Tax Reform and Unreimbursed Employee Business Expenses

Although we are now on our second year of preparing tax returns under the Tax Cuts and Jobs Act (TCJA), we still get a lot of questions about a deduction that was common before TCJA.

This deduction was the deduction for unreimbursed employee business expenses.

Unfortunately, the ability to deduct these expenses was repealed with the TCJA.

It would first be helpful to know what this deduction was used for. We find it easiest to use an example to illustrate this.

Example:
Linda is an employee of a medical equipment company. She is a salesperson. As part of her role, she travels to various hospitals and clinics to visit clients.

She also takes clients out for dinner to discuss business. She often works from home and has an area of her home designated exclusively for business.

She often buys supplies and office equipment, like a printer, for her work-from-home office. Her employer does not reimburse her for any of these expenses.

Previously, Linda would have some ability to deduct this as an itemized deduction.

She was able to deduct the amount of these expenses that exceeded 2% of her adjusted gross income.

Assume she had gross income of $100,000, and her expenses were $3,000. 2% of $100,000 is $2,000. Linda would have been able to deduct $1,000 ($3,000 – $2,000) as an itemized deduction.

The TCJA completely eliminated this deduction for just about every taxpayer.

Under the TCJA, it doesn’t matter how much Linda spends for her expenses as an employee. She won’t be able to deduct them. It may be a completely legitimate cost of her job, but it isn’t deductible anywhere on her tax return.

Employees in a position like this should keep this in mind when they are negotiating their pay structure. If certain expenses are recurring and part of the regular course of business, that employee should talk to their employer about a reimbursement arrangement under an accountable plan.

If you have questions about whether or not certain expenses are deductible please reach out to us.  We are happy to help with all your individual or small business tax accounting needs. 701-492-9000