We all spend money for our jobs. There’s getting yourself to work, dressing for success (whatever that means in your industry), and maintaining your personal grooming. Oops, almost forgot the most important expense – for lunch.
So are these expenses eligible to be deducted from your income? You had to spend that money to keep your job, right? Well, the IRS has defined the types of expenses that are eligible to be deducted to reduce your taxable income when you are a W-2 employee. These rules are different than the ones for self-employed individuals or owner/shareholders of a corporation.
If your expenses are eligible and you have enough of them, you may be able to reduce the bottom line on your tax return.
What Are Eligible Expenses?
Business-related expenses that are necessary and customary to conduct your work and not reimbursed by your employer may be deductible on your tax return. Examples include local transportation, other than commuting between your home and your office, and uniforms required to be worn while you are working. Mileage deductions are calculated using the standard mileage rate, which is $0.575 a mile for 2015. Business entertainment and gifts may also be deductible, but they are subject to limits.
Whose Expenses are Included?
Include eligible employee business expenses paid during the tax year for you and your spouse.
Who Can Take the Deduction?
Eligible expenses are only deductible for taxpayers who itemize their deductions using IRS Schedule A instead of taking the standard deduction. Special rules apply for educators and performing artists. Eligible employee business expenses, plus other miscellaneous itemized deductions, must exceed 2% of your adjusted gross income (e.g., Line 37 on Form 1040, page 1) to be deductible.
Does this Impact You?
This information is very general. More details and potential restrictions are addressed in Chapter 26 of IRS Publication 17, Your Federal Income Tax, which can be found at http://www.irs.gov/publications/p17/ch26.html. A qualified tax professional or financial advisor could also help figure out how your unreimbursed employee business expenses could reduce your income tax liability.
Reducing the Pain of Unreimbursed Medical Expenses
When you or someone in your family is sick or has an accident, the last thing you want to think about is money. You hope that whatever you or your loved ones need, they get it regardless of cost. In the back of your mind, you also hope that those expenses are covered by your insurance. Unfortunately, even with medical and dental insurance, some expenses are not fully covered or not covered at all. That means money out of your own pocket.
The pain of paying those expenses could be partially offset by deducting eligible unreimbursed medical and dental expenses on your income tax return. Answers to some of your questions about reducing the bottom line on your tax return follow here.
What are Medical Expenses?
The IRS defines eligible medical and dental expenses as “legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners.” Expenses must be necessary for diagnosis and treatment to alleviate or prevent a physical or mental illness or condition. Vitamins and vacations are beneficial but they are not are not considered to be eligible medical expenses.
Whose Medical Expenses are Included?
Include eligible medical expenses for you, your spouse, and your qualified dependents that were paid during the tax year. Tests to identify qualified dependents are addressed in IRS Publication 503, Child and Dependent Care Expenses, at http://www.irs.gov/publications/p503/.
Who Can Take the Deduction?
Eligible expenses are only deductible for taxpayers who itemize their deductions instead of taking the standard deduction. Even if you have taken the standard deduction in the past, significant unreimbursed medical and dental expenses could result in enough deductions to itemize using IRS Schedule A.
Eligible medical and dental expenses must exceed 10% of your adjusted gross income (e.g., Line 37 on Form 1040, page 1) to be deductible. If you or your spouse was born before January 2, 1950, expenses must exceed 7.5% of adjusted gross income.
Unreimbursed expenses for hospitals, lab work, prescriptions, medical devices and equipment, and supplies can be included. You can also include your mileage and other transportation expenses for medical and dental appointments and procedures.
Premiums that you paid for medical and dental insurance are generally considered to be deductible. One exception is for employer-sponsored plans where your premiums are paid with before-tax funds. Premiums you paid during the year for long-term care insurance are deductible up to a limited amount based on your age as of December 31.
New for 2014, you may be eligible to claim the premium tax credit if you, your spouse, or a dependent enrolled in health insurance through the Health Insurance Marketplace. Taxpayers who received an advance payment of the premium tax credit have an additional form to file with their tax return (i.e., Form 8962).
Does this Impact You?
This information is very general. More details and potential restrictions are addressed in IRS Publication 502, Medical and Dental Expenses, at http://www.irs.gov/pub/irs-pdf/p502.pdf. A qualified tax professional or financial advisor could also help figure out how your unreimbursed medical and dental expenses could reduce your tax liability.