For example, an individual who regularly drives an established route can satisfy the adequate record requirement by recording the length of the trip once. The type of detail required to document business use of a vehicle varies depending on specific facts and circumstances. Also documentation including receipts, paid bills, and similar information should be included with your "log". Substantiation includes using an account book, diary, or similar record trip sheets expense reports or other corroborative evidence. The IRS generally disallows any deduction unless the taxpayer can substantiate by adequate record or sufficient evidence the (1) amount of an expenditure (or mileage for vehicles), (2) time and place of use, (3) business purpose, and (4) business relationship. Also, the employee must return excess (unsubstantiated) amounts to the employer. If for example the employee receives a flat auto allowance, he must document the time, place, and business purpose for the auto usage and the amount of auto expenses incurred in order to provide the employer with substantiation. Conversely if the employer's reimbursement rates exceed the federal allowances, the employer will report only the excess as income to the employee. The amount of expenses actually incurred need not be substantiated, and the employee is not required to return reimbursements that exceed his actual expenses. If the employer's reimbursement rates do not exceed IRS rates, the employer will not report any income to an employee who substantiates time, place, business purpose, and mileage amounts (for mileage reimbursements). Special rules allow employers to treat per diem or mileage reimbursement plans as accountable plans. Special Rules for Travel and Mileage Reimbursement Plans: The employee can deduct the employee business expenses as miscellaneous itemized deductions on his or her individual income tax return. As wages, the payments are subject to withholding and FICA taxes and are included with other salaries and wages on the employee's W-2 Form. Payments under a nonaccountable plan are 100% deductible by the employer as additional compensation to the employee. A monthly expense allowance is an example of such a plan. Employers who operate nonaccountable plans must report reimbursements as income to employees (subject to FICA and income tax withholding). In this case, expenses and reimbursements (which are not included in income) are reported on Form 2106, and carried to Schedule A as a miscellaneous itemized deduction subject to the 2% of AGI limitation.Ī nonaccountable plan is one where an employee is not required to account to the employer in order to be reimbursed for his business expenses. Any excess reimbursements not returned by the employee are reportable as income and included on the employees W-2.Įmployers who have accountable plans do not report expense reimbursements as income to employees no action is required by the employee unless the employee's actual business expenses exceed employer reimbursements. Excess reimbursements must be returned to the employer within a reasonable amount of time, normally within 120 days.
The plan must require the employee to return any amounts received that exceed the expenses actually incurred.The plan must require proof of a business connection (a business purpose) and the employee must substantiate his/her expenses to the employer.Most employers' plans fall under one of two types of employer expense reimbursement arrangements they are either an "accountable plan" or "non-accountable plan".Īn accountable plan is an expense or reimbursement arrangement that meets two conditions: Depending on the type of reimbursement plan your employer has will determine where and how you deduct those expenses.
#Unreimbursed business expenses professional
Some common types of qualified business expenses include vehicle expenses (travel), business gifts, home office expenses, trade and professional publications and meals and entertainment which are only 50% deductible. Most ordinary and necessary business expenses you incur as an employee of a business are deductible by either you or your employer. Consequently the question of whether work related expenses are deductible or not comes up quite often and the answer is a definitive "it depends". Let's face it, in these tough economic times we are constantly looking for ways to end the day with a few extra bucks in our pocket.
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