If you use your own vehicle for work and are not reimbursed for your mileage, or if you incur expenses in looking for work, you may be able to deduct those expenses on your taxes. Similarly, if you travel for work and your travel expenses are not reimbursed, you may be able to deduct those costs. And, if you must take courses to maintain your job skills, certification, or license, those expenses may be deductible on your taxes as well.
Record keeping is an important facet of claiming these exemptions, so it is a good idea to “record as you go,” rather than trying to reconstruct expenses in the heat of preparing your taxes.
Let’s see which expenses qualify and determine how much you can reduce your tax bill. Check out our Complete Tax Filing Guide for more help.
Tax Deductible Work-Related Expenses
1. Travel and Mileage Deductions
If you use your car as part of your job, you can deduct your actual expenses or use the standard mileage deduction. In either case, you need to maintain accurate records to document the expense. Actual expenses include the following:
- Gas and oil
- Registration fees
- Auto licenses
- Depreciation (or lease payments)
You can deduct the portion of those expenses that are attributable to your job. To calculate the amount, multiply your annual actual expenses by a fraction: the numerator is your work-related miles and the denominator is your total miles for the year.
For example, let’s assume:
- Actual costs: $5,000
- Total miles: 12,000
- Work miles: 2,000
The calculation would be:
Deductible Amount = Actual Expense X (work miles / total miles)
$833.33 = $5,000 X (2,000/12,000)
As an alternative, you can use the standard mileage rate. For 2016, that rate is $0.54 per mile. So, if you drove 2,000 miles for work, the deduction would be:
2,000 miles X $.54/mile = $1,080
In this case, the standard mileage rate is better – that is a common result. But, can’t you just calculate it both ways and take the better option at tax time? IRS Tax Topic 510 explains that “To use the standard mileage rate, you must choose to use it in the first year. Then, in later years, you can choose to use the standard mileage rate or actual expenses.”
Miles That Are Deductible
In the IRS literature, miles you drive for work are referred to as “business use” miles. Even if you are an employee and do not own a business, the unreimbursed miles you drive for your employer benefits your employer’s business, so they are still called “business use” miles.
For example, let’s say you are a case worker for a counseling service. Each day, you drive to your principle place of business and get your list of contacts. The miles to your place of business from home are commuting miles. The miles from your place of business to your first client are business miles, and so on through the day, as you visit other clients. Then, you drive back to your place of business to update case files. The drive from there to your home is again commuting. You note your odometer reading when you leave your place of business to head to your first client. You note the reading again when you return. The difference is your business miles for the day. Make a note of them in a ledger, or on your calendar, or in a mileage app on your phone. Then you have the required “written record.”
You note your odometer reading when you leave your place of business to head to your first client. You note the reading again when you return. The difference is your business miles for the day. Make a note of them in a ledger or in a mileage app on your phone. Then you have the required “written record.”
How to Take the Deduction
As an employee taking a deduction for business use of your vehicle, the deduction finds its way to Schedule A, but it begins on Form 2106. Besides mileage or actual expenses for vehicle use, Form 2106 also is used to claim expenses for business travel and lodging, as well as meals and entertainment that are not entirely reimbursed.
Perhaps you have your own business or are an independent contractor. (To understand the difference between an employee and independent contractor, see IRS Tax Topic 762.) You still have the same choices about actual expenses or standard mileage rate in the use of your vehicle for business. But in this case, the amount is entered as a business expense on Schedule C, rather than on Form 2106 and as a deduction on Schedule A. Moreover, on Schedule C, you get the whole deduction, not just the amount that is over 2% of your AGI, as with miscellaneous deductions on Schedule A.
2. Work-related Education and Licensing
Your profession may require that you take a certain number of continuing education credits per year in order to maintain your certification to keep your employment eligibility. If you are taking courses to improve your job skills or keep your current employment, either because of employer or legal requirements, you may be able to deduct those educational expenses in one of two ways.
First, as long as you are not part of an employer tuition reimbursement program, you can deduct the expenses as a miscellaneous deduction on Schedule A, which are subject to the 2% of AGI floor. Second, if your expenses qualify, you may be able to take a tuition and fees deduction for the expenses as an adjustment to income (Form 1040, line 34) to lower your taxable income. In this case, the deduction is not subject to the 2% AGI floor. This deduction has an AGI limitation, however, which is why it is nice to have an alternative way to take the deduction via Schedule A. Find out more about this in our Education-Related Tax Deductions and Credits Guide.
Some professions, such as counseling or real estate, require a license in order to practice. The cost to obtain the license initially and renewals (as required) are deductible as miscellaneous deductions on Schedule A, Itemized Deductions. In the same category are professional subscriptions or membership dues for professional organizations related to your line of work. All of these deductions are subject to the 2% of AGI floor. The 2% is not applied per deduction, but to the cumulative deductible amount.
3. Job-Seeking Expense Deduction
If you are looking for a new job in the same line of work, you may incur expenses related to your job search that are deductible, even if you do not get the job.
For example, preparing, printing, and mailing your résumé are deductible costs of your job search. If you use a résumé service or placement service, their fees are also deductible. If you travel to look for a new job, you may be able to deduct the cost of the trip, if looking for a job was the primary purpose. You can use the standard mileage rate if you drive to look for work or to interview.
These costs are not deductible if any of the following are applicable:
- You are seeking your first job.
- You are seeking a job in a new field.
- There was a substantial break between your former job and your new one.
Again, these deductions are taken as miscellaneous deductions on Schedule A and are subject to the 2% of AGI floor. Lastly, you must reduce the deductible amount for any reimbursement you receive.
4. Other Job-Related Expenses
There a few miscellaneous expenses that still qualify as deductions.
For example, if you are a union member, your union dues are deductible. If you must wear a uniform, the purchase cost and cost of cleaning are deductible. If you must have special shoes, for example, for nursing, their cost is also deductible. That also applies if you must own your own tools for the work you do. So, as you may have learned from Andy Dufresne as he prepared taxes for the guards in “The Shawshank Redemption,” if you are a guard or policeman and must purchase your firearm, that is a work-related, deductible expense. You can also deduct safety equipment, such as a hard hat, steel-toed shoes, protective eyewear, and special gloves.
All of these job-related expenses may be deducted as miscellaneous deductions on Schedule A and are subject to the 2% of AGI floor.
Deducting Job-Related Expenses
By and large, the deductions discussed above fall in the “miscellaneous” category. If you are an employee who receives a W-2, the amount by which these deductions exceed 2% of your adjusted gross income (AGI) are deductible on Schedule A. However, if you receive a 1099-Misc, as a business owner or independent contractor, these expenses may be deducted in full on your Schedule C as business expenses. Miscellaneous deductions are explained further in IRS Publication 529.
While paying taxes is probably not on anybody’s list of favorite things, being aware of potential job-related deductions and keeping an accurate record of those expenses throughout the year can pay healthy dividends in reduced tax liability at tax time. Making the effort to track mileage and other work-related expenses is worthwhile when you save money on taxes.
Don’t forget to reference our Complete Tax Filing Guide for more help. Which job-related expenses are you deducting on your taxes this year?