As of Jan. 1, 2018, the new tax law, Tax Cuts and Jobs Act, takes away the deduction for employee business expenses that were claimed as miscellaneous itemized deductions on Schedule A of form 1040.
Some folks paid and claimed a deduction for business travel and other business expenses they incurred as an employee that were not reimbursed by their employer. Form 2106 and other business expenses paid by the employee will not be available for individual income tax returns, beginning Jan. 1, 2018. That deduction is still OK for your 2017 return.
It has always been better for the employee to get reimbursed for the business expenses of their employer that the employee paid. If $100 is spent by the employee and is not reimbursed, the old tax deduction the employee claims might save $25 in tax. The employee is still “out of pocket” $75. But if $100 is spent on business expenses and $100 is reimbursed by the employer, “out of pocket” cost to the employee is zero.
It is best for the employer to have an “accountable” reimbursement plan. The employee reports and documents business expenses the employee paid to the employer on a regular basis. The employer then writes a reimbursement check to the employee and the employer claims the tax deduction. The employee has no taxable income from the reimbursement. The employee is just an agent of the employer and the reimbursement is not taxable income. It not reported on form 1099-MISC.
If the employee receives advance payments of say $100 per month and has paid business expenses of the employer that month of only $90, then the employee is to pay the difference, $10, back to the employer.
All that means now is the time to change procedures on employee business expenses. Employees should save receipts and keep records of payments of business expenses so the employer can verify what is to be reimbursed. Ask your employer for an understanding of what expenses the employer will reimburse starting in 2018 and what documentation will be required.
If the employee pays for travel that is required as part of the job, it seems only fair for the employer to reimburse the employee. That is really expenses of doing business that the employer should pay.
By the way, all other miscellaneous itemized deductions are also not deductible beginning Jan. 1, 2018, for 2018 returns. That is just part of the “tax simplification”. Congress seems to have felt the increase in the standard deduction sort of offsets this change in the law.
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