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The Freefile Com

Freefile com 6. Freefile com   How To Report Table of Contents Where To ReportGifts. Freefile com Statutory employees. Freefile com Vehicle Provided by Your Employer ReimbursementsAccountable Plans Nonaccountable Plans Rules for Independent Contractors and Clients How To Use Per Diem Rate TablesThe Two Substantiation Methods Transition Rules Completing Forms 2106 and 2106-EZInformation on use of cars. Freefile com Standard mileage rate. Freefile com Actual expenses. Freefile com Car rentals. Freefile com Hours of service limits. Freefile com Allocating your reimbursement. Freefile com 1. Freefile com Limit on meals and entertainment. Freefile com 2. Freefile com Limit on miscellaneous itemized deductions. Freefile com 3. Freefile com Limit on total itemized deductions. Freefile com Special Rules This chapter explains where and how to report the expenses discussed in this publication. Freefile com It discusses reimbursements and how to treat them under accountable and nonaccountable plans. Freefile com It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. Freefile com The chapter ends with illustrations of how to report travel, entertainment, gift, and car expenses on Forms 2106 and 2106-EZ. Freefile com Where To Report This section provides general information on where to report the expenses discussed in this publication. Freefile com Self-employed. Freefile com   You must report your income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. Freefile com You do not use Form 2106 or 2106-EZ. Freefile com    If you claim car or truck expenses, you must provide certain information on the use of your vehicle. Freefile com You provide this information on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Form 4562. Freefile com   If you file Schedule C (Form 1040): Report your travel expenses, except meals, on line 24a, Report your deductible meals (actual cost or standard meal allowance) and entertainment on line 24b, Report your gift expenses and transportation expenses, other than car expenses, on line 27a, and Report your car expenses on line 9. Freefile com Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization. Freefile com   If you file Schedule C-EZ (Form 1040), report the total of all business expenses on line 2. Freefile com You can only include 50% of your meals and entertainment in that total. Freefile com If you include car expenses, you must also complete Part III of the form. Freefile com    If you file Schedule F (Form 1040): Report your car expenses on line 10. Freefile com Attach Form 4562 and provide information on the use of your car in Part V of Form 4562. Freefile com Report all other business expenses discussed in this publication on line 32. Freefile com You can only include 50% of your meals and entertainment on that line. Freefile com See your form instructions for more information on how to complete your tax return. Freefile com Both self-employed and an employee. Freefile com   If you are both self-employed and an employee, you must keep separate records for each business activity. Freefile com Report your business expenses for self-employment on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040), as discussed earlier. Freefile com Report your business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed next. Freefile com Employees. Freefile com    If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. Freefile com However, you can use the shorter Form 2106-EZ instead of Form 2106 if you meet all of the following conditions. Freefile com You are an employee deducting expenses attributable to your job. Freefile com You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Freefile com If you claim car expenses, you use the standard mileage rate. Freefile com   For more information on how to report your expenses on Forms 2106 and 2106-EZ, see Completing Forms 2106 and 2106-EZ , later. Freefile com Gifts. Freefile com   If you did not receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Freefile com Instead, claim the amount of your deductible gifts directly on line 21 of Schedule A (Form 1040). Freefile com Statutory employees. Freefile com    If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Freefile com Do not complete Form 2106 or 2106-EZ. Freefile com   Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers. Freefile com If you are entitled to a reimbursement from your employer but you do not claim it, you cannot claim a deduction for the expenses to which that unclaimed reimbursement applies. Freefile com Reimbursement for personal expenses. Freefile com    If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. Freefile com You cannot deduct personal expenses. Freefile com Income-producing property. Freefile com   If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity. Freefile com   For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. Freefile com See Publication 527, Residential Rental Property, for more information on the rental of real estate. Freefile com If you have deductible investment-related transportation expenses, report them on Schedule A (Form 1040), line 23. Freefile com Vehicle Provided by Your Employer If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. Freefile com The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. Freefile com You cannot use the standard mileage rate. Freefile com Value reported on Form W-2. Freefile com   Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Freefile com Your employer must separately state the amount if 100% of the annual lease value was included in your income. Freefile com If you are unsure of the amount included on your Form W-2, ask your employer. Freefile com Full value included in your income. Freefile com   You can deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. Freefile com On your 2013 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation, and box 14. Freefile com    To claim your expenses, complete Form 2106, Part II, Sections A and C. Freefile com Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Freefile com Complete the rest of the form. Freefile com Less than full value included in your income. Freefile com   If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Freefile com Do not enter this value on your Form 2106 because it is not deductible. Freefile com   If you paid any actual costs (that your employer did not provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Freefile com Examples of costs that you may have are gas, oil, and repairs. Freefile com Complete Form 2106, Part II, Sections A and C. Freefile com Enter your actual costs on line 23 of Section C and leave line 25 blank. Freefile com Complete the rest of the form. Freefile com Reimbursements This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication. Freefile com If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Freefile com This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. Freefile com It also covers rules for independent contractors. Freefile com No reimbursement. Freefile com   You are not reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. Freefile com In this situation, you have no reimbursement or allowance arrangement, and you do not have to read this section on reimbursements. Freefile com Instead, see Completing Forms 2106 and 2106-EZ , later, for information on completing your tax return. Freefile com Reimbursement, allowance, or advance. Freefile com   A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Freefile com Arrangements include per diem and car allowances. Freefile com    A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. Freefile com (The term “ incidental expenses ” is defined in chapter 1 under Standard Meal Allowance. Freefile com ) A car allowance is an amount your employer gives you for the business use of your car. Freefile com   Your employer should tell you what method of reimbursement is used and what records you must provide. Freefile com Employers. Freefile com   If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Freefile com Reimbursements treated as paid under an accountable plan, as explained next, are not reported as pay. Freefile com Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. Freefile com See Publication 15 (Circular E), Employer's Tax Guide, for information on employee pay. Freefile com Accountable Plans To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules: Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Freefile com You must adequately account to your employer for these expenses within a reasonable period of time. Freefile com You must return any excess reimbursement or allowance within a reasonable period of time. Freefile com “ Adequate accounting ” and “ returning excess reimbursements ” are discussed later. Freefile com An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Freefile com Reasonable period of time. Freefile com   The definition of reasonable period of time depends on the facts and circumstances of your situation. Freefile com However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Freefile com You receive an advance within 30 days of the time you have an expense. Freefile com You adequately account for your expenses within 60 days after they were paid or incurred. Freefile com You return any excess reimbursement within 120 days after the expense was paid or incurred. Freefile com You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Freefile com Employee meets accountable plan rules. Freefile com   If you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. Freefile com If your expenses equal your reimbursements, you do not complete Form 2106. Freefile com You have no deduction since your expenses and reimbursement are equal. Freefile com    If your employer included reimbursements in box 1 of your Form W-2 and you meet all the rules for accountable plans, ask your employer for a corrected Form W-2. Freefile com Accountable plan rules not met. Freefile com   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. Freefile com All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later). Freefile com Failure to return excess reimbursements. Freefile com   If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. Freefile com See Reasonable period of time , earlier, and Returning Excess Reimbursements , later. Freefile com Reimbursement of nondeductible expenses. Freefile com   You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. Freefile com The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan. Freefile com Example. Freefile com Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you are not away from home. Freefile com The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan. Freefile com The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. Freefile com If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer. Freefile com Adequate Accounting One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. Freefile com You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. Freefile com (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses. Freefile com ) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. Freefile com See Per Diem and Car Allowances , later. Freefile com You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. Freefile com This includes amounts you charged to your employer by credit card or other method. Freefile com You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. Freefile com You must pay back the amount of any reimbursement or other expense allowance for which you do not adequately account or that is more than the amount for which you accounted. Freefile com Per Diem and Car Allowances If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. Freefile com A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply. Freefile com Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business. Freefile com The allowance is similar in form to and not more than the federal rate (defined later). Freefile com You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time. Freefile com You are not