Do you know what are Non-reimbursed Employee Expenses Part 1

 

Presented by Paystrubmakr.com      By John Wolf and Tom Cullen CPA

 

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Publication 529 (12/2020), Miscellaneous Deductions

Introduction

This publication explains that you can no longer claim any miscellaneous itemized deductions unless you fall into one of the qualified categories of employment claiming a deduction relating to reimbursed employee expenses. Miscellaneous itemized deductions are those deductions that would have been subject to the 2%-of-adjusted-gross-income (AGI) limitation. You can still claim certain expenses as itemized deductions on Schedule A (Form 1040), Schedule A (1040-NR), or as an adjustment to income on Form 1040 or 1040-SR. This publication covers the following topics.

• Deductions for Reimbursed Employee Expenses.
• Expenses you can’t deduct.
• Expenses you can deduct.
• How to report your deductions.

If the taxpayer is an employee and has travel, entertainment, and gift expenses related to the employer’s business or his/her work, they may or may not be able to deduct these on their tax return depending on a number of factors. If they are not reimbursed for the travel, entertainment, or gift expenses required http://smallbusiness.co.uk/anatomy-perfect-21st-century-team-2540542/by their job, they must complete Form 2106 to claim a deduction. The employee must itemize deductions to claim these expenses and keep records and supporting evidence to prove his expenses. If the employee does receive reimbursement or an allowance for such expenses, they must generally include these payments on their tax return, unless he satisfies certain rules (e.g., adequate accounting to the employer under an accountable plan).

 

GUID for payroll – Unreimbursed Employee Expenses – What can be deducted?

When an Employee Needs to File Form 2106 

Form 2106 must be used when an employee’s business expenses either are:

(1) Not reimbursed, or

(2) Exceed the reimbursed amount.

Form 2106 is attached to Form 1040 to determine the amount of the un-reimbursed employee business expenses subject to the 2% limitation on miscellaneous itemized deductions.

Note: If the reimbursements are included on line 1 of Form 1040 (from

Form W-2 or Form 1099), the expenses shown on Form 2106 are claimed as itemized deductions.

Self-Employed Persons

Expenses Related to Taxpayer’s Business. Self-employed persons must report their income and expenses on Schedule C or C-EZ (Form 1040) if they are a sole proprietor, or on Schedule F (Form 1040) if they are a farmer. Form 2106 or Form 2106-EZ is not used. Schedule C should be used to report:

(1) Travel expenses, except for meals, on line 24a,

(2) Meals (actual cost or standard meal allowance) and entertainment on line 24b,

(3) Business gift expenses on line 27, and

(4) Local business transportation expenses, other than car and truck expenses, online 27.

Note: If Schedule C-EZ is filed, all business expenses are reported on line 2 Expenses Incurred on Behalf of a Client & Reimbursed. An important but fine-lined difference exists between entertainment and non-entertainment expenses incurred by an independent contractor for clients that are later reimbursed. In addition, the treatment of entertainment reimbursements also differs based on whether the independent contractor adequately accounts 2 to the client.

Note: A taxpayer is considered an independent contractor if they are self-employed and perform services for a customer or client (Reg. Section 1.274-5T(h)(1))

 

 

The Three Categories of Meal and Entertainment Expenses

Meal & Entertainment Expenses

With Adequate Accounting. If the taxpayer is reimbursed for meal and entertainment expenses incurred on behalf of a client and adequately accounts 3 to the client for such expenses, the reimbursed expenses are not included in the independent contractor’s income (Reg. Section 1.274-5(g)(2); Temp Reg. Section 1.274-5T(h)(2)). Since the reimbursement is not counted as income, the independent contractor is not entitled to take a deduction. In such a case, the client or customer may claim a deduction for the reimbursement and must substantiate each element of any underlying expense 4 (Reg. Section 1.274-5(g)(4); Temp

Reg. Section 1.274-5T(h)(4)). However, the client need not prove the reimbursed entertainment expenses directly related to or were associated with the business of the client (Section 162) to qualify for the deduction.

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