Blog Layout

How Tax Reform Changed Deducting Unreimbursed Job Expenses

August 1, 2019

Most employees deducted their unreimbursed job expenses from their Adjusted Gross Income before 2018. However, after the Tax cuts and Jobs Act (TCJA) this isn’t effectively possible anymore. TCJA like affected many AGI deductions including the deduction of job expenses.

Modifications in the deduction of job expenses

Before the tax reform, you could claim itemized deductions on AGI. There was a miscellaneous AGI deduction category subjected to a 2% limit. The deduction of job expenses came under this category. However, this option isn't available anymore and you can't reimburse these expenses via compensation on the tax return.

The job expenses which were deductible included:

Job relocation expenses
Business Travel
Office Supplies
Office use vehicles
Business trip meals & entertainment
Professional learning material

However, these expenses are still deductible if you can give proof that you are the owner of a small business or if you are self-employed. The course of action, in this case, would be to file these costs in your tax return as your business expenses. This includes all types of self-owned stores, farms, property rentals, small shops, etc. The Tax cuts and Job act only eliminated the reimbursement of job expenses for employees with traditional jobs.

Impact on itemized deductions

TCJA has approximately doubled the standard deduction for tax filers under all taxpayer brackets. The majority of tax filers think that itemizing their deductions isn’t a good option as the improved standard deduction promises to be a better alternative.

The matter of claiming unreimbursed job expenses as miscellaneous deductions isn’t of importance if you intend to not itemize the deductions at all.

Exploring your options

If the sum of your unreimbursed job expenses is quite considerable then you might want to explore other options as well. The first logical thing to do is to reach out to your employers for seeing if they would cover the expenses. All eligible reimbursements of employee expenses can still be deducted by your employer. So you should talk to your employers about this. This way you will be well aware of your employer’s position when the time comes for filing tax returns.

Make sure that if your employer reimburses your expenses then they utilize an accountable plan meeting all IRS requirements. This allows the employer for deducting reimbursed costs and not including that amount on Form W-2 as taxable income. However, if the employer uses some other plan than the reimbursement amount goes on the Form W-2 with your salary.

The other alternative is to find out if you are eligible for working as an independent contractor. If you meet IRS guidelines for being an independent contractor and if you frequently have large sums of unreimbursed job expenses then it is best that you disclose it as an independent contractor. However, make sure that compared to an employee, you get paid a higher sum as an independent contractor. This will be a great substitute for the loss of benefits like Medicare and employer-paid social security.

Please reach out to us at https://cartiercpas.com/ for more information about the New Tax Reform so we can help you prepare or email us at info@cartiercpas.com.

< Older Post Newer Post >