Deducting employee business expenses

Dear Tax Talk,
I am a loan officer for a mortgage company in Texas and receive W-2 income. I am provided an office, but I also work out of my home quite a bit. When preparing my taxes, is it OK to write off such things as a cellular phone, internet service fees, utilities, gift cards/incentives sent to clients, marketing expenses, new auto, gas, business seminars, etc. I have spoken to a local CPA but would like another source of input. Thanks in advance. -- James

Dear James,
As an employee, you can claim a deduction for unreimbursed employee business expenses. Employee business expenses are claimed on Form 2106 and are deducted on Schedule A as miscellaneous itemized deductions. You have to reduce your total miscellaneous deductions by 2 percent of your adjusted gross income.

According to Internal Revenue Service Publication 529, you can deduct only unreimbursed employee expenses that are:

• Paid or incurred during your tax year,
• Used to carry on your trade or business of being an employee, and
• Ordinary and necessary.

An expense is ordinary if it is common and accepted in your type of trade or business. An expense is necessary if it is appropriate and helpful to your trade or business.

You may be able to deduct the following items as unreimbursed employee expenses:

• Business bad debt of an employee.
• Business liability insurance premiums.
• Damages paid to a former employer for breach of an employment contract.
• Depreciation on a computer or cellular telephone your employer requires you to use in your work. Also you can deduct the cost of monthly services.
• Dues to a chamber of commerce if membership helps you do your job.
• Dues to professional societies.
• Education that is work related, such as a seminar.
• Home office or part of your home used regularly and exclusively in your work. (In your case your office is your regular place of work and you would not qualify to write off the costs of utilities.)
• Job search expenses in your present occupation.
• Laboratory breakage fees.
• Legal fees related to your job.
• Licenses and regulatory fees.
• Malpractice insurance premiums.
• Medical examinations required by an employer.
• Occupational taxes.
• Passport for a business trip.
• Research expenses of a college professor.
• Subscriptions to professional journals and trade magazines related to your work.
• Tools and supplies used in your work.
• Travel, transportation, entertainment and gift expenses related to your work.
• Union dues and expenses.
• Work clothes and uniforms if required and not suitable for everyday use.

Transportation expenses are the expenses incurred for the business use of your car. For example, if you use your car to visit clients, bank branches, attorneys, referral sources or do other work-related travel, you can deduct part of the cost of your SUV. You can figure your actual costs, including either the lease payments for a leased vehicle or depreciation for an owned vehicle. Interest paid on an auto loan is not deductible by an employee.

Alternatively, you may choose to use the standard mileage rate, if greater, to figure your car expenses. The standard mileage rate for 2003 is 36 cents per mile. Depreciation deductions are highly complex this year due to law changes. You need to read the instructions for Form 2106 carefully to determine what limits apply.