employee expense if commuting to the temporary site is expected to last one year or less.
Computer. If your employer requires you to have a computer to perform your duties -- but doesn't pay for it -- you can depreciate the cost as an employee business expense. If you use the computer more than 50% of the time for business (rather than personal) purposes, you can “expense” the business portion of the cost. Expensing lets you deduct the full business cost in one year, rather than depreciating it over several. Again, this deduction is allowed as an employee expense only if your employer requires you to have the computer to do your job.
Conventions. For costs to be deductible, the convention must be in the U.S. or "North American area" (including Canada, Mexico, Puerto Rico, U.S. Virgin Islands and a few other locations) or, if not, it must be as reasonable to go foreign as to stay in the favored area. There's a $2,000 cap on employee expense deductions for a convention held on a ship and no write-off is allowed for any convention focusing on personal investments or financial planning.
Damages paid to a former employer for breach of an employment contract.
Dues to professional organizations.
Education. The cost of courses designed to maintain or improve the skills needed for your present job -- or required by your employer or the law to keep that job -- is deductible. Because of the 2% test, however, consider claiming the Lifetime Learning credit instead.
Educator expenses. Kindergarten through high school teachers and their aides can deduct up to $250 of out-of-pocket expenses for classroom supplies without worrying about the 2% rule. This deduction is available regardless of whether you itemize.
Employment-agency fees and other costs of looking for a job in the same line of work count toward the 2% threshold.
Entertainment. If your job requires you to entertain clients, you can deduct 50% of the unreimbursed cost as an employee business expense.
Fee-based government official. If you performed services as an employee of a state or local government and you were paid in whole or in part on a fee basis, you can avoid the 2% rule by claiming business expenses in performing those services as an adjustment to income, rather than as a miscellaneous deduction.
Home office expenses. It's tough for employees to get this deduction because the home office must be for your employer's convenience. You must be required to work at home, not simply want to. You must also use part of your home regularly and exclusively as your office.
Job-hunting costs. When you look for a position in the same line of work, the costs can qualify as deductible expenses. Write-offs can include travel expenses (transportation, lodging and 50% of food) if you go away from home overnight, employment-agency fees, want ads, and the cost of printing and mailing resumes.
Job-security insurance. The cost of a policy to protect yourself against being ousted from your job for reasons other than poor performance counts as an employee business expense.
Jury duty pay repaid to employer. Some employers pay employees' salaries while they are away from work on jury duty and require that the employees turn over to the company any jury fees they receive. If your company works this way, you can deduct the fees that you pass on to your employer. Since you claim this deduction as an adjustment to income on the Form 1040 rather than as an itemized deduction, it’s not subject to the 2% rule.
Laundry and dry cleaning of uniforms or special work clothing required by your job but not suitable for everyday use.
Legal fees connected with your job, such as fees associated with reinstatement of a medical license.
Malpractice insurance premiums may be deductible as unreimbursed employee expenses.
Meals and entertainment. Fifty percent of the cost of meals and entertainment related to your job can qualify as an employee business expense, but dues to a golf or country club cannot be included.
Medical exams required by employer. Claiming the unreimbursed cost as an employee expense makes it subject to the 2% test rather than the 7.5% threshold that applies if you count it as a medical expense.
Military reservists. If you a travel more than 100 miles away from home in connection with Armed Forces reserve duties that require an overnight stay, you can deduct food, lodging and transportation costs as an adjustment to gross income rather than as an itemized deduction. This deduction is not subject to the 2% % rule, nor do you have to itemize to benefit from it.
Moving expenses. If a new job is more than 50 miles farther away from your old house than your old job was, then you can deduct the cost of getting yourself, your family and your positions to the new location. You can claim this tax saver regardless of whether you itemize deductions, so it is not subject to the 2% rule.
Passport. The cost of acquiring a passport for a job-related trip counts as a employee business expense.
Performance artists. Congress okayed this special break for struggling artists when former actor Ronald Reagan was president. Those who work for two or more employers, report annual income of less than $16,000 and incur employee expenses that exceed 10% of their income from performing can deduct those expenses without worrying about the 2% rule.
Security clearance expenses. can qualify as a miscellaneous itemized deduction.
Special work clothes. The cost of uniforms and other special work clothes required by your job and not suitable for everyday use can be deducted. If you can deduct the cost, you can also deduct the cost of upkeep, including laundry and dry-cleaning bills.
Subscriptions to trade magazines and professional journals.
Temporary assignment. When a temporary assignment requires you to be away from home for one year or less, food, lodging and other costs that would be considered non-deductible personal expenses at home can be deducted as employee business expenses.
Tools, including a carpenter's saw, a lawyer's briefcase, a nurse's medical equipment, for example.
Travel expenses. If your job takes you away from home overnight, unreimbursed expenses for transportation, food and lodging are deductible.
Uniforms. The cost of uniforms and other special work clothes required by your job and jot suitable for everyday use can be deducted. If you can deduct the cost, you can also deduct the cost of upkeep, including laundry and dry-cleaning bills.
Vehicle expenses. Employees required to use their cars on the job can deduct either actual expenses or the standard mileage rate (50 cents per mile for 2010 driving; 51 cents a mile for 2011, plus parking and tolls). This is a miscellaneous expense, deductible only to the extent all miscellaneous expenses exceed 2% of adjusted gross income.
See our other taxopedias.