related to your employer (as defined next). Freefile com If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement. Freefile com If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. Freefile com In this case, you must be able to prove your expenses to the IRS. Freefile com Related to employer. Freefile com   You are related to your employer if: Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant, Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer. Freefile com You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock. Freefile com The federal rate. Freefile com   The federal rate can be figured using any one of the following methods. Freefile com For per diem amounts: The regular federal per diem rate. Freefile com The standard meal allowance. Freefile com The high-low rate. Freefile com For car expenses: The standard mileage rate. Freefile com A fixed and variable rate (FAVR). Freefile com    For per diem amounts, use the rate in effect for the area where you stop for sleep or rest. Freefile com Regular federal per diem rate. Freefile com   The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meals, and incidental expenses (or meals and incidental expenses only) while they are traveling away from home in a particular area. Freefile com The rates are different for different locations. Freefile com Your employer should have these rates available. Freefile com You can also find federal per diem rates at www. Freefile com gsa. Freefile com gov/perdiem. Freefile com The standard meal allowance. Freefile com   The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). Freefile com The rate for most small localities in the United States is $46 a day. Freefile com Most major cities and many other localities qualify for higher rates. Freefile com You can find this information on the Internet at www. Freefile com gsa. Freefile com gov/perdiem. Freefile com   You receive an allowance only for meals and incidental expenses when your employer does one of the following. Freefile com Provides you with lodging (furnishes it in kind). Freefile com Reimburses you, based on your receipts, for the actual cost of your lodging. Freefile com Pays the hotel, motel, etc. Freefile com , directly for your lodging. Freefile com Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck. Freefile com Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled. Freefile com High-low rate. Freefile com   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Freefile com It eliminates the need to keep a current list of the per diem rates for each city. Freefile com   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 (including $65 for M&IE) for certain high-cost locations. Freefile com All other areas have a per diem amount of $163 (including $52 for M&IE). Freefile com For more information, see Notice 2012-63, which can be found on the Internet at www. Freefile com irs. Freefile com gov/irb/2012-42_IRB/ar12. Freefile com html. Freefile com    Effective October 1, 2013, the per diem rate for certain high-cost locations increased to $251 (including $65 for M&IE). Freefile com The rate for all other locations increased to $170 (including $52 for M&IE). Freefile com Employers who did not use the high-low method during the first 9 months of 2013 cannot begin to use it before 2014. Freefile com For more information, see Notice 2013-65, which can be found on the Internet at www. Freefile com irs. Freefile com gov/pub/irs-drop/n-13–65. Freefile com pdf and Revenue Procedure 2011-47 at www. Freefile com irs. Freefile com gov/irb/2011-42_IRB/ar12. Freefile com html. Freefile com Prorating the standard meal allowance on partial days of travel. Freefile com   The standard meal allowance is for a full 24-hour day of travel. Freefile com If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. Freefile com This rule also applies if your employer uses the regular federal per diem rate or the high-low rate. Freefile com   You can use either of the following methods to figure the federal M&IE for that day. Freefile com Method 1: For the day you depart, add 3/4 of the standard meal allowance amount for that day. Freefile com For the day you return, add 3/4 of the standard meal allowance amount for the preceding day. Freefile com Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. Freefile com For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a. Freefile com m. Freefile com of one day to 5 p. Freefile com m. Freefile com of the next day as being no more than the federal rate. Freefile com This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate. Freefile com The standard mileage rate. Freefile com   This is a set rate per mile that you can use to compute your deductible car expenses. Freefile com For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Freefile com Fixed and variable rate (FAVR). Freefile com   This is an allowance your employer may use to reimburse your car expenses. Freefile com Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc. Freefile com ) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc. Freefile com ). Freefile com If your employer chooses to use this method, your employer will request the necessary records from you. Freefile com Reporting your expenses with a per diem or car allowance. Freefile com   If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting. Freefile com The federal rate. Freefile com Whether the allowance or your actual expenses were more than the federal rate. Freefile com The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate. Freefile com Allowance less than or equal to the federal rate. Freefile com   If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. Freefile com You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance. Freefile com   However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). Freefile com If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. Freefile com If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount. Freefile com Example 1. Freefile com In April, Jeremy takes a 2-day business trip to Denver. Freefile