Publication 17
taxmap/pub17/p17-146.htm#en_us_publink1000173880This section explains where and how to report the expenses discussed
in this chapter. It discusses reimbursements and how to treat them under
accountable and nonaccountable plans. It also explains rules for independent
contractors and clients, fee-basis officials, certain performing artists, Armed
Forces reservists, and certain disabled employees. This section ends with an
illustration of how to report travel, entertainment, gift, and car expenses on
Form 2106-EZ.
taxmap/pub17/p17-146.htm#en_us_publink1000173881You must report your income and expenses on Schedule C or C-EZ
(Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you
are a farmer. You do not use Form 2106 or 2106-EZ. See your form instructions
for information on how to complete your tax return. You can also find
information in Publication 535 if you are a sole proprietor, or in Publication
225, Farmer's Tax Guide, if you are a farmer.
taxmap/pub17/p17-146.htm#en_us_publink1000173882
If you are both self-employed and an employee, you must keep separate records
for each business activity. Report your business expenses for self-employment on
Schedule C, C-EZ, or F (Form 1040), as discussed earlier. Report your business
expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed
next.
taxmap/pub17/p17-146.htm#en_us_publink1000173883
If you are an employee, you generally must complete Form 2106 to deduct your
travel, transportation, and entertainment expenses. However, you can use the
shorter Form 2106-EZ instead of Form 2106 if you meet all of the following
conditions.
- You are an employee deducting expenses attributable to your
job.
- You were not reimbursed by your employer for your expenses
(amounts included in box 1 of your Form W-2 are not considered reimbursements).
- If you claim car expenses, you use the standard mileage rate.
If you did not receive any reimbursements (or the reimbursements were all
included in box 1 of your Form W-2), the only business expense you are claiming
is for gifts, and the rules for certain individuals (such as performing artists)
discussed later under
Special Rules
do not apply to you, do not complete Form 2106 or 2106-EZ. Instead, claim the
amount of your deductible gifts directly on line 21 of Schedule A (Form 1040).
If you received a Form W-2 and the "Statutory employee" box in box 13 was
checked, report your income and expenses related to that income on Schedule C or
C-EZ (Form 1040). Do not complete Form 2106 or 2106-EZ.
Statutory employees include full-time life insurance salespersons,
certain agent or commission drivers, traveling salespersons, and certain
homeworkers.
 | If you are entitled to a reimbursement from your employer
but you do not claim it, you cannot claim a deduction for the expenses to which
that unclaimed reimbursement applies.
|
taxmap/pub17/p17-146.htm#en_us_publink1000173889
If your employer reimburses you for nondeductible personal expenses, such as for
vacation trips, your employer must report the reimbursement as wage income in
box 1 of your Form W-2. You cannot deduct personal expenses.
taxmap/pub17/p17-146.htm#en_us_publink1000173890This section explains what to do when you receive an advance
or are reimbursed for any of the employee business expenses discussed in this
chapter.
taxmap/pub17/p17-146.htm#en_us_publink1000173891Table 26-2. How To Prove Certain Business Expenses
| IF you have expenses for... | THEN you must keep records that show details of the following
elements... |
| Amount | Time | Place or Description | Business Purpose and
Business Relationship
|
| Travel | Cost of each separate expense for travel, lodging, and meals.
Incidental expenses may be totaled in reasonable categories such as taxis, fees
and tips, etc.
| Dates you left and returned for each trip and number of
days spent on business. | Destination or area of your travel (name of city, town,
or other designation). | Purpose:
Business purpose for the expense or the business benefit gained or expected to
be gained.
Relationship: N/A
|
| Entertainment | Cost of each separate expense. Incidental expenses such
as taxis, telephones, etc., may be totaled on a daily basis. | Date of entertainment. (Also see
Business Purpose.)
| Name and address or location of place of entertainment.
Type of entertainment if not otherwise apparent. (Also see
Business Purpose.)
| Purpose:
Business purpose for the expense or the business benefit gained or expected to
be gained. For entertainment, the nature of the business discussion or activity.
If the entertainment was directly before or after a business discussion: the
date, place, nature, and duration of the business discussion, and the identities
of the persons who took part in both the business discussion and the
entertainment activity.
Relationship:
Occupations or other information (such as names, titles, or other designations)
about the recipients that shows their business relationship to you. For
entertainment, you must also prove that you or your employee was present if the
entertainment was a business meal.
|
Gifts
| Cost of the gift.
| Date of the gift.
| Description of the gift.
|
| Transportation | Cost of each separate expense. For car expenses, the cost
of the car and any improvements, the date you started using it for business, the
mileage for each business use, and the total miles for the year.
| Date of the expense. For car expenses, the date of the use
of the car. | Your business destination. | Purpose: Business purpose for the expense.
