Employee Business Expenses & Tax Reform

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If you are an employee (i.e., a W-2 wage earner) with substantial work-related business expenses, the Act was not kind to you. It suspended (and effectively repealed), for 2018 through 2025, all miscellaneous itemized deductions, which were previously only subject to a floor of 2% of adjusted gross income (AGI). Employee business expenses are included in that category of miscellaneous itemized deductions. 

This change affects those who are compensated as employees and who have work-related expenses—including salespeople with travel and entertainment expenses, long-haul truck drivers with away-from-home expenses, mechanics with tool expenses, and any other employees with large but unreimbursed business expenses. These employees, beginning in 2018, will no longer be able to count such expenses as itemized deductions.

Will this change hurt you? That depends. Because employee business expenses could previously only be deducted to the extent that they exceeded 2% of AGI, the effects of the Act will depend upon the extent of your expenses. Another consideration is whether your total itemized deductions would have exceeded the new standard deduction, which has increased for 2018.

As a remedy, you may want to contact your employer and try to negotiate an “accountable plan,” which is a business-expense reimbursement plan under which the employer can reimburse you, tax-free, for business expenses. With this arrangement, you would need to substantiate your business expenses to your employer and would have to return (within a specified time limit) any reimbursements that your employer pays in excess of the substantiated amount.

Have a question? Contact David Southwell. Your comments are always welcome!

David Southwell

David Southwell has spent his business career providing tax, wealth transfer, asset protection planning, and business and financial advisory services for domestic and international clients. David is a Member of the American Institute of Certified Public Accountants, the Florida Institute of Certified Public Accountants and is a Member of The Society of Trust and Estate Practitioners.

David has provided advisory services to clients engaged in international trading of food, fertilizer, metals and petroleum commodities and infrastructure programs with third world nations, including international marketing, buy/sell contracts, contracts dealing with international relationships and financial programs, letters of credit, banking relationships, business development, and has provided treasury and custodial services to clients for whom Trust Advisors Corporation serves as Paymaster/Custodian.

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1 comment on “Employee Business Expenses & Tax Reform”

  • Harvey Sapir

    A major concern and unanswered question is for those who have been deducting depreciation as an employee business expense. That deduction seems to have ended. But upon disposition of the asset, it would seem that Sec 1245 would still be operative and assuming no appreciation, a loss would be allowed on the difference between adjusted basis and proceeds (or gain).
    For assets that are acquired after 12/31/17 and used in the “trade or business” of an employee there is further question of whether these assets would qualify for deductible loss upon disposition. At best they would, and thus aubstitudte for what would have been depreciation – not subject to any limitation. Maybe on this item, we came out ahead.

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