com The federal rate for Denver is $215 per day. Freefile com As required by his employer's accountable plan, he accounts for the time (dates), place, and business purpose of the trip. Freefile com His employer reimburses him $215 a day ($430 total) for living expenses. Freefile com Jeremy's living expenses in Denver are not more than $215 a day. Freefile com Jeremy's employer does not include any of the reimbursement on his Form W-2 and Jeremy does not deduct the expenses on his return. Freefile com Example 2. Freefile com In June, Matt takes a 2-day business trip to Boston. Freefile com Matt's employer uses the high-low method to reimburse employees. Freefile com Since Boston is a high-cost area, Matt is given an advance of $242 a day ($484 total) for his lodging, meals, and incidental expenses. Freefile com Matt's actual expenses totaled $700. Freefile com Since Matt's $700 of expenses are more than his $484 advance, he includes the excess expenses when he itemizes his deductions. Freefile com Matt completes Form 2106 (showing all of his expenses and reimbursements). Freefile com He must also allocate his reimbursement between his meals and other expenses as discussed later under Completing Forms 2106 and 2106-EZ . Freefile com Example 3. Freefile com Nicole drives 10,000 miles in 2013 for business. Freefile com Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Freefile com Her employer pays her a mileage allowance of 40 cents a mile. Freefile com Since Nicole's $5,650 expense computed under the standard mileage rate (10,000 miles x 56½ cents) is more than her $4,000 reimbursement (10,000 miles × 40 cents), she itemizes her deductions to claim the excess expense. Freefile com Nicole completes Form 2106 (showing all her expenses and reimbursements) and enters $1,650 ($5,650 − $4,000) as an itemized deduction. Freefile com Allowance more than the federal rate. Freefile com   If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 12 of your Form W-2. Freefile com This amount is not taxable. Freefile com However, the excess allowance will be included in box 1 of your Form W-2. Freefile com You must report this part of your allowance as if it were wage income. Freefile com   If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return. Freefile com   However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. Freefile com You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 12 of your Form W-2) and all your expenses. Freefile com You should be able to prove these amounts to the IRS. Freefile com Example 1. Freefile com Laura lives and works in Austin. Freefile com In July her employer sent her to Albuquerque for 4 days on business. Freefile com Laura's employer paid the hotel directly for her lodging and reimbursed Laura $65 a day ($260 total) for meals and incidental expenses. Freefile com Laura's actual meal expenses were not more than the federal rate for Albuquerque, which is $56 per day. Freefile com Table 6-1. Freefile com Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements IF the type of reimbursement (or  other expense allowance)  arrangement is under: THEN the employer reports on Form W-2: AND the employee reports on  Form 2106: * An accountable plan with: Actual expense reimbursement: Adequate accounting made and excess returned. Freefile com No amount. Freefile com No amount. Freefile com Actual expense reimbursement: Adequate accounting and return of excess both required but excess not returned. Freefile com The excess amount as wages in box 1. Freefile com No amount. Freefile com Per diem or mileage allowance up to the federal rate: Adequate accounting made and excess returned. Freefile com No amount. Freefile com All expenses and reimbursements only if excess expenses are claimed. Freefile com Otherwise, form is not filed. Freefile com Per diem or mileage allowance up to the federal rate: Adequate accounting and return of excess both required but excess not returned. Freefile com The excess amount as wages in box 1. Freefile com The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Freefile com No amount. Freefile com Per diem or mileage allowance exceeds the federal rate: Adequate accounting up to the federal rate only and excess not returned. Freefile com The excess amount as wages in box 1. Freefile com The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Freefile com All expenses (and reimbursements reported on Form W-2, box 12) only if expenses in excess of the federal rate are claimed. Freefile com Otherwise, form is not filed. Freefile com A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan. Freefile com The entire amount as wages in box 1. Freefile com All expenses. Freefile com No reimbursement plan: The entire amount as wages in box 1. Freefile com All expenses. Freefile com * You may be able to use Form 2106-EZ. Freefile com See Completing Forms 2106 and 2106-EZ . Freefile com Her employer included the $36 that was more than the federal rate (($65 − $56) × 4) in box 1 of Laura's Form W-2. Freefile com Her employer shows $224 ($56 a day × 4) in box 12 of her Form W-2. Freefile com This amount is not included in Laura's income. Freefile com Laura does not have to complete Form 2106; however, she must include the $36 in her gross income as wages (by reporting the total amount shown in box 1 of her Form W-2). Freefile com Example 2. Freefile com Joe also lives in Austin and works for the same employer as Laura. Freefile com In May the employer sent Joe to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. Freefile com The employer reimbursed Joe $75 a day for his meals and incidental expenses. Freefile com The federal rate for San Diego is $71 a day. Freefile com Joe can prove that his actual meal expenses totaled $380. Freefile com His employer's accountable plan will not pay more than $75 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $380. Freefile com However, he does account for the time, place, and business purpose of the trip. Freefile com This is Joe's only business trip this year. Freefile com Joe was reimbursed $300 ($75 × 4 days), which is $16 more than the federal rate of $284 ($71 × 4 days). Freefile com The employer includes the $16 as income on Joe's Form W-2 in box 1. Freefile com The employer also enters $284 in box 12 of Joe's Form W-2. Freefile com Joe completes Form 2106 to figure his deductible expenses. Freefile com He enters the total of his actual expenses for the year ($380) on Form 2106. Freefile com He also enters the reimbursements that were not included in his income ($284). Freefile com His total deductible expense, before the 50% limit, is $96. Freefile com After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $48, as an itemized deduction. Freefile com Example 3. Freefile com Debbie drives 10,000 miles in 2013 for business. Freefile com Under her employer's accountable plan, she gets reimbursed 60 cents a mile, which is more than the standard mileage rate. Freefile com Her total reimbursement is $6,000. Freefile com Debbie's employer must include the reimbursement amount up to the standard mileage rate, $5,650 (10,000 × 56½ cents), in box 12 of her Form W-2. Freefile com That amount is not taxable. Freefile com Her employer must also include $350 ($6,000 − $5,650) in box 1 of her Form W-2. Freefile com This is the reimbursement that is more than the standard mileage rate. Freefile com If Debbie's expenses are equal to or less than the standard mileage rate, she would not complete Form 2106. Freefile com If her expenses are more than the standard mileage rate, she would complete Form 2106 and report her total expenses and reimbursement (shown in box 12 of her Form W-2). Freefile com She would then claim the excess expenses as an itemized deduction. Freefile com Returning Excess Reimbursements Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Freefile com Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. Freefile com For example, if you received a travel advance and you did not spend all the money on business-related expenses or you do not have proof of all your expenses, you have an excess reimbursement. Freefile com “ Adequate accounting ” and “ reasonable period of time ” were discussed earlier in this chapter. Freefile com Travel advance. Freefile com   You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Freefile com Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time. Freefile com   If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later). Freefile com Unproved amounts. Freefile com   If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproved amount of the travel advance within a reasonable period of time. Freefile com If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later). Freefile com Per diem allowance more than federal rate. Freefile com   If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. Freefile com However, the difference will be reported as wages on your Form W-2. Freefile com This excess amount is considered paid under a nonaccountable plan (discussed later). Freefile com Example. Freefile com Your employer sends you on a 5-day business trip to Phoenix in March 2013 and gives you a $400 ($80 × 5 days) advance to cover your meals and incidental expenses. Freefile com The federal per diem for meals and incidental expenses for Phoenix is $71. Freefile com Your trip lasts only 3 days. Freefile com Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you did not travel. Freefile com For the 3 days you did travel you do not have to return the $27 difference between the allowance you received and the federal rate for Phoenix (($80 − $71) × 3 days). Freefile com However, the $27 will be reported on your Form W-2 as wages. Freefile com Nonaccountable Plans A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. Freefile com In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan: Excess reimbursements you fail to return to your employer, and Reimbursement of nondeductible expenses related to your employer's business. Freefile com See Reimbursement of nondeductible expenses , earlier, under Accountable Plans. Freefile com An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. Freefile com This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses. Freefile com If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer. Freefile com Reporting your expenses under a nonaccountable plan. Freefile com   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Freefile com Your employer will report the total in box 1 of your Form W-2. Freefile com    You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Freefile com Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Freefile com Also, your total expenses will be subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Freefile com Example 1. Freefile com Kim's employer gives her $1,000 a month ($12,000 total for the year) for her business expenses. Freefile com Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend. Freefile com Kim is being reimbursed under a nonaccountable plan. Freefile com Her employer will include the $12,000 on Kim's Form W-2 as if it were wages. Freefile com If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions. Freefile com Example 2. Freefile com Kevin is paid $2,000 a month by his employer. Freefile com On days that he travels away from home on business, his employer designates $50 a day of his salary as paid to reimburse his travel expenses. Freefile com Because his employer would pay Kevin his monthly salary whether or not he was traveling away from home, the arrangement is a nonaccountable plan. Freefile com No part of the $50 a day designated by his employer is treated as paid under an accountable plan. Freefile com Rules for Independent Contractors and Clients This section provides rules for independent contractors who incur expenses on behalf of a client or customer. Freefile com The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers. Freefile com You are considered an independent contractor if you are self-employed and you perform services for a customer or client. Freefile com Accounting to Your Client