Relationship: N/A
|
If you received an advance, allowance, or reimbursement for your
expenses, how you report this amount and your expenses depends on whether the
reimbursement was paid to you under an accountable plan or a nonaccountable
plan.
This section explains the two types of plans, how per diem and
car allowances simplify proving the amount of your expenses, and the tax
treatment of your reimbursements and expenses.
taxmap/pub17/p17-146.htm#en_us_publink1000173893You are not reimbursed or given an allowance for your expenses
if you are paid a salary or commission with the understanding that you will pay
your own expenses. In this situation, you have no reimbursement or allowance
arrangement, and you do not have to read this section on reimbursements.
Instead, see
Completing Forms 2106 and 2106-EZ, later, for information on completing your tax return.
A reimbursement or other expense allowance arrangement is a system
or plan that an employer uses to pay, substantiate, and recover the expenses,
advances, reimbursements, and amounts charged to the employer for employee
business expenses. Arrangements include per diem and car allowances.
A per diem allowance is a fixed amount of daily reimbursement your employer
gives you for your lodging, meal, and incidental expenses when you are away from
home on business. (The term "incidental expenses" is defined earlier under
Meals and Incidental Expenses.) A car allowance is an amount your employer gives you for
the business use of your car.
Your employer should tell you what method of reimbursement is
used and what records you must provide.
taxmap/pub17/p17-146.htm#en_us_publink1000173897To be an accountable plan, your employer's reimbursement or allowance
arrangement must include all of the following rules.
- Your expenses must have a business connection — that
is, you must have paid or incurred deductible expenses while performing services
as an employee of your employer.
- You must adequately account to your employer for these expenses
within a reasonable period of time.
- You must return any excess reimbursement or allowance within
a reasonable period of time.
An excess reimbursement or allowance is any amount you are paid
that is more than the business-related expenses that you adequately accounted
for to your employer.
The definition of a reasonable period of time depends on the
facts and circumstances of your situation. However, regardless of the facts and
circumstances of your situation, actions that take place within the times
specified in the following list will be treated as taking place within a
reasonable period of time.
- You receive an advance within 30 days of the time you have
an expense.
- You adequately account for your expenses within 60 days after
they were paid or incurred.
- You return any excess reimbursement within 120 days after
the expense was paid or incurred.
- You are given a periodic statement (at least quarterly) that
asks you to either return or adequately account for outstanding advances and you
comply within 120 days of the statement.
If you meet the three rules for accountable plans, your employer
should not include any reimbursements in your income in box 1 of your Form W-2.
If your expenses equal your reimbursement, you do not complete Form 2106. You
have no deduction since your expenses and reimbursement are equal.
 |
If your employer included reimbursements in box 1 of your Form W-2 and you meet
all the rules for accountable plans, ask your employer for a corrected Form W-2.
|
taxmap/pub17/p17-146.htm#en_us_publink1000173902Even though you are reimbursed under an accountable plan, some
of your expenses may not meet all the rules. Those expenses that fail to meet
all three rules for accountable plans are treated as having been reimbursed
under a
nonaccountable plan (discussed later).
You may be reimbursed under your employer's accountable plan
for expenses related to that employer's business, some of which are deductible
as employee business expenses and some of which are not deductible. The
reimbursements you receive for the nondeductible expenses do not meet rule (1)
for accountable plans, and they are treated as paid under a nonaccountable plan.
taxmap/pub17/p17-146.htm#en_us_publink1000173905Your employer's plan reimburses you for travel expenses while
away from home on business and also for meals when you work late at the office,
even though you are not away from home. The part of the arrangement that
reimburses you for the nondeductible meals when you work late at the office is
treated as paid under a nonaccountable plan.
| The employer makes the decision whether to reimburse employees
under an accountable plan or a nonaccountable plan. If you are an employee who
receives payments under a nonaccountable plan, you cannot convert these amounts
to payments under an accountable plan by voluntarily accounting to your employer
for the expenses and voluntarily returning excess reimbursements to the
employer.
|
taxmap/pub17/p17-146.htm#en_us_publink1000173907One of the rules for an accountable plan is that you must adequately
account to your employer for your expenses. You adequately account by giving
your employer a statement of expense, an account book, a diary, or a similar
record in which you entered each expense at or near the time you had it, along
with documentary evidence (such as receipts) of your travel, mileage, and other
employee business expenses. (See
Table 26-2, earlier, for details you need to enter in your record and
documents you need to prove certain expenses.) A per diem or car allowance
satisfies the adequate accounting requirement under certain conditions. See
Per Diem and Car Allowances, later.
