Getting The Most Out of Employee Business Deductions

As an individual taxpayer, the Internal Revenue Service (IRS) allows you to make certain deductions. For example, you can make miscellaneous itemized deductions in relation to expenses incurred during your employment.

For the most part, taxpayers should only claim these deductions if they were not reimbursed by their employer for these expenses. Additionally, these expenses must be considered ordinary and necessary in order for you to do your job. They cannot include personal expenses.

Deduction Barriers

While the IRS does allow for you to deduct these items, they also have established two barriers that reduce your overall deduction value.

  • 2% Adjusted Gross Income (AGI)
  • Alternative Minimum Tax (AMT)

The first barrier, also known as the 2%-of-income, or AGI, tax is the most likely to affect Tier II miscellaneous deductions. (Tier II miscellaneous deductions include, but are not limited to, those related to employee business, investment, some legal and home office expenses.) The 2% AGI barrier totals up all of the miscellaneous deductions and reduces the value by 2% of the taxpayer’s AGI for that year.

The second barrier, AMT, will make all Tier II expenses non-deductible. However, Royal Legal Solutions can help you plan your deductible approach this tax year. Below, we list several strategies that can help you get the most out of your deductions.

Employee Business Deductions Strategies

Overcoming the IRS barriers is easier if you have a set strategy. Let’s take a look.

  • Employer Accountable Plan – Certain employers utilize an accountable plan. Under this, your employer will reimburse you for any work-related expenses. However, in order to do this, you much “adequately account” for these expenses. Providing receipts is one way of doing this. If your employer uses an accountable plan, the reimbursements are not included as part of your income. As such, 100% of those expenses are deducted and you do not get hit by the 2% AGI or AMT barriers.
  • Bunch Deductions – If you plan accordingly, you can defer all employee business expenses for more than one year. You can also accelerate them into one year. By using either approach, you can create a larger deduction in a single year. This can help you to overcome the 2% AGI floor.
  • Education Expenses – Some employee-educational expenses can be deducted as an employee business expense. However, this is unlikely to avoid the 2% AGI or AMT barriers. If your employer reimburses you for education expenses, though, they can help you avoid these barriers. Why? An employer educational assistance plan allows employers to reimburse employees with up to $5,250 for education-related expenses, excluding travel.
  • Section 179 Deductions – Section 179 is for depreciation deductions. Certain business assets, such as a car, can be listed under this section. You can claim these assets in a single year or spread over multiple years. If you opt for one year, however, you will likely avoid the 2% AGI barrier.


Last Updated: 
June 11, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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