Can I Deduct Unreimbursed Business Expenses In 2024? Answers and Explanations

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Making sure all your business expenses are in line with the Internal Revenue Service (IRS) rules is important for tax preparation. The rules are the same across the board, regardless of the taxpayer’s business structure (sole proprietorship, partnership, S Corporation). But this guidance is always changing, so keeping up with it can be a hassle.

You can’t always depend on your receipts for lodging, meals, or travel to meet business clients. For instance, some businesses have a strict policy that meal receipts must be itemized. For these and other scenarios, the IRS created the Miscellaneous Itemized Deductions (MID) subject to AGI limitations. This category includes unreimbursed employee expenses, which let employees deduct certain unreimbursed job-related costs that go beyond wages, salaries, or tips.

However, the Tax Cuts and Jobs Act (TCJA) made significant changes to the tax code, including unreimbursed business expenses. Many of these changes don’t expire, but some, like the deduction for unreimbursed employee expenses, will sunset in 2025. Knowing what’s deductible this year can help you plan for the future.

Can I Deduct Unreimbursed Business Expenses In 2024

Here are 7 important points to keep in mind:

Know the limits and rules.
Itemized deductions only.
Some expenses not allowed.
Keep records and receipts.
Mileage rate changes yearly.
Sunset in 2025.
Plan for the future.

By following these points, taxpayers can ensure they are deducting all allowable unreimbursed business expenses and maximizing their tax deductions.

Know the limits and rules.

The Miscellaneous Itemized Deductions (MID) subject to AGI limitations include unreimbursed employee expenses. These expenses must be ordinary and necessary to your job and exceed 2% of your AGI. Ordinary expenses are those that are common and accepted in your trade or business. Necessary expenses are those that are helpful and appropriate for your business. However, personal, living, or family expenses are not deductible.

There are limits on the amount of unreimbursed business expenses you can deduct. For 2024, the limit is 2% of your AGI. So, if your AGI is $60,000, you can deduct up to $1,200 in unreimbursed business expenses. This limit is the same for all taxpayers, regardless of their filing status.

Keep in mind that unreimbursed business expenses are only deductible if you itemize your deductions. This means that your total itemized deductions must exceed the standard deduction. The standard deduction for 2024 is $12,950 for single filers and $25,900 for married couples filing jointly.

If you meet these requirements, you can deduct the following unreimbursed business expenses:

Travel expenses, including airfare, lodging, and meals, while away from home on business.
Transportation expenses, including mileage, parking, and tolls.
Meals and entertainment expenses, if they are directly related to your business and you have receipts.
Education expenses, if they are required by your employer or maintain or improve your job skills.
Home office expenses, if you use part of your home exclusively and regularly for business.

These are just a few of the unreimbursed business expenses that you may be able to deduct. For a complete list, see the IRS Publication 529, Miscellaneous Deductions.

Itemized deductions only.

In order to deduct unreimbursed business expenses, you must itemize your deductions on your tax return. This means that you must list each individual deduction on Schedule A of your tax return. You can only deduct the amount of your unreimbursed business expenses that exceeds 2% of your AGI.

Itemizing your deductions can be beneficial if your total itemized deductions are greater than the standard deduction. The standard deduction is a specific amount that you can deduct from your AGI before you calculate your taxable income. For 2024, the standard deduction is $12,950 for single filers and $25,900 for married couples filing jointly.

If your total itemized deductions, including your unreimbursed business expenses, are greater than the standard deduction, then you will benefit from itemizing your deductions. However, if your total itemized deductions are less than the standard deduction, then you should take the standard deduction instead.

Here is an example to illustrate how itemized deductions work:

Let’s say you are a single taxpayer with an AGI of $60,000.
You have $2,000 in unreimbursed business expenses.
The standard deduction for 2024 is $12,950.

To determine if you should itemize your deductions, you would first calculate your total itemized deductions. Your total itemized deductions would be $2,000 (unreimbursed business expenses). Since your total itemized deductions are less than the standard deduction of $12,950, you would not benefit from itemizing your deductions. You would take the standard deduction instead.

If you are not sure whether you should itemize your deductions, you can use the IRS Interactive Tax Assistant tool to help you make a decision.

Some expenses not allowed.

Not all expenses that you incur in the course of your job are deductible. Some common expenses that are not deductible include:

Commuting expenses. The cost of commuting between your home and your workplace is not deductible. This includes the cost of gas, public transportation, and parking.
Meals and entertainment expenses. The cost of meals and entertainment is generally not deductible, unless you can show that the expense was directly related to your business and you have receipts.
Personal expenses. The cost of personal expenses, such as clothing, grooming, and laundry, is not deductible.
Political expenses. The cost of political activities, such as campaign contributions and lobbying, is not deductible.