You must account for all amounts you received from your employer
during the year as advances, reimbursements, or allowances. This includes
amounts you charged to your employer by credit card or other method. You must
give your employer the same type of records and supporting information that you
would have to give to the IRS if the IRS questioned a deduction on your return.
You must pay back the amount of any reimbursement or other expense allowance for
which you do not adequately account or that is more than the amount for which
you accounted.
taxmap/pub17/p17-146.htm#en_us_publink1000173909If your employer reimburses you for your expenses using a per
diem or car allowance, you can generally use the allowance as proof of the
amount of your expenses. A per diem or car allowance satisfies the adequate
accounting requirements for the amount of your expenses only if all the
following conditions apply.
- Your employer reasonably limits payments of your expenses
to those that are ordinary and necessary in the conduct of the trade or
business.
- The allowance is similar in form to and not more than the
federal rate (discussed later).
- You prove the time (dates), place, and business purpose of
your expenses to your employer (as explained in
Table 26-2) within a reasonable period of time.
- You are not related to your employer (as defined next). If
you are related to your employer, you must be able to prove your expenses to the
IRS even if you have already adequately accounted to your employer and returned
any excess reimbursement.
If the IRS finds that an employer's travel allowance practices
are not based on reasonably accurate estimates of travel costs (including
recognition of cost differences in different areas for per diem amounts), you
will not be considered to have accounted to your employer. In this case, you
must be able to prove your expenses to the IRS.
You are related to your employer if:
- Your employer is your brother or sister, half brother or half
sister, spouse, ancestor, or lineal descendant,
- Your employer is a corporation in which you own, directly
or indirectly, more than 10% in value of the outstanding stock, or
- Certain relationships (such as grantor, fiduciary, or beneficiary)
exist between you, a trust, and your employer.
You may be considered to indirectly own stock, for purposes
of (2), if you have an interest in a corporation, partnership, estate, or trust
that owns the stock or if a member of your family or your partner owns the
stock.
The federal rate can be figured using any one of the following
methods.
- For per diem amounts:
- The regular federal per diem rate.
- The standard meal allowance.
- The high-low rate.
- For car expenses:
- The standard mileage rate.
- A fixed and variable rate (FAVR).
| For per diem amounts, use the rate in effect for the area
where you stop for sleep or rest. |
taxmap/pub17/p17-146.htm#en_us_publink1000173913The regular federal per diem rate is the highest amount that
the federal government will pay to its employees for lodging, meal, and
incidental expenses (or meal and incidental expenses only) while they are
traveling away from home in a particular area. The rates are different for
different locations. Your employer should have these rates available. (Employers
can get Publication 1542 on the Internet, which gives the rates in the
continental United States for the current year.)
taxmap/pub17/p17-146.htm#en_us_publink1000173914The standard meal allowance (discussed earlier) is the federal
rate for meals and incidental expenses (M&IE). The rate for most small
localities in the United States is $46 a day. Most major cities and many other
localities qualify for higher rates. The rates for all localities within the
continental United States are listed in Publication 1542. You can also find this
information on the Internet at
www.gsa.gov.
You receive an allowance only for meals and incidental expenses
when your employer does one of the following.
- Provides you with lodging (furnishes it in kind).
- Reimburses you, based on your receipts, for the actual cost
of your lodging.
- Pays the hotel, motel, etc., directly for your lodging.
- Does not have a reasonable belief that you had (or will have)
lodging expenses, such as when you stay with friends or relatives or sleep in
the cab of your truck.
- Figures the allowance on a basis similar to that used in computing
your compensation, such as number of hours worked or miles traveled.
This is a simplified method of computing the federal per diem
rate for travel within the continental United States. It eliminates the need to
keep a current list of the per diem rate for each city.