If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. Freefile com If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. Freefile com You must keep adequate records of these expenses whether or not you account to your client for these expenses. Freefile com If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses. Freefile com See 50% Limit in chapter 2. Freefile com Adequate accounting. Freefile com   As a self-employed person, you adequately account by reporting your actual expenses. Freefile com You should follow the recordkeeping rules in chapter 5 . Freefile com How to report. Freefile com   For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter. Freefile com Required Records for Clients or Customers If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. Freefile com However, you must keep records if: You reimburse the contractor for entertainment expenses incurred on your behalf, and The contractor adequately accounts to you for these expenses. Freefile com Contractor adequately accounts. Freefile com   If the contractor adequately accounts to you for entertainment expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Freefile com Use your records as proof for a deduction on your tax return. Freefile com If entertainment expenses are accounted for separately, you are subject to the 50% limit on entertainment. Freefile com If the contractor adequately accounts to you for reimbursed amounts, you do not have to report the amounts on an information return. Freefile com Contractor does not adequately account. Freefile com    If the contractor does not adequately account to you for allowances or reimbursements of entertainment expenses, you do not have to keep records of these items. Freefile com You are not subject to the 50% limit on entertainment in this case. Freefile com You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. Freefile com However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year. Freefile com How To Use Per Diem Rate Tables This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year. Freefile com The Two Substantiation Methods High-low method. Freefile com   IRS notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Freefile com Notice 2012–63, available at www. Freefile com irs. Freefile com gov/irb/2012–42_IRB/ar12. Freefile com html, lists the localities that are eligible for $242 ($65 meals and incidental expenses (M&IE)) per diem, effective October 1, 2012. Freefile com For travel on or after October 1, 2012, all other localities within CONUS are eligible for $163 ($52 M&IE) per diem under the high-low method. Freefile com   Notice 2013–65, available at www. Freefile com irs. Freefile com gov/pub/irs-drop/n-13–65. Freefile com pdf, lists the localities that are eligible for $251 ($65 M&IE) per diem, effective October 1, 2013. Freefile com For travel on or after October 1, 2013, the per diem for all other localities increased to $170 ($52 M&IE). Freefile com Regular federal per diem rate method. Freefile com   Regular federal per diem rates are published by the General Services Administration (GSA). Freefile com Both tables include the separate rate for meals and incidental expenses (M&IE) for each locality. Freefile com The rates listed for FY2013 at www. Freefile com gsa. Freefile com gov/perdiem are effective October 1, 2012 and those listed for FY2014 are effective October 1, 2013. Freefile com The standard rate for all locations within CONUS not specifically listed for FY2013 is $123 ($77 for lodging and $46 for M&IE). Freefile com For FY2014, this rate increased to $129 ($83 for lodging and $46 for M&IE). Freefile com Transition Rules The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally October 1) through December 31. Freefile com During this period, you generally may change to the new rates or finish out the year with the rates you had been using. Freefile com High-low method. Freefile com   If you use the high-low substantiation method, when new rates become effective (generally October 1) you can either continue with the rates you used for the first part of the year or change to the new rates. Freefile com However, you must continue using the high-low method for the rest of the calendar year (through December 31). Freefile com If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year. Freefile com   The new rates and localities for the high-low method are included each year in a notice that is generally published in mid-to-late-September. Freefile com You can find the notice in the weekly Internal Revenue Bulletin (IRB) on the Internet at www. Freefile com irs. Freefile com gov/irb. Freefile com Federal per diem rate method. Freefile com   New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Freefile com Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). Freefile com However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates. Freefile com   The new federal CONUS per diem rates are published each year, generally early in September, on the Internet. Freefile com Go to www. Freefile com gsa. Freefile com gov/perdiem. Freefile com Per diem rates for localities listed for FY2014 may change at any time. Freefile com To be sure you have the most current rate, check www. Freefile com gsa. Freefile com gov/perdiem. Freefile com Completing Forms 2106 and 2106-EZ This section briefly describes how employees complete Forms 2106 and 2106-EZ. Freefile com Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. Freefile com The instructions for the forms have more information on completing them. Freefile com If you are self-employed, do not file Form 2106 or 2106-EZ. Freefile com Report your expenses on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Freefile com See the instructions for the form that you must file. Freefile com Form 2106-EZ. Freefile com   You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. Freefile com You can use this form if you meet all the following conditions. Freefile com You are an employee deducting ordinary and necessary expenses attributable to your job. Freefile com You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Freefile