There are a few exceptions to these rules. For example, you may be able to deduct the cost of meals and entertainment if you are traveling away from home on business. You may also be able to deduct the cost of certain work-related clothing, such as uniforms or protective gear. However, these exceptions are narrow and you should consult with a tax advisor to determine if your expenses qualify.

Keep records and receipts.

It is important to keep accurate and detailed records of your unreimbursed business expenses. This includes receipts, invoices, and other documentation that shows the amount, date, and purpose of the expense. You should also keep a mileage log if you use your personal vehicle for business purposes.

Receipts. Keep receipts for all of your unreimbursed business expenses, no matter how small. This includes receipts for meals, travel, transportation, lodging, and other expenses. Make sure the receipt shows the amount, date, and purpose of the expense.
Invoices. If you receive an invoice for a business expense, keep it in a safe place. Invoices typically provide more detailed information about the expense, such as the quantity, description, and price of the items purchased.
Mileage log. If you use your personal vehicle for business purposes, you should keep a mileage log. This log should include the date, destination, purpose of the trip, and the number of miles driven. You can use a mileage tracking app or simply record this information in a notebook.
Other documentation. You may also need to keep other documentation to support your unreimbursed business expenses. This could include contracts, purchase orders, or letters from your employer.

It is important to keep these records for at least three years after you file your tax return. This is the IRS’s statute of limitations for auditing tax returns. If you are audited, you will need to provide the IRS with these records to support your deductions.

Mileage rate changes yearly.

The IRS sets a standard mileage rate each year that you can use to calculate your deductible mileage expenses. The rate is the same for all taxpayers, regardless of the type of vehicle they drive. For 2024, the standard mileage rate is 65.5 cents per mile.

The standard mileage rate is adjusted each year to reflect changes in the cost of operating a vehicle. The IRS considers factors such as fuel prices, repairs, maintenance, and depreciation when setting the rate.
You can use the standard mileage rate to calculate your deductible mileage expenses if you use your personal vehicle for business purposes. To do this, you simply multiply the number of business miles you drove by the standard mileage rate.
You can also choose to deduct your actual mileage expenses. This means that you can deduct the actual costs of operating your vehicle, such as gas, oil, repairs, and maintenance. However, you must keep detailed records of your actual expenses in order to do this.
If you choose to deduct your actual mileage expenses, you cannot also claim the standard mileage deduction.

It is important to note that the standard mileage rate is just a convenience. You can still deduct your actual mileage expenses, even if they are higher than the standard mileage rate. However, you must keep detailed records of your actual expenses in order to do this.

Sunset in 2025.

The Tax Cuts and Jobs Act (TCJA) made significant changes to the tax code, including unreimbursed business expenses. One of the changes was to suspend the deduction for unreimbursed employee expenses subject to the 2% of AGI floor. This means that these expenses are not deductible on your tax return.

The suspension of the deduction for unreimbursed employee expenses is temporary. It is scheduled to sunset on December 31, 2025. This means that the deduction will be reinstated for expenses incurred on or after January 1, 2026.

If you have unreimbursed business expenses that you cannot deduct because of the suspension, you may want to consider deducting them on your Schedule C or Schedule SE. However, you can only deduct these expenses if you are self-employed.

Here are some examples of unreimbursed business expenses that you may be able to deduct on your Schedule C or Schedule SE:

Travel expenses, including airfare, lodging, and meals, while away from home on business.
Transportation expenses, including mileage, parking, and tolls.
Meals and entertainment expenses, if they are directly related to your business and you have receipts.
Education expenses, if they are required by your employer or maintain or improve your job skills.
Home office expenses, if you use part of your home exclusively and regularly for business.

If you are self-employed and have unreimbursed business expenses, you should consult with a tax advisor to determine if you can deduct these expenses on your Schedule C or Schedule SE.

Plan for the future.

If you have unreimbursed business expenses that you cannot deduct because of the suspension, you should consider planning for the future. This means saving receipts and records of your expenses so that you can deduct them when the suspension is lifted in 2026.

You should also consider other ways to reduce your tax liability. For example, you may want to consider increasing your contributions to your retirement savings account. This will reduce your taxable income and may also provide you with a tax deduction.