Under the high-low method, the per diem amount for travel during
January through September of 2010 is $258 (including $65 for M&IE) for
certain high-cost locations. All other areas have a per diem amount of $163
(including $52 for M&IE). (Employers can get Publication 1542 which gives
the areas eligible for the $258 per diem amount under the high-low method for
all or part of this period.)
| Effective October 1, 2010, the per diem rate for certain
high-cost locations decreased to $233 (including $65 for M&IE). The rate for
all other locations decreased to $160 (including $52 for M&IE). However, an
employer can continue to use the rates described in the preceding paragraph for
the remainder of 2010 if those rates and locations are used consistently during
October, November, and December for all employees. Employers who did not use the
high-low method during the first 9 months of 2010 cannot begin to use it before
2011. For more information see Revenue Procedure 2010-39, which can be found on
the Internet at
www.irs.gov/irb/2010-42_IRB/ar13.html. Also see Publication 1542 on the Internet at
www.irs.gov/pub/irs-pdf/p1542.pdf. |
taxmap/pub17/p17-146.htm#en_us_publink1000173917The standard meal allowance is for a full 24-hour day of travel.
If you travel for part of a day, such as on the days you depart and return, you
must prorate the full-day M&IE rate. This rule also applies if your employer
uses the regular federal per diem rate or the high-low rate.
You can use either of the following methods to figure the federal
M&IE for that day.
- Method 1:
- For the day you depart, add
3/4 of the standard meal allowance amount for that day.
- For the day you return, add
3/4 of the standard meal allowance amount for the preceding
day.
- Method 2:
Prorate the standard meal allowance using any method you consistently apply in
accordance with reasonable business practice.
This is a set rate per mile that you can use to compute your
deductible car expenses. For 2010, the standard mileage rate for the cost of
operating your car is 50 cents per mile.
taxmap/pub17/p17-146.htm#en_us_publink1000173919This is an allowance your employer may use to reimburse your
car expenses. Under this method, your employer pays an allowance that includes a
combination of payments covering fixed and variable costs, such as a
cents-per-mile rate to cover your variable operating costs (such as gas, oil,
etc.) plus a flat amount to cover your fixed costs (such as depreciation (or
lease payments), insurance, etc.). If your employer chooses to use this method,
your employer will request the necessary records from you.
taxmap/pub17/p17-146.htm#en_us_publink1000173920If your reimbursement is in the form of an allowance received
under an accountable plan, the following facts affect your reporting.
- The federal rate.
- Whether the allowance or your actual expenses were more than
the federal rate.
The following discussions explain where to report your expenses
depending upon how the amount of your allowance compares to the federal rate.
If your allowance is less than or equal to the federal rate,
the allowance will not be included in box 1 of your Form W-2. You do not need to
report the related expenses or the allowance on your return if your expenses are
equal to or less than the allowance.
However, if your actual expenses are more than your allowance, you can complete
Form 2106 and deduct the excess amount on Schedule A (Form 1040). If you are
using actual expenses, you must be able to prove to the IRS the total amount of
your expenses and reimbursements for the entire year. If you are using the
standard meal allowance or the standard mileage rate, you do not have to prove
that amount.
taxmap/pub17/p17-146.htm#en_us_publink1000173922Nicole drives 10,000 miles in 2010 for business. Under her employer's
accountable plan, she accounts for the time (dates), place, and business purpose
of each trip. Her employer pays her a mileage allowance of 40 cents a mile.
Since Nicole's $5,000 expense computed under the standard mileage
rate (10,000 × 50 cents) is more than her $4,000 reimbursement (10,000
miles × 40 cents), she itemizes her deductions to claim the excess expense.
Nicole completes Form 2106 (showing all her expenses and reimbursements) and
enters $1,000 ($5,000 − $4,000) as an itemized deduction.
taxmap/pub17/p17-146.htm#en_us_publink1000173923If your allowance is more than the federal rate, your employer
must include the allowance amount up to the federal rate in box 12 of your Form
W-2. This amount is not taxable. However, the excess allowance will be included
in box 1 of your Form W-2. You must report this part of your allowance as if it
were wage income.
If your actual expenses are less than or equal to the federal
rate, you do not complete Form 2106 or claim any of your expenses on your
return.
However, if your actual expenses are more than the federal rate, you can
complete Form 2106 and deduct those excess expenses. You must report on Form
2106 your reimbursements up to the federal rate (as shown in box 12 of your Form
W-2) and all your expenses. You should be able to prove these amounts to the
IRS.
taxmap/pub17/p17-146.htm#en_us_publink1000173924Joe lives and works in Austin. In May his employer sent him to
San Diego for 4 days and paid the hotel directly for Joe's hotel bill. The
employer reimbursed Joe $75 a day for his meals and incidental expenses. The
federal rate for San Diego is $71 a day.
Joe can prove that his actual meal expenses totaled $380. His
employer's accountable plan will not pay more than $75 a day for travel to San
Diego, so Joe does not give his employer the records that prove that he actually
spent $380. However, he does account for the time, place, and business purpose
of the trip. This is Joe's only business trip this year.
