Can I deduct unreimbursed employee business expenses?

Tax season often brings about a flurry of forms and regulations that can leave taxpayers and professionals alike scratching their heads. One such form is the IRS Form 2106: Employee Business Expenses. This form has undergone significant changes in recent years, affecting who can claim unreimbursed work-related expenses and how they can be deducted. In this article, we will delve into the details of Form 2106, its eligibility criteria, and its significance in the realm of tax deductions.

Changes in Tax Deductions

Prior to the Tax Cuts and Jobs Act (TCJA) coming into effect in the 2018 tax year, employees had two options for claiming job-related expenses as deductions. They could either take an above-the-line deduction or claim an itemized deduction for unreimbursed job expenses for W-2 income. However, the TCJA brought about a significant change. Unreimbursed employee business expenses could no longer be claimed as a tax deduction for most people, effectively eliminating the itemized deduction option.

Eligibility Criteria

As of now, only specific groups of individuals can use Form 2106 to claim unreimbursed employee business expenses. These include:

  1. Armed Forces Reservists: Members of reserve components of the Armed Forces who travel more than 100 miles away from home in connection with their services as reserves can deduct their unreimbursed travel expenses.
  2. Qualified Performing Artists: Those who have performed services in the performing arts as employees for at least two employers during the tax year and received wages of $200 or more per employer can qualify as qualified performing artists.
  3. Fee Basis Public Officials: Individuals who receive and retain remuneration directly from the public and are compensated in whole or in part on a fee basis, such as certain local officials, fall under this category.
  4. Employees with Impairment-Related Work Expenses (IRWE): Individuals with physical or mental disabilities that limit their ability to work and require specific items or services to work due to their disability can deduct their impairment-related work expenses.

 

Form 2106: A Deeper Dive

Form 2106 comprises two main sections: Part I deals with employee business expenses and reimbursements, calculating which expenses are eligible for a tax deduction. These expenses include vehicle expenses, parking, tolls, transportation charges, and other business-related costs. Part II focuses on vehicle expenses, providing two methods to calculate these expenses: the standard mileage rate or actual expenses. However, it’s important to note that commuting expenses to and from work are not considered eligible business expenses, regardless of the calculation method used.

Conclusion

Understanding the nuances of IRS Form 2106 is vital for individuals who still qualify to claim unreimbursed employee business expenses. The changing tax landscape, as seen through the TCJA, has narrowed down the eligibility criteria for this deduction. While many employees can no longer take advantage of this deduction, specific groups like Armed Forces reservists, qualified performing artists, fee basis public officials, and employees with impairment-related work expenses can still benefit from Form 2106. By staying informed about these changes, taxpayers and tax professionals can navigate tax seasons with greater clarity and avoid potential controversies related to improper deductions.

Sources:

  • IRS Publication 463: Travel, Gift, and Car Expenses
  • IRS Publication 529: Miscellaneous Deductions
  • Tax Cuts and Jobs Act (TCJA)
  • IRS Form 2106 Instructions
James Cox

James Cox

James E. Cox III, EA, is a tax controversy specialist at Red Bike Advisors. He works with individuals and businesses to help them with their tax preparation, planning, and representation/dispute issues and goals. With over 10 years’ experience in the tax industry, James strives to ensure that his clients remain compliant while helping them solve their tax problems, no matter how complex or in-depth.
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