In a previous post, I talked about deductions that are subject to the 2% floor. As you may remember, these expenses, when taken in total, are greater than 2% of your adjusted gross income. You can only deduct the amount that is above this 2% floor. For example, if you had an adjusted gross income of $100,000 and expenses of $2,500, you would be able to deduct $500 of these expenses ($2,500-$2,000, which is 2% of $100,000).
In this post, I’d like to discuss the deductibility of travel expenses you incur as an employee. Keep in mind that you can only deduct these costs if you are not reimbursed by your employer, and have traveled away from you tax home overnight and on business.
Living in the Washington, D.C. area, one of the questions I get asked is if commuting costs are deductible. I wish they were. However, you can deduct the costs of going from one workplace to another, whether it is another location used by your employer, or if you have a second job and are going there from your second job. If you have a temporary work location outside of the metropolitan area where you live, and you reasonably expect to be working there one year or less, you can deduct the cost of going from your home to this temporary location.
So, what types of costs are deductible? The types of costs that are deductible would include the following:
- Cost of travel by airplane, automobile, bus, or train,
- Taxi, commuter bus (not being used for commuting to your job), and limousine costs,
- Cost of sending luggage and display materials,
- Costs to operate and maintain your automobile when traveling away from home on business,
- Cost of meals if your trip is overnight or long enough to require you to get substantial rest,
- Cost of lodging if your trip is overnight or long enough to require you to get substantial rest,
- Cost of cleaning and laundry on an overnight trip,
- Cost of business calls,
- Tips for providing the services listed above.
The best way to make sure you get the proper deduction, as with other deductions, is to keep your receipts and make sure the purpose of the trips are noted, either on the receipt or a listing of your expenditures you keep for tax purposes.
So what happens if your company gives you an advance or reimburses you for expenses? These payments are considered to be made under an accountable plan. To be considered an accountable plan, your employer’s program must have the following three characteristics:
- The employee must have expenses that are deductible which were incurred when performing their duties as an employee,
- An adequate accounting of the expenses must be made to the employer by the employee within a reasonable amount of time, and
- The employee must return any excess reimbursement or advance within a reasonable amount of time.
If the plan does not meet all three requirements, any reimbursement or advance received by the employee must be reported as wages on the employee’s W-2. If this happens to you, you must report these payments as income, and complete Form 2106 to itemize the deductions.
What experiences have you had with reporting the expenses related to traveling for your job on your tax return? I’d love to hear about it. Also, if you have any questions, shoot them to me at email@example.com, and I would be happy to answer them. If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.