Joe was reimbursed $300 ($75 × 4 days), which is $16 more than the federal
rate of $284 ($71 × 4 days). His employer includes the $16 as income on
Joe's Form W-2 in box 1. His employer also enters $284 in box 12 of Joe's Form
W-2.
Joe completes Form 2106 to figure his deductible expenses. He
enters the total of his actual expenses for the year ($380) on Form 2106. He
also enters the reimbursements that were not included in his income ($284). His
total deductible expense, before the 50% limit, is $96. After he figures the 50%
limit on his unreimbursed meals and entertainment, he will include the balance,
$48, as an itemized deduction on Schedule A (Form 1040).
taxmap/pub17/p17-146.htm#en_us_publink1000173925Under an accountable plan, you are required to return any excess
reimbursement or other expense allowances for your business expenses to the
person paying the reimbursement or allowance. Excess reimbursement means any
amount for which you did not adequately account within a reasonable period of
time. For example, if you received a travel advance and you did not spend all
the money on business-related expenses or you do not have proof of all your
expenses, you have an excess reimbursement.
"Adequate accounting" and "reasonable period of time" were discussed
earlier in this chapter.
taxmap/pub17/p17-146.htm#en_us_publink1000173926You receive a travel advance if your employer provides you with
an expense allowance before you actually have the expense, and the allowance is
reasonably expected to be no more than your expense. Under an accountable plan,
you are required to adequately account to your employer for this advance and to
return any excess within a reasonable period of time.
If you do not adequately account for or do not return any excess
advance within a reasonable period of time, the amount you do not account for or
return will be treated as having been paid under a nonaccountable plan
(discussed later).
taxmap/pub17/p17-146.htm#en_us_publink1000173927If you do not prove that you actually traveled on each day for
which you received a per diem or car allowance (proving the elements described
in
Table 26-2), you must return this unproved amount of the travel advance
within a reasonable period of time. If you do not do this, the unproved amount
will be considered paid under a nonaccountable plan (discussed later).
If your employer's accountable plan pays you an allowance that is higher than
the federal rate, you do not have to return the difference between the two rates
for the period you can prove business-related travel expenses. However, the
difference will be reported as wages on your Form W-2. This excess amount is
considered paid under a nonaccountable plan (discussed later).
taxmap/pub17/p17-146.htm#en_us_publink1000173929Your employer sends you on a 5-day business trip to Phoenix in
March 2010 and gives you a $400 ($80 × 5 days) advance to cover your meals
and incidental expenses. The federal per diem for meals and incidental expenses
for Phoenix is $71. Your trip lasts only 3 days. Under your employer's
accountable plan, you must return the $160 ($80 × 2 days) advance for the 2
days you did not travel. For the 3 days you did travel you do not have to return
the $27 difference between the allowance you received and the federal rate for
Phoenix (($80 − $71) × 3 days). However, the $27 will be reported on
your Form W-2 as wages.
taxmap/pub17/p17-146.htm#en_us_publink1000173930A nonaccountable plan is a reimbursement or expense allowance
arrangement that does not meet one or more of the three rules listed earlier
under
Accountable Plans.
In addition, even if your employer has an accountable plan, the
following payments will be treated as being paid under a nonaccountable plan.
- Excess reimbursements you fail to return to your employer.
- Reimbursement of nondeductible expenses related to your employer's
business. See
Reimbursement of nondeductible expenses earlier under
Accountable Plans.
If you are not sure if the reimbursement or expense allowance
arrangement is an accountable or nonaccountable plan, ask your employer.
taxmap/pub17/p17-146.htm#en_us_publink1000173934
Your employer will combine the amount of any reimbursement or other expense
allowance paid to you under a nonaccountable plan with your wages, salary, or
other pay. Your employer will report the total in box 1 of your Form W-2.
You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct
your expenses for travel, transportation, meals, or entertainment. Your meal and
entertainment expenses will be subject to the 50% limit discussed earlier under
Entertainment Expenses. Also, your total expenses will be subject to the 2%-of-adjusted-gross-income
limit that applies to most miscellaneous itemized deductions on Schedule A (Form
1040).
Kim's employer gives her $1,000 a month ($12,000 for the year)
for her business expenses. Kim does not have to provide any proof of her
expenses to her employer, and Kim can keep any funds that she does not spend.
