What Counts as Work Expenses?

Work expenses are one of the gray areas when it comes to tax deductions. Generally, all expenses incurred wholly for the business will be allowed for deduction. However, one needs to be careful when deducting expensive business travel, gifts to business acquaintances, home business use and business meals. You need to follow the guidelines provided by the IRS when deducting such expenses. Claiming large and extravagant expenses is a red flag and can easily attract an IRS audit. One of the controversial business expenses claimed in the past was a breast enlargement by an exotic dancer. The dancer argued that the enhancement surgery would increase business opportunity. The court ruled in favor of the dancer. On the other hand, a taxpayer who had deducted his wedding costs as a business expense because he had invited business associates lost his case to the IRS both in the Tax Court and in the Court of appeal. In these cases, it may be wiser to not “push your luck” with the deductions you claim.

You may incur travel expenses while journeying away from home on behalf of your employer. You can deduct travel expenses incurred in relation to a temporary assignment, but not travel expenses incurred in relation to a permanent assignment. Some of these deductible expenses include travel to and from your assignment, taxi fare, meals, lodging, cleaning and laundry expenses, and baggage charges. Your job assignment is temporary if it posts you in a location for less than one year.

If you are a federal employee investigating a crime or involved in the prosecution of one, the one-year rule for temporary work assignments does not apply. This means that you can get tax deductions related to a temporary assignment even if you are at that location longer than one year. To qualify for this exemption, the Attorney General must verify that you are traveling while performing duties for the federal government, or that you are traveling while performing duties for the federal government on a temporary duty status, or that you are traveling while providing support services for the federal government during the investigation or prosecution of a federal crime.

Local transportation costs like airfare, rail, bus, taxi, or personal auto can be deducted when you are traveling to an assignment other than your main place of work. Traveling from home to work and back again everyday is not a deductible expense. You can deduct travel expenses between your home and a temporary work location if the work location is not within the metropolitan area where you normally work and reside.

You can deduct transportation costs for traveling between your home and an office location if your home is your main place of business.

Entertainment expenses are deductible only if they are directly related to the primary conduct of your business. You can deduct 50% of business meals and entertainment expenses unless they meet certain exceptions.

You can deduct $25 worth of business gifts that you give to an individual during the course of the year, unless they are widely distributed items of four dollar value or less and have your name clearly and permanently printed on them or if they are signs, racks or other promotional materials displayed on the business premises of the receiver of the items.


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