Q: Tax Playa, can I get a tax deduction for the professional organization dues I need to pay for but my work doesn't reimburse?
Steve, Washington DC
A: Unreimbursed employee business expenses are one of the least-understood areas of tax policy to average folks. Most people believe they get an automatic deduction--or worse, they believe it's a tax credit. The truth is, this deduction is very hard to qualify for...
For more information on this, see IRS Publication 529, Miscellaneous Deductions.
A tax deduction for unreimbursed employee business expenses is only available to those people who itemize (about 30% of taxpayers). Even if you itemize, this deduction is denied to you if you are caught by the AMT trap and the Pease phaseout. Even if you get through both of these barriers, your miscellaneous itemized deductions (of which unreimbursed employee business expenses is one) must first be reduced by 2% of your AGI.
For more on miscellaneous itemized deductions, see the topical entry to the right.
Many people assume this deduction is open for everyone, but that simply isn't true. Only about 2-3% of the tax returns I prepare every year can claim this deduction. There are exceptions to this for some teacher expenses, armed forces reservists, the disabled, performing artists, and fee-based state and local government employees.
Eligible unreimbursed employee business expenses must:
- Be paid during the tax year
- Be used to carry on the trade or business of being an employee, and
- Be ordinary (common and accepted) and necessary (appropriate and helpful) expenses in your trade or business
The IRS publishes a pretty exhaustive list of unreimbursed employee business expenses. It is by no means comprehensive, but these are the most common:
- Business bad debt (a debt incurred in your line of work that goes bad)
- Business professional liability insurance
- Damages for breach of employment contract
- Depreciation on computers or cellular telephones. The equipment must be for the convenience of the employer and a condition of your employment. If you use the equipment a majority of the time for business, you can expense it under Section 179 or use the general depreciation system. If you use it less than 50% of the time, you must use the slower alternative depreciation system.
- Dues to professional societies. The only limitations here are that no money can go to lobbying, and the primary purpose of the organization cannot be entertainment.
- Work-related education. The education must either maintain/improve current job skills, or be required by your employer.
- Teacher expenses above and beyond the educator adjustment.
- Home office. You can deduct pro-rated expenses of your home for an office if it is the principle place of business or a place to regularly meet clients.
- Job search expenses. These are only for expenses in searching for a job in your same career field.
- Legal fees (those related to your job)
- Licenses and regulatory fees
- Occupational taxes
- Research expenses of a professor
- Tools used in your work
- Travel, transportation, meal, entertainment, and gift expenses. Many limitations apply. See topical examples to the right.
- Union dues and expenses
- Work clothes and uniforms (can't have any "civilian" applications)