Kim is being reimbursed under a nonaccountable plan. Her employer
will include the $12,000 on Kim's Form W-2 as if it were wages. If Kim wants to
deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize
her deductions.
taxmap/pub17/p17-146.htm#en_us_publink1000173937This section briefly describes how employees complete Forms 2106
and 2106-EZ.
Table 26-3
explains what the employer reports on Form W-2 and what the employee reports on
Form 2106. The instructions for the forms have more information on completing
them.
| If you are self-employed, do not file Form 2106 or 2106-EZ.
Report your expenses on Schedule C, C-EZ, or F (Form 1040). See the instructions
for the form that you must file. |
taxmap/pub17/p17-146.htm#en_us_publink1000173939You may be able to use the shorter Form 2106-EZ to claim your
employee business expenses. You can use this form if you meet all the following
conditions.
- You are an employee deducting expenses attributable to your
job.
- You were not reimbursed by your employer for your expenses
(amounts included in box 1 of your Form W-2 are not considered reimbursements).
- If you are claiming car expenses, you use the standard mileage
rate.
If you used a car to perform your job as an employee, you may
be able to deduct certain car expenses. These are generally figured on Form
2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Car
expenses using the standard mileage rate can also be figured on Form 2106-EZ by
completing Part II and Part I, line 1.
taxmap/pub17/p17-146.htm#en_us_publink1000173941Show your transportation expenses that did not involve overnight
travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Also
include on this line business expenses you have for parking fees and tolls. Do
not include expenses of operating your car or expenses of commuting between your
home and work.
taxmap/pub17/p17-146.htm#en_us_publink1000173942Table 26-3. Reporting Travel, Entertainment, Gift, and Car
Expenses and Reimbursements
| IF the type of reimbursement (or other expense allowance)
arrangement is under: | THEN the employer reports on Form W-2: | AND the employee
reports on
Form 2106: *
|
| An accountable plan with: |
Actual expense reimbursement:
Adequate accounting made
and excess returned.
| No amount. | No amount. |
Actual expense reimbursement:
Adequate accounting and return of excess both required
but excess not returned.
| The excess amount as wages in box 1. | No amount. |
Per diem or mileage allowance up to the federal rate:
Adequate accounting made
and excess returned.
| No amount. | All expenses and reimbursements only if excess expenses
are claimed. Otherwise, form is not filed. |
Per diem or mileage allowance up to the federal rate:
Adequate accounting and return of excess both required
but excess not returned.
| The excess amount as wages in box 1. The amount up to the
federal rate is reported only in box 12—it is not reported in box 1.
| No amount. |
Per diem or mileage allowance exceeds the federal rate:
Adequate accounting up to the federal rate only
and excess not returned.
| The excess amount as wages in box 1. The amount up to the
federal rate is reported only in box 12—it is not reported in box 1.
| All expenses (and reimbursement reported on Form W-2, box
12) only if expenses in excess of the federal rate are claimed. Otherwise, form
is not required.
|
| A nonaccountable plan with: |
| Either adequate accounting or return of excess, or both,
not required by plan | The entire amount as wages in box 1. | All expenses. |
| No reimbursement plan: | The entire amount as wages in box 1. | All expenses. |
| * You may be able to use Form 2106-EZ. See
Completing Forms 2106 and 2106-EZ.
|
Show your other employee business expenses on Form 2106, lines
3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Do not include expenses for
meals and entertainment on those lines. Line 4 is for expenses such as gifts,
educational expenses (tuition and books), office-in-the-home expenses, and trade
and professional publications.
| If line 4 expenses are the only ones you are claiming, you
received no reimbursements (or the reimbursements were all included in box 1 of
your Form W-2), and the
Special Rules
discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Claim
these amounts directly on Schedule A (Form 1040), line 21. List the type and
amount of each expense on the dotted lines and include the total on line 21.
|
taxmap/pub17/p17-146.htm#en_us_publink1000173947Show the full amount of your expenses for business-related meals
and entertainment on Form 2106, line 5, Column B. Include meals while away from
your tax home overnight and other business meals and entertainment. Enter 50% of
the line 8, Column B, meal and entertainment expenses on line 9, Column B.
