Completing Forms
2106 and 2106-EZ(p33)

This section briefly describes how employees complete Forms 2106 and 2106-EZ. Table 6-1 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.

You 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 ordinary and necessary 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 are using 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.

If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. The information relates to the following items.

• Date placed in service.
• Mileage (total, business, commuting, and other personal mileage).
• Percentage of business use.
• After-work use.
• Use of other vehicles.
• Whether you have evidence to support the deduction.
• Whether or not the evidence is written.

Employees must complete Form 2106, Part II, Section A, or Form 2106-EZ, Part II, to provide this information.

If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. In addition, on Part 1, line 2, you can deduct parking fees and tolls that apply to the business use of the car. If you file Form 2106-EZ, complete Part I, line 1, for the standard mileage rate and line 2 for parking fees and tolls. See Standard Mileage Rate in chapter 4 for information on using this rate.

If you claim a deduction based on actual car expenses, you cannot use Form 2106-EZ. You must complete Form 2106, Part II, Section C. In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim.

If you are still using a car that is fully depreciated, continue to complete Section C. Since you have no depreciation deduction, enter zero on line 28. In this case, do not complete Section D.

If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount as described in chapter 4. If so, you can show your car expenses and any inclusion amount as follows.

1. Compute the inclusion amount without taking into account your business use percentage for the tax year.
2. Report the inclusion amount from (1) on Form 2106, Part II, line 24b.
3. Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)).

The net amount of car rental expenses will be adjusted on Form 2106, Part II, line 27, to reflect the percentage of business use for the tax year.

Show 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.

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.

Show 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.

If you are subject to the Department of Transportation's "hours of service" limits (as explained earlier under Individuals subject to "hours of service" limits in chapter 2), use 80% instead of 50% for meals while away from your tax home.

Enter on Form 2106, line 7 (you cannot use Form 2106-EZ) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. This includes any amount reported under code L in box 12 of Form W-2.

If 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 when 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 meals, entertainment, and car expenses. The employer did not clearly show how much of the $7,000 was for the cost of deductible meals and entertainment. Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for meals and 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.

	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. They are figured in the following order on the specified form.

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 in chapter 2.)

If you are an employee, deduct your 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%-of-adjusted- gross-income limit. This limit is figured on line 26 of Schedule A (Form 1040).

This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses.

If 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. See Per Diem and Car Allowances earlier for more information. 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.

If 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.

Certain 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, in the total on Form 1040, line 24.

If 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.

1. During the tax year, you perform services in the performing arts as an employee for at least two employers.
2. You receive at least $200 each from any two of these employers.
3. Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services.
4. 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.

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 Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24.

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.

If 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 (Form 1040), line 21.

Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work.

You are disabled if you have:

• A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or
• A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.

You can deduct impairment-related expenses as business expenses if they are:

• Necessary for you to do your work satisfactorily,
• For goods and services not required or used, other than incidentally, in your personal activities, and
• Not specifically covered under other income tax laws.

You are blind. You must use a reader to do your work. You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as business expenses.

You are deaf. You must use a sign-language interpreter during meetings while you are at work. The interpreter's services are used only for your work. You can deduct your expenses for the interpreter as business expenses.

The following examples illustrate the reporting of travel, entertainment, gift, and transportation expenses on Forms 2106 and 2106-EZ. Business use of a car is shown using actual car expenses in Example 1 and the standard mileage rate in Example 2. Sample records that prove some of the claimed expenses are also shown.

David Pine purchased a new car for $24,500 (not including sales tax) on January 5, 2011. In 2011, he used the car 70% for business purposes. A sample page from David's logbook is illustrated in Table 6-2. He records his business mileage (but not his personal miles) and expenses daily.

David uses Form 2106 to claim actual car expenses. He completes Part II, Section A, as shown later on his illustrated form. He does not claim the section 179 deduction but he does claim the special depreciation allowance electing safe-harbor exception. He uses the MACRS double declining balance method (200% DB) to determine his depreciation deduction.

David first figures his special depreciation allowance to be $17,150 ($24,500 × 70% × 100%). David's depreciation limit for 2011 is reduced because his business use is less than 100%. He figures his reduced limit to be $7,742 (2011 depreciation limit ($11,060 (from the Maximum Depreciation Deduction for Cars table shown in chapter 4) × 70%)). David notes that his special allowance ($17,150) exceeds his depreciation limit ($7,742) for 2011. He then figures his unadjusted basis to be $9,408 ($24,500 × 70% – $7,742). David figures his MACRS depreciation deduction to be $1,882 ($9,408 (unadjusted basis) x 20%). David figures his total depreciation deduction to be $9,624 ($7,742 (special allowance) + $1,882 (MACRS depreciation)). However, David's depreciation deduction is limited by the maximum depreciation limit to $7,742. He enters the appropriate amounts in Part II, Section D.

His other car expenses included $4,970 for gas, oil, repairs, and insurance. He enters this amount in Part II, Section C, and multiplies it by the 70% business use. He adds this amount ($3,479) to the depreciation deduction ($7,742) and reports the total ($11,221) on Part I, line 1.

His other transportation expenses for parking fees, tolls, and taxis were $1,320. He enters this amount on Part I, line 2. David's employer reimbursed him a total of $4,800 for his car and transportation expenses. This amount was paid from an accountable plan and was not shown on David's Form W-2. However, since he is claiming expenses that are more than his reimbursements, he must show the entire reimbursement amount on Part I, Column A, line 7. Since David had no meal or entertainment expenses, he enters his excess deductible expenses ($7,741) on Part I, line 10. He can deduct these expenses (subject to the 2%-of-adjusted-gross-income limit) on Schedule A (Form 1040), line 21, if he itemizes his deductions.

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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, 2008. 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 his Weekly Traveling Expense and Entertainment Record, shown in Table 6-3. 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 (10,000 miles from January 1 through June 30 and 10,000 miles from July 1 through December 31) were for business. Following the Instructions for Form 2106-EZ, Part II, he answers all the questions and figures his car expense to be $10,650 [(10,000 × 51 cents per mile) + (10,000 × 55.5 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		10,650
Meals		3,861
Lodging, laundry, dry cleaning		18,318
Entertainment		3,250
Gifts, education, etc.		650
Total		$37,249

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.

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