com If you are claiming car expenses, you are using the standard mileage rate. Freefile com Car expenses. Freefile com   If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. Freefile com These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Freefile com Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and Part I, line 1. Freefile com Information on use of cars. Freefile com   If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. Freefile com The information relates to the following items. Freefile com Date placed in service. Freefile com Mileage (total, business, commuting, and other personal mileage). Freefile com Percentage of business use. Freefile com After-work use. Freefile com Use of other vehicles. Freefile com Whether you have evidence to support the deduction. Freefile com Whether or not the evidence is written. Freefile com Employees must complete Form 2106, Part II, Section A, or Form 2106-EZ, Part II, to provide this information. Freefile com Standard mileage rate. Freefile com   If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. Freefile com The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. Freefile com In addition, on Part 1, line 2, you can deduct parking fees and tolls that apply to the business use of the car. Freefile com If you file Form 2106-EZ, complete Part I, line 1, for the standard mileage rate and line 2 for parking fees and tolls. Freefile com See Standard Mileage Rate in chapter 4 for information on using this rate. Freefile com Actual expenses. Freefile com   If you claim a deduction based on actual car expenses, you cannot use Form 2106-EZ. Freefile com You must complete Form 2106, Part II, Section C. Freefile com In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim. Freefile com   If you are still using a car that is fully depreciated, continue to complete Section C. Freefile com Since you have no depreciation deduction, enter zero on line 28. Freefile com In this case, do not complete Section D. Freefile com Car rentals. Freefile com   If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount as described in chapter 4. Freefile com If so, you can show your car expenses and any inclusion amount as follows. Freefile com Compute the inclusion amount without taking into account your business use percentage for the tax year. Freefile com Report the inclusion amount from (1) on Form 2106, Part II, line 24b. Freefile com Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)). Freefile com The net amount of car rental expenses will be adjusted on Form 2106, Part II, line 27, to reflect the percentage of business use for the tax year. Freefile com Transportation expenses. Freefile com   Show your transportation expenses that did not involve overnight travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Freefile com Also include on this line business expenses you have for parking fees and tolls. Freefile com Do not include expenses of operating your car or expenses of commuting between your home and work. Freefile com Employee business expenses other than meals and entertainment. Freefile com   Show your other employee business expenses on Form 2106, lines 3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Freefile com Do not include expenses for meals and entertainment on those lines. Freefile com Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications. Freefile com    If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Freefile com Claim these amounts directly on Schedule A (Form 1040), line 21. Freefile com List the type and amount of each expense on the dotted lines and include the total on line 21. Freefile com Meal and entertainment expenses. Freefile com   Show the full amount of your expenses for business-related meals and entertainment on Form 2106, line 5, Column B. Freefile com Include meals while away from your tax home overnight and other business meals and entertainment. Freefile com Enter 50% of the line 8, Column B, meal and entertainment expenses on line 9, Column B. Freefile com   If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Freefile com Enter the result on line 5. Freefile com Hours of service limits. Freefile com   If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to “hours of service” limits in chapter 2), use 80% instead of 50% for meals while away from your tax home. Freefile com Reimbursements. Freefile com   Enter on Form 2106, line 7 (you cannot use Form 2106-EZ) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. Freefile com This includes any amount reported under code L in box 12 of Form W-2. Freefile com Allocating your reimbursement. Freefile com   If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. Freefile com This is necessary when your employer pays your reimbursement in the following manner: Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and Does not clearly identify how much is for deductible meals and/or entertainment. Freefile com You must allocate that single payment so that you know how much to enter on Form 2106, line 7, Column A and Column B. Freefile com Example. Freefile com Rob's employer paid him an expense allowance of $12,000 this year under an accountable plan. Freefile com The $12,000 payment consisted of $5,000 for airfare and $7,000 for meals, entertainment, and car expenses. Freefile com The employer did not clearly show how much of the $7,000 was for the cost of deductible meals and entertainment. Freefile com Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for meals and entertainment, and $4,000 for car expenses). Freefile com Since the airfare allowance was clearly identified, Rob knows that $5,000 of the payment goes in Column A, line 7, of Form 2106. Freefile com To allocate the remaining $7,000, Rob uses the worksheet from the Instructions for Form 2106. Freefile com His completed worksheet follows. Freefile com Reimbursement Allocation Worksheet (Keep for your records)   1. Freefile com Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2 $7,000   2. Freefile com Enter the total amount of