If you file Form 2106-EZ, enter the full amount of your meals
and entertainment on the line to the left of line 5 and multiply the total by
50%. Enter the result on line 5.
taxmap/pub17/p17-146.htm#en_us_publink1000173948If you are subject to the Department of Transportation's "hours
of service" limits, use 80% instead of 50% for meals while away from your tax
home.
taxmap/pub17/p17-146.htm#en_us_publink1000173949
Enter on Form 2106, line 7, the amounts your employer (or third party)
reimbursed you that were not included in box 1 of your Form W-2. (You cannot use
Form 2106-EZ.) This includes any reimbursement reported under code L in box 12
of Form W-2.
taxmap/pub17/p17-146.htm#en_us_publink1000173950If you were reimbursed under an accountable plan and want to
deduct excess expenses that were not reimbursed, you may have to allocate your
reimbursement. This is necessary if your employer pays your reimbursement in the
following manner:
- Pays you a single amount that covers meals and/or entertainment,
as well as other business expenses, and
- Does not clearly identify how much is for deductible meals
and/or entertainment.
You must allocate that single payment so that you know how much
to enter on Form 2106, line 7, Column A and Column B.
Rob's employer paid him an expense allowance of $12,000 this
year under an accountable plan. The $12,000 payment consisted of $5,000 for
airfare and $7,000 for entertainment and car expenses. Rob's employer did not
clearly show how much of the $7,000 was for the cost of deductible
entertainment. Rob actually spent $14,000 during the year ($5,500 for airfare,
$4,500 for entertainment, and $4,000 for car expenses).
Since the airfare allowance was clearly identified, Rob knows
that $5,000 of the payment goes in Column A, line 7 of Form 2106. To allocate
the remaining $7,000, Rob uses the worksheet from the instructions for Form
2106. His completed worksheet follows.
Reimbursement Allocation
Worksheet
(keep for your records)
|
| | | |
| 1. | Enter the total amount of reimbursements your employer gave
you that were not reported to you in box 1 of Form W-2 | $7,000
|
| 2. | Enter the total amount of your expenses for the periods covered
by this reimbursement | 8,500
|
| 3. | Of the amount on line 2, enter your total expense for meals
and entertainment | 4,500
|
| 4. | Divide line 3 by line 2. Enter the result as a decimal (rounded
to at least three places) | .529
|
| 5. | Multiply line 1 by line 4. Enter the result here and in Column
B, line 7 | 3,703
|
| 6. | Subtract line 5 from line 1. Enter the result here and in
Column A, line 7 | $3,297
|
On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and
$3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B.
After you have completed your Form 2106 or 2106-EZ, follow the directions on
that form to deduct your expenses on the appropriate line of your tax return.
For most taxpayers, this is line 21 of Schedule A (Form 1040). However, if you
are a government official paid on a fee basis, a performing artist, an Armed
Forces reservist, or a disabled employee with impairment-related work expenses,
see
Special Rules, later.
Your employee business expenses may be subject to either of the
limits described next. These limits are figured in the following order on the
specified form.
taxmap/pub17/p17-146.htm#en_us_publink1000173956
Certain meal and entertainment expenses are subject to a 50% limit. If you are
an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form
2106-EZ. See
50% Limit under
Entertainment Expenses, earlier.
If you are an employee, deduct employee business expenses (as figured on Form
2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Most miscellaneous
itemized deductions, including employee business expenses, are subject to a 2%
limit. This limit is figured on line 26 of Schedule A (Form 1040).
taxmap/pub17/p17-146.htm#en_us_publink1000173961This section discusses special rules that apply to Armed Forces
reservists, government officials who are paid on a fee basis, performing
artists, and disabled employees with impairment-related work expenses.
taxmap/pub17/p17-146.htm#en_us_publink1000173962If you are a member of a reserve component of the Armed Forces
of the United States and you travel more than 100 miles away from home in
connection with your performance of services as a member of the reserves, you
can deduct your travel expenses as an adjustment to gross income rather than as
a miscellaneous itemized deduction. The amount of expenses you can deduct as an
adjustment to gross income is limited to the regular federal per diem rate (for
lodging, meals, and incidental expenses) and the standard mileage rate (for car
expenses) plus any parking fees, ferry fees, and tolls. The federal rate is
explained earlier under
Per Diem and Car Allowances. Any expenses in excess of these amounts can be claimed only
as a miscellaneous itemized deduction subject to the 2% limit.
You are a member of a reserve component of the Armed Forces of
the United States if you are in the Army, Navy, Marine Corps, Air Force, or
Coast Guard Reserve, the Army National Guard of the United States, the Air
National Guard of the United States, or the Reserve Corps of the Public Health
Service.
taxmap/pub17/p17-146.htm#en_us_publink1000173965If you have reserve-related travel that takes you more than 100
miles from home, you should first complete Form 2106 or Form 2106-EZ. Then
include your expenses for reserve travel over 100 miles from home, up to the
federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on
Form 1040, line 24. Subtract this amount from the total on Form 2106, line 10,
or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on
Schedule A (Form 1040), line 21.
