If you work for an employer that you have a moderate level of respect for, then most likely you have gone out-of-pocket to buy something to benefit your company without getting reimbursed. This can be a range of expenses, from mileage to birthday cakes, but there are certain rules regarding how these unreimbursed expenses can be treated on an employee's individual tax return.
Before diving into this, there is one big catch. For an expense to be considered unreimbursed, they must not be eligible for reimbursement or actually reimbursed by the employer. For example, if your employer has a policy to reimburse an employee for mileage, but you choose not to seek reimbursement, the mileage is not technically an unreimbursed business expense. Only expenses incurred above and beyond a set reimbursement policy should be considered.
Common expenses that an employee pays out of pocket that could be considered deductible include:
- Professional dues and licenses
- Depreciation on a computer you pay for yourself and required for your job
- Mileage
- Medical exams required by your employer
- Necessary tools and supplies used for work
- Work-related education
- Specific uniforms or clothing not suitable for everyday use
Of course, there is always a catch. Here are some expenses that are, by rule, nondeductible:
- Social club dues
- Home repairs or rent
- Lobbying expenses and political contributions
- Expenses related to attendance of board meetings
- Lost vacation time
Unreimbursed business expenses are included as a miscellaneous deduction on Schedule A, and they are subject to a 2% of income limitation. This means that only miscellaneous deductions exceeding 2% of your income will be deductible.