Before the passage of the Tax Cuts and Jobs Act of 2017, tax law provided individuals the ability to deduct certain miscellaneous itemized deductions on Schedule A that exceeded 2% of their adjusted gross income. These would include: tax preparation fees, unreimbursed employee business expenses, and other expenses (such as investment fees and expenses, and safe deposit box rent). Under the new law, these deductions have been suspended for tax years 2018 through 2025. This blog will focus on unreimbursed business expenses and two plans to consider discussing with your employer.
Unreimbursed Employee Business Expenses
Unreimbursed employee business expenses are “ordinary and necessary job expenses you paid for which you weren’t reimbursed” by your employer. Common expenses include business related meals and entertainment, travel, professional organization and chamber of commerce dues, and certain business use of part of your home. Some employees, particularly those in sales, may have a significant amount of unreimbursed employee business expenses.
Those individuals who have significant unreimbursed employee business expenses should consult with their tax advisor and consider discussing with their employer by either establishing an accountable plan or a per diem plan.
- An accountable plan allows the employer to advance or reimburse an employee for ordinary and necessary business expenses that are substantiated by the employee. In the event the advance exceeds the expenses, the employee would need to pay back the difference, otherwise it might be considered taxable compensation.
- A per diem plan would allow the employer to pay a daily rate for out of town travel using IRS tables to be used for lodging, meals, and incidentals.