You cannot deduct expenses of travel that does not take you more
than 100 miles from home as an adjustment to gross income. Instead, you must
complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction
on Schedule A (Form 1040), line 21.
taxmap/pub17/p17-146.htm#en_us_publink1000173966Certain fee-basis officials can claim their employee business
expenses whether or not they itemize their other deductions on Schedule A (Form
1040).
Fee-basis officials are persons who are employed by a state or
local government and who are paid in whole or in part on a fee basis. They can
deduct their business expenses in performing services in that job as an
adjustment to gross income rather than as a miscellaneous itemized deduction.
If you are a fee-basis official, include your employee business
expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Form 1040, line
24.
taxmap/pub17/p17-146.htm#en_us_publink1000173967If you are a performing artist, you may qualify to deduct your
employee business expenses as an adjustment to gross income rather than as a
miscellaneous itemized deduction. To qualify, you must meet all of the following
requirements.
- During the tax year, you perform services in the performing
arts as an employee for at least two employers.
- You receive at least $200 each from any two of these employers.
- Your related performing-arts business expenses are more than
10% of your gross income from the performance of those services.
- Your adjusted gross income is not more than $16,000 before
deducting these business expenses.
If you are married, you must file a joint return unless you lived
apart from your spouse at all times during the tax year.
If you file a joint return, you must figure requirements (1),
(2), and (3) separately for both you and your spouse. However, requirement (4)
applies to your and your spouse's combined adjusted gross income.
taxmap/pub17/p17-146.htm#en_us_publink1000173969
If you meet all of the above requirements, you should first complete Form 2106
or 2106-EZ. Then you include your performing-arts-related expenses from line 10
of Form 2106 or line 6 of Form 2106-EZ in the total on line 24 of Form 1040.
If you do not meet all of the above requirements, you do not
qualify to deduct your expenses as an adjustment to gross income. Instead, you
must complete Form 2106 or 2106-EZ and deduct your employee business expenses as
an itemized deduction on Schedule A (Form 1040), line 21.
taxmap/pub17/p17-146.htm#en_us_publink1000173970If you are an employee with a physical or mental disability,
your impairment-related work expenses are not subject to the
2%-of-adjusted-gross-income limit that applies to most other employee business
expenses. After you complete Form 2106 or 2106-EZ, enter your impairment-related
work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A
(Form 1040), line 28, and identify the type and amount of this expense on the
dotted line next to line 28. Enter your employee business expenses that are
unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6,
on Schedule A, line 21.
Impairment-related work expenses are your allowable expenses
for attendant care at your workplace and other expenses you have in connection
with your workplace that are necessary for you to be able to work. For more
information, see
chapter 21.
Bill Wilson is an employee of Fashion Clothing Co. in Manhattan,
NY. In a typical travel week, Bill leaves his home on Long Island on Monday
morning and drives to Albany to exhibit the Fashion line for 3 days to
prospective customers. Then he drives to Troy to show Fashion's new line of
merchandise to Town Department Store, an old customer. While in Troy, he talks
with Tom Brown, purchasing agent for Town Department Store, to discuss the new
line. He later takes John Smith of Attire Co. out to dinner to discuss Attire
Co.'s buying Fashion's new line of clothing.
Bill purchased his car on January 3, 2007. He uses the standard
mileage rate for car expense purposes. He records his total mileage, business
mileage, parking fees, and tolls for the year. Bill records his expenses and
other pertinent information in a travel expense log (not shown). He obtains
receipts for his expenses for lodging and for any other expenses of $75 or more.
During the year, Bill drove a total of 25,000 miles of which
20,000 miles were for business. He answers all the questions in Part II of Form
2106-EZ and figures his car expense to be $10,000 (20,000 x 50 cents per mile).
His total employee business expenses are shown in the following
table.
| Type of Expense
| Amount |
| Parking fees and tolls | $ 520 |
| Car expenses | 10,000 |
| Meals | 3,861 |
Lodging, laundry, dry
cleaning
|
18,318
|
| Entertainment | 3,250 |
| Gifts, education, etc. | 650 |
| Total | $36,599
|
Bill received an allowance of $33,000 ($2,750 per month) to help
offset his expenses. Bill did not have to account to his employer for the
reimbursement, and the $33,000 was included as income in box 1 of his Form W-2.
Because Bill's reimbursement was included in his income and he
is using the standard mileage rate for his car expenses, he files Form 2106-EZ
with his tax return. His filled-in form is shown on the next page.
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