Deduction Dangers, Part 2: Job Expenses
Find out which job expenses are tax deductible — plus, some costly mistakes to avoid!
Laura Adams, MBA
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Deduction Dangers, Part 2: Job Expenses
In the first installment of this 3-part series about tax deduction dangers, I gave you common mistakes to avoid when claiming the mortgage interest deduction. In this episode, I’ll tell you about another tax break that could put money in your pocket: job-related expenses.
Rules for Deducting Job-Related Expenses
Remember those uniforms you had to buy or the professional dues you had to pay to keep the boss happy? Well, if you weren’t reimbursed for those expenses, they could help you pay less tax.
The reason you should pay attention to tax-deductible expenses is because they reduce your taxable income. The less taxable income you have, the less you’ll owe Uncle Sam.
Some tax deductions are subject to certain conditions, and that’s the case with job-related expenses, which the IRS calls “employee business expenses.” You have to jump over the following 2 hurdles to claim them:
- You must file taxes on Form 1040opens PDF file and itemize deductions on Schedule Aopens PDF file .
- You can only claim the total amount that exceeds 2% of your adjusted gross income or AGI.
For example, if you have AGI of $40,000, 2% is $800. That means only the amount of employee expenses above $800 are tax deductible. If your job-related expenses total $1,000, you could only deduct $200 ($1,000 – $800)—not $1,000. And if your total expenses are $800 or less, you’re out of luck.
Additionally, there are some employee expenses that have further restrictions, and I’ll cover those in just a moment.
Examples of Tax Deductible Employee Expenses
The types of expenses you can deduct for your work must be considered “ordinary and necessary” to perform your job or trade. But what you need to keep in mind is that they don’t have to be required by your employer to be considered necessary. Here are some of the many expenses that you might be able to write off:
- Dues to a chamber of commerce or professional organization
- Subscriptions to trade magazines or professional journals
- Work clothes and uniforms (if required and not suitable for everyday use)
- Protective clothing like safety glasses, shoes, or hard hats
- Union dues and expenses
- Work-related education expenses
- Licenses, regulatory fees, and occupational taxes
- Medical exams required by an employer
- Passport fees for a business trip
- Depreciation on a computer you’re required to use for your job
- Tools, supplies, and safety equipment
- Travel, lodging, meals, entertainment, and gifts related to your work
- Home office expenses
- Job search expenses
This isn’t a complete list, so be sure to refer to IRS Publication 529opens PDF file , Miscellaneous Deductions for more information.
The last 3 categories of expenses that I mentioned—related to travel, working at home, and searching for a new job—have special requirements, so let’s dive a little deeper into what you need to know about them.
How to Deduct Travel Expenses
If you’re an employee and travel for work, you can deduct unreimbursed expenses for your hotel, airfare, ground transportation, and laundry services. But note that the costs of commuting between home and your job don’t qualify as a deduction.
Meals and entertainment are also allowable deductions—but you can only deduct 50% of them. To claim your travel-related expenses, you also have to complete Form 2106opens PDF file and submit it with your tax return.
How to Deduct Home Office Expenses
If you use a part of your residence for work, you may be able to deduct a portion of your home expenses and depreciation. But here’s the deal: Just doing some paperwork at home on the weekends doesn’t count as having a legitimate home office.
To qualify for this deduction, your home must be your principal office or a place where you meet customers on a regular basis for the convenience of your boss. For complete information, be sure to check out IRS Publication 587opens PDF file , Business Use of Your Home.
How to Deduct Job Search Expenses
The last deduction I mentioned is job-hunting expenses. If you’re looking for a new job, you can deduct many expenses related to your search—even if you haven’t landed a new job yet.
But there’s a catch: You must be looking for a job in your same field. So if you’re trying to make a major career change or you’re hunting for your very first job, those expenses won’t qualify for a deduction.
Some examples of tax-deductible job-hunting expenses include:
- Employment agency fees
- Resume costs and postage
- Travel for interviews
Take a look at IRS Publication 463opens PDF file , Travel, Entertainment, Gift, and Car Expenses for more information.
How to Maximize Your Tax Deductions
If you fall short of having enough total unreimbursed employee expenses to meet the 2% income threshold, delay paying as many expenses as possible until the following tax year. Bunching up deductions in a single tax year, instead of spreading them out over 2 years, maximizes their value.
For example, wait and buy new uniforms in January instead of in November or December. That way you give yourself the chance to accumulate enough expenses to claim the deduction next year.
Or if you know you’ll have plenty of job-related expenses to qualify for the deduction in the current year, prepay expenses like professional dues or the cost of new tools. That way you rack up as many money-saving tax deductions as possible.
Bunching up expenses typically means you’ll only qualify for a tax deduction every other year—but that’s better than not qualifying for the deduction at all!
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.