As an employee, you must itemize deductions on Schedule A (Form 1040) to claim expenses for the business use of your home and any other employee business expenses. This generally applies to all employees, including outside salespersons. If you are a statutory employee, use Schedule C (Form 1040) to claim the expenses. Follow the instructions given earlier under Self-Employed Persons. The "statutory employee" box within box 13 on your Form W-2 will be checked if you are a statutory employee.
If you have employee expenses for which you were not reimbursed, report them on line 20 of Schedule A. You also generally must complete Form 2106 if either of the following apply.
You claim any job-related vehicle, travel, transportation, meal, or entertainment expenses.
Your employer paid you for any of your job expenses reportable on line 20. (Amounts your employer included in box 1 of your Form W-2 are not considered paid by your employer.)
However, you can use the simpler Form 2106-EZ, instead of Form 2106, if you meet the following requirements.
You were not reimbursed for your expenses by your employer, or if you were reimbursed, the reimbursement was included in box 1 of your Form W-2.
If you claim car expenses, you use the standard mileage rate.
When your employer pays for your expenses using a reimbursement or allowance arrangement, the payments generally should not be on your Form W-2 if all the following rules for an accountable plan are met.
You adequately account to your employer for the expenses within a reasonable period of time.
You return any payments not spent for business expenses (excess reimbursements) within a reasonable period of time.
You must have paid or incurred deductible expenses while performing services as an employee.
If you meet the accountable plan rules and your business expenses equal your reimbursement, do not report the reimbursement as income and do not deduct the expenses.
Adequately accounting to employer.
You adequately account to your employer when you give your employer documentary
evidence of your travel, mileage, and other employee business
expenses, such as receipts, along with an account book, diary, or similar record
in which you entered each expense at or near the time you had it.
You also may be treated as adequately accounting to your employer if your employer gives you a per diem or car allowance similar in form to, and not more than, the federal rate and you verify the time, place, and business purpose of each expense. For more information, see the instructions for Form 2106 and Publication 463.
Rental to employer.
If you rent part of your home to your employer and you use the rented part in
performing services for your employer as an employee, your deduction
for the business use of your home is limited. You can deduct mortgage interest,
real estate taxes, and personal casualty losses for the rented part,
subject to any limitations. However, you cannot deduct otherwise allowable trade
or business expenses, business casualty losses, or depreciation
related to the use of your home in performing services for your employer.
Deductible mortgage interest.
Although you generally deduct expenses for the business use of your home on line 20
of Schedule A (Form 1040), do not include any deductible home
mortgage interest on that line. Instead, deduct both the business and nonbusiness
parts of this interest on line 10 or 11 of Schedule A.
If the home mortgage interest you can deduct on lines 10 or 11 is limited by the home mortgage interest rules, you cannot deduct the excess as an employee business expense on line 20 of Schedule A, even though you use part of your home for business. To determine if the limits on home mortgage interest apply to you, see the instructions for Schedule A or Publication 936.
Real estate taxes.
Deduct both the business and nonbusiness parts of your real estate taxes on line 6 of
Schedule A. For more information on amounts allowable as a
deduction for real estate taxes, see Publication 530, Tax Information for First-Time
Homeowners.
Casualty losses.
Enter the business part of casualty losses (line 31 of the worksheet) on line 27 of
Form 4684, Section B. Write "See attached statement" above line 27.
Other expenses.
If you file Form 2106 or Form 2106-EZ, report on line 4 the following expenses.
The business part of your otherwise nondeductible expenses (utilities, maintenance, insurance, depreciation, etc.) that do not exceed the deduction limit.
The employee business expenses not related to the use of your home, such as advertising.
Add these to your other employee business expenses and complete the rest of the form. Enter the total from Form 2106, or Form 2106-EZ, on line 20 of Schedule A, where it is subject to the 2%-of-adjusted-gross-income limit. If you do not have to file Form 2106 or Form 2106-EZ, enter your total expenses directly on line 20 of Schedule A.
Example.
You are an employee who works at home for the convenience of your employer. You meet
all the requirements to deduct expenses for the business use of your home. Your employer
does not reimburse you for any of your business expenses and you are not otherwise required to
file Form 2106 or Form 2106-EZ.
As an employee, you do not have gross receipts, cost of goods sold, etc. You begin with gross income from the business use of your home, which you determine to be $6,000.
The percentage of expenses due to the business use of your home is 20%. You have the following expenses.
| Deductible mortgage interest (20%) | $1,500 |
| Real estate taxes (20%) | 1,000 |
| Total | $2,500 |
| Expenses not related to business use of the home (100%): | |
| Supplies | $500 |
| Advertising | 1,300 |
| Telephone | 200 |
| Total | $2,000 |
| Otherwise nondeductible expenses: | |
| Maintenance (20%) | $200 |
| Utilities (20%) | 350 |
| Insurance (20%) | 250 |
| Total | $800 |
| Depreciation (20%) | $1,600 |
Based on the above expenses, you figure your deduction limit as follows.
| Gross income | $6,000 | |
| Less: | ||
| Deductible mortgage interest (20%) | $1,500 | |
| Real estate taxes (20%) | 1,000 | |
| Expenses not related to business use of the home (100%) | 2,000 | 4,500 |
| Deduction limit | $1,500 |
Your deduction for otherwise nondeductible expenses and depreciation is limited to $1,500. You can deduct all your otherwise nondeductible expenses ($800) and $700 ($1,500 - $800) of your depreciation.
You deduct your expenses for business use of your home on Schedule A (Form 1040) as shown in the following table.
| Expense | Amount | Schedule A |
| Deductible mortgage interest | $1,500 | Line 10 or 11* |
| Real estate taxes | $1,000 | Line 6* |
| Expenses not related to the business use of the home | $2,000 | Line 20** |
| Otherwise nondeductible expenses | $800 | Line 20** |
| Depreciation | $700 | Line 20** |
| *In addition to the 80% nonbusiness part of the expense. | ||
| **Subject to the 2%-of-adjusted-gross-income limit. | ||
You can carry over the $900 of depreciation that exceeds the deduction limit to next year, subject to the deduction limit for that year.
Self-Employed Persons
Employees
Partners
Information courtesy of the Internal Revenue Service.
