Deducting employee expenses

Dear Tax Talk,
I work as a part-time transcriptionist out of my home. I am not self-employed, but have an employer that compensates me with a paycheck and all the deductions. However, I do not have an office within the office, so I work strictly out of my home. I am looking to purchase a new computer for this job. Can I deduct the cost of the computer? I'm really confused. Thanks for your help. -- Sherrie

Dear Sherrie,
It sounds like you need a computer to sort out the tax law on this one.

First of all, you have to understand that as an employee, your business-related expenses are miscellaneous itemized deductions on Schedule A of your Form 1040. Also, these costs are subject to reduction by 2 percent of your adjusted gross income. Therefore, in order to receive a tax benefit for employee business expenses, you have to have miscellaneous itemized deductions greater than 2 percent of your AGI and you must itemize deductions (generally mortgage interest, taxes and charitable contributions) in excess of the standard deduction.

Starting on page 2 of IRS Publication 529, Miscellaneous Deductions, the IRS lists a host of employee business expenses you may deduct. When it comes to computers or cellular phones, the use of either must be for the convenience of your employer and be required as a condition of your employment.

The IRS explains these tests as follows:

"'For the convenience of your employer' means that your use of the computer or cellular telephone is for a substantial business reason of your employer. You must consider all facts in making this determination. Use of your computer or cellular phone during your regular working hours to carry on your employer's business is generally for the convenience of your employer.

"'Required as a condition of your employment' means that you cannot properly perform your duties without the computer or cellular telephone. Whether you can properly perform your duties without it depends on all the facts and circumstances. It is not necessary that your employer explicitly require you to use your computer or cellular telephone. But neither is it enough that your employer merely state that your use of the item is a condition of your employment."

Obviously, or not so, if you don't have a computer at work or even office space for that matter, it can be said that the use of the computer at home is for the convenience of your employer since you use it during regular working hours.

As a transcriptionist, it would also probably be difficult for you to work without a computer. Accordingly, the computer would be required as a condition of your continued employment. Although you currently have a computer, the purchase of a better computer would still be considered a required condition of employment.

You may also qualify to claim other deductions relating to your home office and business use of your automobile. Equally confusing, home office deductions are discussed starting on page 5 of IRS Publication 529.