You may also want to consider starting a side hustle or freelance business. This can help you to offset the cost of your unreimbursed business expenses. Additionally, you may be able to deduct some of the expenses of your side hustle or freelance business on your tax return.

Finally, you should consult with a tax advisor to discuss your specific situation. A tax advisor can help you to develop a plan to minimize your tax liability and make the most of the deductions that are available to you.

By planning for the future, you can ensure that you are able to deduct your unreimbursed business expenses when the suspension is lifted in 2026.

FAQ

Here are some frequently asked questions about deducting unreimbursed business expenses in 2024:

Question 1: Can I still deduct unreimbursed business expenses in 2024?
Answer 1: Yes, you can still deduct unreimbursed business expenses in 2024. However, the deduction is subject to a 2% of AGI floor. This means that you can only deduct the amount of your unreimbursed business expenses that exceeds 2% of your AGI.

Question 2: What types of unreimbursed business expenses can I deduct?
Answer 2: You can deduct a variety of unreimbursed business expenses, including travel expenses, transportation expenses, meals and entertainment expenses, education expenses, and home office expenses.

Question 3: How do I calculate my AGI?
Answer 3: Your AGI is your gross income minus certain adjustments, such as deductions for contributions to retirement accounts and student loan interest. You can find your AGI on line 11 of your federal income tax return.

Question 4: Do I need to itemize my deductions to claim the deduction for unreimbursed business expenses?
Answer 4: Yes, you must itemize your deductions on Schedule A of your tax return to claim the deduction for unreimbursed business expenses.

Question 5: What records do I need to keep to support my deduction for unreimbursed business expenses?
Answer 5: You should keep receipts, invoices, and other documentation that shows the amount, date, and purpose of your unreimbursed business expenses. You should also keep a mileage log if you use your personal vehicle for business purposes.

Question 6: What happens if I have unreimbursed business expenses that exceed the 2% of AGI floor?
Answer 6: If you have unreimbursed business expenses that exceed the 2% of AGI floor, you can carry the excess expenses forward to the following year. You can deduct the excess expenses in the following year, subject to the 2% of AGI floor.

Question 7: Will I be able to deduct unreimbursed business expenses in 2025?
Answer 7: The deduction for unreimbursed business expenses is scheduled to sunset on December 31, 2025. This means that you will not be able to deduct unreimbursed business expenses on your 2025 tax return.

Closing Paragraph for FAQ: If you have any questions about deducting unreimbursed business expenses in 2024, you should consult with a tax advisor.

Here are some additional tips for deducting unreimbursed business expenses in 2024:

Tips

Here are four practical tips for deducting unreimbursed business expenses in 2024:

Tip 1: Keep accurate and detailed records.
Keep receipts, invoices, and other documentation that shows the amount, date, and purpose of your unreimbursed business expenses. You should also keep a mileage log if you use your personal vehicle for business purposes.

Tip 2: Use a credit card for business expenses.
Using a credit card for business expenses can help you to keep track of your expenses and avoid losing receipts. You can also use credit card statements as proof of your expenses.

Tip 3: Be aware of the 2% of AGI floor.
The deduction for unreimbursed business expenses is subject to a 2% of AGI floor. This means that you can only deduct the amount of your unreimbursed business expenses that exceeds 2% of your AGI.

Tip 4: Consider using a tax preparation software.
Tax preparation software can help you to calculate your deduction for unreimbursed business expenses and ensure that you are claiming all of the deductions that you are entitled to.

Closing Paragraph for Tips: By following these tips, you can make sure that you are deducting all of your allowable unreimbursed business expenses and maximizing your tax deductions.

Here are some additional tips for deducting unreimbursed business expenses in 2024:

Conclusion

In 2024, you can still deduct unreimbursed business expenses on your tax return. However, the deduction is subject to a 2% of AGI floor. This means that you can only deduct the amount of your unreimbursed business expenses that exceeds 2% of your AGI.

To claim the deduction, you must itemize your deductions on Schedule A of your tax return. You should keep accurate and detailed records of your unreimbursed business expenses, such as receipts, invoices, and a mileage log. You should also be aware of the 2% of AGI floor and consider using a tax preparation software to help you calculate your deduction.

The deduction for unreimbursed business expenses is a valuable tax break for employees who incur expenses in the course of their job. By following the tips in this article, you can make sure that you are deducting all of your allowable unreimbursed business expenses and maximizing your tax deductions.

Closing Message: If you have any questions about deducting unreimbursed business expenses in 2024, you should consult with a tax advisor.