New 1/31/15 updated 12/28/2020
Unreimbursed employee travel expenses no longer deductible
The Tax Cuts and Jobs Act also suspends all miscellaneous itemized deductions that are subject to the 2% of adjusted gross income (AGI) floor. This change affects un-reimbursed employee expenses such as uniforms, union dues, automobile expenses, and the deduction for business-related meals, entertainment, and travel.
Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02. 03/2/19
You must determine the percentage of business vehicle use in order to take a business deduction for the use of your car. No deduction is allowed if the vehicle is used solely for personal use, including commuting to and from work. Deductible car use can include:
- traveling from one workplace to another;
- making business trips to visit customers;
- attending business meetings away from your regular workplace: and
- traveling to temporary workplaces.
To claim the deduction, keep contemporaneous (i.e., made at the same time as the use) complete and accurate mileage records for each business use of your car, including date, where traveled, who you met with, and business purpose. If you cannot produce a clear record, the IRS may disallow the deduction.
2 methods are available for claiming business car expenses:
- Actual Expenses: Add all of your car operating expenses for the year, including: gas, oil, tires, repairs, license fees, lease payments, registration fees, garage rental, insurance, and depreciation. Multiply the total car operating expenses by the percentage of business usage to determine your deductible expense. Business-related parking and road tolls are fully deductible expenses that do not have to be reduced by the percentage of business usage.
- Standard Mileage Rate: rates will be listed on http://www.IRS.gov when they become available. The 2021 standard Mileage rates for the use of a car (including vans, pickups, or panel trucks):
- 56 cents per mile for business miles driven;
- 16 cents per mile driven for medical or moving purposes; and
- 14 cents per mile driven in service of charitable organizations.
Because the 2017 tax act, Pub. L. No. 115-97, suspended the deduction for miscellaneous itemized deductions for 2018 through 2025, the business standard mileage rate cannot be used to claim an itemized deduction for un-reimbursed employee travel expenses (except for the few deductions allowed in computing adjusted gross income).
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2010-51. 03/2/19
Employer provided vehicles
If our employer provides a vehicle for your use (and personal use is permitted), you must either:
- pay your employer for your personal use, or
- your employer must include the value of that use in your income.
For vehicles up to a specified value (set by law and adjusted annually), you may use the standard mileage rate to determine the value of the personal use. If the vehicle cost exceeds that amount, you must use the “applicable lease rate” from an IRS provided chart, roughly 25% of the initial cost annually multiplied by the per cent of personal use.
Employer reimbursement for auto use
If your employer reimburses you for use of your personal car in our employer’s business, and if you “adequately substantiate” to your employer for the amount of use being reimbursed (supply your employer with a record of: date, where traveled, who you met with, and business purpose), you do not have to include the reimbursement in income.
IRS issues guidance on Tax Cuts and Jobs Act changes on business expense deductions for meals, entertainment 3/2/19
The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.
Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. 3/2/19
Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.
Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.
if you do not adequately substantiate for the amount reimbursed to you, your employer must include the payment in reporting your income (on our W-2), and you must deduct the expense on your personal income tax return. In that case, or if the reimbursement is less than the expense and you choose to deduct the excess expense, you must deduct the expenses on Schedule A, itemized deductions, as a “miscellaneous itemized expense”, and be prepared to substantiate the expenses to the IRS (e.g., in an audit). Deduction on Schedule A is usually disadvantageous as you are only allowed to deduct miscellaneous itemized expenses exceeding 2% of your adjusted gross income (AGI), and itemized expenses are reduced if income exceeds an annually adjusted amount. You also may not be able to benefit if you do not normally file a Schedule A.
“Ordinary and necessary” travel expenses incurred while traveling away from home for the primary purpose of business are deductible. Keep all receipts and relevant documentation to substantiate:
- where you went
- why you went
- how long you stayed, and
- how much you spent.
If your travel includes both business and personal travel, keep records showing how much is related to business. Keep the following:
Lodging (hotel, etc.) records should show the travel location, duration of your stay, costs, and expenses incurred. Keep records for cleaning and laundry, telephone charges, tips, and other charges not shown separately.
These include airplane, train or bus ticket stubs, travel agency receipts, rental car or taxi receipts, parking, tolls, tips, etc., showing the amounts, dates and destinations.
Generally, you must keep a log of your meal expenses and save receipts for amounts of $75 or more. If you do not want to keep track of the actual costs of your meals, you may qualify to use the standard meal allowance. Whether you use the standard meal allowance or actual expenses, you may only claim a deduction for 50% of the unreimbursed cost of your meals while you are traveling.