Overlooked Tax Deductions some Personal Expenses

The best idea you can remember is to try and make normal, personal expenses deductible. Do not think for one second that this is a suggestion to lie on your tax returns. But there are times when personal deductions can become tax deductions. As a practicing CPA, I find many returns with few or no itemized deductions for employee business expenses. If you have a job, you probably have employee business expenses. You need to fill out Form 2106 – “Unreimbursed Employee Business Expense”. There is a 2% limitation of your Adjusted Gross Income (AGI) on this deduction. Let’s examine some areas that are deductible.

1. Subscriptions, newspapers and books: Do you have to be knowledgeable of current events? Most employees do. The cost of obtaining this information is deductible as an employee business expense. Newspapers in most areas cost anywhere from $1-2 per day. Weekly news magazines cost $200 a year. Have you ever purchased any books to perform your job better? If you can honestly say that you need to know this information, these items are deductible as employee business expenses. Have you ever used any of your old college text books to help you on your job? These could be classified as a “reference library” and can be depreciated (written off over a period of time).

2. Mileage – Do you drive any mileage for your employer? In 2006, the mileage deduction is $.445 per mile. In 2007, the rate has been increased to $.485 per mile. Employees are asked to go to the bank, post office, etc. If you are not reimbursed by your employer, these miles are deductible. What is your employer reimburses your mileage at a lower rate, say $.20 a mile. You are entitled to take the difference ($.445 – $.20 = $.245 per mile). You already have the mileage listed on your expense reports. If you drove 5,000 miles for your employer, you would be entitled to a deduction of $1,225.00 if you were reimbursed $.20 per mile. If you did not receive any reimbursement, you would be entitled to a deduction of $2,225.00.

3. Parking/tolls – Do you have to pay for a “second” parking where you work. Your first parking is not deductible, but if you have to drive to a client or any place for your employer, the parking is deductible! Any tolls paid while on business trips is also deductible. If you are in an area where you have to pay tolls to travel while on business, this can add up to a decent deduction.

4. Phone – If you make phone calls from your personal phone (long distance or local), you are entitled to deduct these calls as an employee business expense. You need to keep a log of the calls, but this, too, can add up to a decent deduction.

5. Union dues/professional associations – If you pay any of these, they are deductible. These amounts can be quite substantial. Union dues are normally a percentage of your income. Professional dues can be in the hundreds of dollars.

6. Uniforms – This is anything that you would normally not wear around the house or going out for dinner with your spouse/friend. Some real estate companies have blazers with their logo embroidered in them. This would qualify. Nurses have uniforms. Special situations also apply. For example, some nurses who perform in the operating room (OR) are required to keep a separate pair of shoes in the OR for sanitary purposes. Those shoes qualify as a deduction. Religious also qualify for this deduction. Clerical garb has been accepted as a “uniform”.

7. Uniform maintenance – The cost of keeping your uniform clean is deducible also! Nurses’ uniforms must be cleaned often. Clerics need to be cleaned often. The cost of this upkeep is deductible.

8. Special clothing – Some jobs require special clothing – steel-toed shoes, hard hats are some examples. These items are deductible.

9. Tools – If you need to purchase your own tools for a job they are deductible. Most auto mechanics have to buy their own tools. The payments for these tools would be deductible. The interest on the payments is also deductible. What about a computer? If your employer writes a letter and states that you must have the computer to perform your job and it is not provided to you, the computer becomes deductible – as does the software you put into it! Any repairs or updates for these tools and computers are also deductible.

10. Gifts – Gifts for fellow employees and employers can be deductible if it is done to assure your position with the company. Many managers purchase gifts for employees. (Secretary’s Day) This deduction is limited to $25 per person.

11. Office-in-home – This is a difficult deduction to get, but can be extremely beneficial. As an employee, you must be required to have an office in your home because your employer does not offer you a work place. (A letter form your employer might be required, if audited.) You must pass the “exclusive” use test, which mean that you must have a room (not part of a room) that is used 100% for business. It must be your principal place of doing work for your employer. You then get deduct a percentage of your home expenses. For example, if your home is 1000 square feet, and your office is 100 square feet, you would be able to deduct 10% of your rent, utilities, home owners insurance, and repairs to your house. Your mortgage and real estate taxes would also qualify, but they are deductible elsewhere in your Schedule A.

These are a few examples. Hopefully, you are now thinking of times you spent money for your employer for which you were not reimbursed. Any time you spend money for your employer, it is deductible on the Form 2106. Use your intelligence and memory to think of other ways you have spent money for your employer.

If you have filed your tax return, you have the legal right to amend (correct) your tax returns for the past three years. Please note that most of these deductions will also probably decrease any state tax you pay!

So start thinking and start adding up the money you spend for your employer and see if you can save some taxes!