As an employee, you may be able to claim a tax deduction for your un-reimbursed business-related travel and entertainment expenses as a miscellaneous itemized deduction on Schedule A.  These expenses, combined with any other miscellaneous deductions you may have, are deductible to the extent they exceed 2% of your adjusted gross income.  But there are some exceptions to the 2% limit rule.

• Armed Forces Reservists, who travel more than 100 miles from their home in connection with their service in the Reserve may be able to claim their travel expenses as an adjustment to income rather than as an itemized deduction.
• State and local government officials who are paid on a fee basis can claim trade or business expenses as an adjustment to income rather than as a miscellaneous deduction.
• Performing artists may be able to claim their business expenses as an adjustment to income rather than itemizing deductions.

Ordinary and Necessary

In order to be deductible, you must have actually paid or incurred the expenses; they must be for carrying on your trade or business of being an employee, and they must be “ordinary and necessary”.  An expense is deemed to be ordinary if it is “common and accepted in your trade or business”, and it is necessary if it is “appropriate and helpful to your trade or business”.  An expense does not always have to be required in order to be considered necessary according to this definition.

Reimbursed Expenses

If you are an employee and:

• you fully account to your employer for all your business-related expenses,
• you received full reimbursement,
• you were required to return any excess reimbursement, and
• there is no amount reported on your W-2 Form, in box 12 with code “L’,

you do not need to show the expenses or the reimbursement on your tax return.

Accounting to your employer means that you turned in receipts and records, such as an expense report, that shows the amount, time, place, and business purpose of each expense.  You will also be considered as having accounted to your employer for your expenses if:

• Your employer paid you a fixed amount as an allowance for expenses, such as a per diem, or
• Your employer reimbursed you for your vehicle expenses at the standard mileage rate or another flat rate or fixed schedule.

Form 2106 or 2106EZ

As an employee, if you have travel, entertainment, and gift expenses that were not reimbursed by your employer, or you had actual expenses that were more than the per diem or other allowance you received, you can deduct them if they are ordinary and necessary, and are business-related.  Normally you would need to file Form 2106, Employee Business Expenses, or the simplified Form 2106EZ, Unreimbursed Employee Business Expenses.  If your expenses are not deductible because of the 2% of adjusted gross income limit on miscellaneous itemized deductions, you do not have to file Form 2106 or 2106EZ.