The following examples illustrate the reporting of travel, entertainment, gift, and transportation expenses on Forms 2106 and 2106-EZ. Business use of a car is shown using actual car expenses in Example 1 and the standard mileage rate in Example 2. Sample records that prove some of the claimed expenses are also shown.
Example 1. David Pine purchased a new car for $18,500 (including sales tax) on January 6, 2003. In 2003, he used the car 70% for business purposes. A sample page from David's logbook is illustrated in Table 6. He records his business mileage (but not his personal miles) and expenses daily.
David uses Form 2106 to claim actual car expenses. He completes Part II, Section A. He does not claim the section 179 deduction. He does claim the 30% special depreciation allowance and uses the MACRS double declining balance method (200% DB) to determine his depreciation deduction.
David figures his special depreciation allowance of $3,885 ($18,500 (basis) × 70% (business use) × 30%). Next, he figures his MACRS deduction of $1,813 ($9,065 (remaining basis) × 20%).
David's total depreciation deduction would normally be $5,698 ($3,885 + $1,813). However, it is limited in the first year to $5,362 ($7,660 (from the Maximum Depreciation Deduction for Cars table shown in chapter 4) × 70%). He enters these amounts in Part II, Section D.
His other car expenses included $3,080 for gas, oil, repairs, and insurance. He enters this amount in Part II, Section C, and multiplies it by the 70% business use. He adds this amount ($2,156) to the depreciation deduction ($5,362) and reports the total ($7,518) on line 1, Part I.
His other transportation expenses for parking fees, tolls, and taxis were $1,190. He enters this amount on line 2, Part I. David's employer reimbursed him a total of $2,940 for his car and transportation expenses. This amount was paid from an accountable plan and was not shown on David's Form W-2. However, since he is claiming expenses that are more than his reimbursements, he must show the entire reimbursement amount on line 7, Column A, Part I. Since David had no meal or entertainment expenses, he enters his excess deductible expenses ($5,768) on line 10, Part I. He can deduct these expenses (subject to the 2%-of-adjusted-gross-income limit) on line 20 of Schedule A (Form 1040) if he itemizes his deductions.
Example 2. Bill Wilson is an employee of Fashion Clothing Co. in Manhattan, NY. In a typical week, Bill leaves his home on Long Island on Monday morning and drives to Albany to exhibit the Fashion line for 3 days to prospective customers. Then he drives to Troy to show Fashion's new line of merchandise to Town Department Store, an old customer. While in Troy, he talks with Tom Brown, purchasing agent for Town Department Store, to discuss the new line. He later takes John Smith of Attire Co. out to dinner to discuss Attire Co.'s buying Fashion's new line of clothing.
Bill purchased his car on January 3, 2000. He uses the standard mileage rate for car expense purposes. He records his total mileage, business mileage, parking fees, and tolls for the year. Bill records his expenses and other pertinent information in his Weekly Traveling Expense and Entertainment Record, shown in Table 7. He obtains receipts for his expenses for lodging and for any other expenses of $75 or more.
During the year, Bill drove a total of 25,000 miles of which 20,000 miles were for business. Following the instructions for Part II of Form 2106, he answers all the questions and figures his car expense to be $7,200 (20,000 business miles × 36 cents standard mileage rate.
His total employee business expenses are shown in the following table.
| Type of Expense | Amount |
| Parking fees and tolls | $ 325 |
| Car expenses | 7,200 |
| Meals | 2,632 |
| Lodging, laundry, dry cleaning | 8,975 |
| Entertainment | 1,870 |
| Gifts, education, etc. | 430 |
| Total | $21,432 |
Bill received an allowance of $3,600 ($300 per month) to help offset his expenses. Bill did not have to account to his employer for the reimbursement and the $3,600 was included as income in box 1 of his Form W-2.
Because Bill's reimbursement was included in his income and he is using the standard mileage rate for his car expenses, he files Form 2106-EZ with his tax return.
Information courtesy of the Internal Revenue Service.