your expenses for the periods covered by this reimbursement 8,500   3. Freefile com Of the amount on line 2, enter your total expense for meals and entertainment 4,500   4. Freefile com Divide line 3 by line 2. Freefile com Enter the result as a decimal (rounded to at least three places) . Freefile com 529   5. Freefile com Multiply line 1 by line 4. Freefile com Enter the result here and in Column B, line 7 3,703   6. Freefile com Subtract line 5 from line 1. Freefile com Enter the result here and in Column A, line 7 $3,297 On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and $3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B. Freefile com After you complete the form. Freefile com   After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. Freefile com For most taxpayers, this is line 21 of Schedule A (Form 1040). Freefile com However, if you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later. Freefile com Limits on employee business expenses. Freefile com   Your employee business expenses may be subject to either of the limits described next. Freefile com They are figured in the following order on the specified form. Freefile com 1. Freefile com Limit on meals and entertainment. Freefile com   Certain meal and entertainment expenses are subject to a 50% limit. Freefile com If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ. Freefile com (See 50% Limit in chapter 2. Freefile com ) 2. Freefile com Limit on miscellaneous itemized deductions. Freefile com   If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Freefile com Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2%-of-adjusted-gross-income limit. Freefile com This limit is figured on line 26 of Schedule A (Form 1040). Freefile com 3. Freefile com Limit on total itemized deductions. Freefile com   If your adjusted gross income (line 38 of Form 1040) is more than $300,000 ($150,000 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. Freefile com See your form instructions for information on how to figure this limit. Freefile com Special Rules This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. Freefile com Armed Forces Reservists Traveling More Than 100 Miles From Home If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Freefile com The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Freefile com See Per Diem and Car Allowances , earlier, for more information. Freefile com Any expenses in excess of these amounts can be claimed only as a miscellaneous itemized deduction subject to the 2% limit. Freefile com Member of a reserve component. Freefile com   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service. Freefile com How to report. Freefile com   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Freefile com Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Freefile com Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. Freefile com   You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Freefile com Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21. Freefile com Officials Paid on a Fee Basis Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040). Freefile com Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. Freefile com They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction. Freefile com If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Freefile com Expenses of Certain Performing Artists If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Freefile com To qualify, you must meet all of the following requirements. Freefile com During the tax year, you perform services in the performing arts as an employee for at least two employers. Freefile com You receive at least $200 each from any two of these employers. Freefile com Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services. Freefile com Your adjusted gross income is not more than $16,000 before deducting these business expenses. Freefile com Special rules for married persons. Freefile com   If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. Freefile com If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. Freefile com However, requirement (4) applies to your and your spouse's combined adjusted gross income. Freefile com Where to report. Freefile com   If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Freefile com Then you include your performing-arts-related expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Freefile com   If you do not meet all of the above requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Freefile com Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business expenses as an itemized deduction on Schedule A (Form 1040), line 21. Freefile com Impairment-Related Work Expenses of Disabled Employees If you are an employee with a physical or mental disability, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. Freefile com After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 28, and identify the type and amount of this expense on the dotted line next to line 28. Freefile com Enter your employee business expenses that are unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 21. Freefile com Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work. Freefile com You are disabled if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Freefile com You can deduct impairment-related expenses as business expenses if they are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Freefile com Example 1. Freefile com You are blind. Freefile com You must use a reader to do your work. Freefile com You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Freefile com The reader's services are only for your work. Freefile com You can deduct your expenses for the reader as business expenses. Freefile com Example 2. Freefile com You are deaf. Freefile com You must use a sign language interpreter during meetings while you are at work. Freefile com The interpreter's services are used only for your work. Freefile com You can deduct your expenses for the interpreter as business expenses. Freefile com Prev  Up  Next   Home   More Online Publications