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Follow work expense tax claim rules

By Kay Bell ·
Tuesday, September 4, 2012
Posted: 3 pm ET

The just-passed long Labor Day holiday got me thinking about work expenses and those extra amounts that you might be able to claim on your tax return.

This is a nice tax break if you find you spend a large amount on qualifying items. Business expenses that could be of tax benefit include, befitting the workers' holiday we just celebrated, union and trade association dues.

Other common workplace-related costs that are routinely written off are professional memberships, subscriptions to trade journals, professional licensing fees and uniforms.

There are several key things to keep in mind if you're thinking of claiming these or other legitimate work-related costs.

First, you must itemize. Business expenditures are claimed as miscellaneous expenses on Schedule A. But only the portion of your business expenses (and other miscellaneous costs) that exceed 2 percent of your adjusted gross income count.

Second, you need good documentation of your expenses. If the Internal Revenue Service questions a claim and you don't have any substantiation, you automatically lose that deduction.

Finally, submit your business expense to your employer first. A U.S. Tax Court ruling last year disallowed most of the more than $46,000 in business expenses claimed by a California woman in part because she didn't submit them first to her employer for reimbursement.

That makes sense since the deduction is for unreimbursed business expenses, right?

She had sought to write off on her taxes vehicle expenses, parking fees, tolls, overnight travel costs, "other" business expenses and the allowable portion (that is, 50 percent) of business meals and entertainment expenses. The only reimbursement, she claimed, was around $3,100 for some of the meal costs.

The Tax Court judge, however, wasn't buying it. He noted that the woman did not actually seek reimbursement for some of the expenses and admonished her in his ruling.

A trade or business expense deduction is not allowable to an employee to the extent that the employee is entitled to reimbursement from her employer for an expenditure related to her status as an employee.  This rule forecloses an avenue for tax manipulation by preventing the taxpayer from converting a business expense of her company into one of her own by simply failing to seek reimbursement.

It bears repeating: You can't convert a business expense to a personal tax deduction simply by not turning in an expense account form.

So keep those records, and if your boss says "no" to your ordinary and necessary business reimbursement request, then and only then can you ask Uncle Sam for some pay back.

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