If you incur expenses as an employee in the course of doing your job, you may be able to deduct those expenses which are not reimbursed to you by your employer. Generally, you can deduct those expenses if they meet the following criteria:
- The expenses are paid or incurred during the tax year;
- The expenses were directly related to the carrying on your trade or business of being an employee; and
- The expenses were ordinary and necessary.
Remember that an expense is ordinary if it is common and accepted in your trade, business, or profession and it is necessary if it is appropriate and helpful to your business.
Those expenses, which are subject to the 2% rule, are included on Schedule A at line 21.
The rules for claiming those expenses aren’t terribly complicated and most taxpayers have a pretty decent understanding of them. But there’s a related rule that doesn’t get much notice – and it’s an important one. It’s the unclaimed reimbursement rule. And here it is, in a nutshell:
If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to that unclaimed reimbursement.
For example, if your employer has a reimbursement plan for travel or education and you opt not to file for reimbursement, you cannot claim those expenses as deductions on your tax return. It’s a little known rule but an important one.
The IRS will make this an audit issue: that’s why they may ask for your employee manual or handbook during an examination. So don’t just toss the employee handbook in a pile – familiarize yourself with your company’s procedures and take advantage of existing reimbursement plans. If you fail to get a reimbursement and you can’t claim the deduction, you lose twice.
