Employee Business Expenses

Certain costs associated with doing your job as an employee may translate to tax-saving deductions. These expenses are considered a miscellaneous itemized deduction, which means you get a write-off only for the amount by which the total exceeds 2% of your adjusted gross income. If you're self-employed, you don't have to worry about the 2% threshold. Qualifying expenses are fully deductible. Here are the kinds of expenses that qualify:

• Automobile expenses, either actual expenses or the standard mileage rate, which is 44.5 cents per mile.
• Home office expenses.
• Travel, entertainment and gift expenses.
• The cost of special work clothes. You might be able to deduct the cost of your work wardrobe. To qualify, the clothes must be required by your job and not suitable for everyday use. Hard hats, work gloves and safety glasses qualify, for example, as do uniforms you must wear if you're a nurse, letter carrier, jockey, ballplayer, etc.

Entertainers can deduct the cost of their theatrical wardrobe, assuming it's not fitting garb off the stage. What if you have to wear a suit to work but wouldn't be caught dead in such formal attire away from the office? No deduction because, regardless of your personal opinion, the IRS says the suit is suitable for everyday use.

If you can deduct the cost of your work clothes, you can also write off the cost of keeping them clean, including laundry and dry-cleaning bills. In one case an airline pilot was permitted to claim the cost of his shoe shines. The shoes were part of the uniform and not worn off the job.

• The cost of a physical examination required by your employer. By claiming this expense as an employee business expense rather than a medical expense, it becomes a miscellaneous itemized deduction subject to the 2% threshold instead of the tougher 7.5%-of-AGI threshold for medical expenses.
• Dues to professional societies and other professional expenses. The law permits deduction of such professional expenses as dues to professional societies, and subscriptions to professional journals and trade magazines.
• Union dues and initiation fees.
• The cost of subscriptions to professional journals and trade publications.
• Hobby expenses to the extent of your hobby income.
• Job-hunting expenses. The key to tax deductions is to seek a new position in the same line of work, rather than try to switch careers. Job-hunting expenses are deductible when you confine your search to the same line of work you're in—whether or not you wind up changing jobs. The cost of seeking a job in a different occupation is not deductible, nor are expenses connected with landing your first job—or of reentering the work force after a lengthy absence.

If you qualify for job-hunting deductions, your write-offs can include travel expenses, including the cost of food, lodging and transportation. Your meal expenses are hit by the rule that limits the deduction to 50% of the cost of business meals and entertainment. In addition, deductible job-hunting costs encompass what you spend for employment-agency fees, want ads, telephone calls connected with the job hunt, and the cost of printing and mailing resumes. Keep careful records of all your job-hunting expenses to determine whether you have a tax deduction. Job-hunting expenses are a miscellaneous itemized deduction, which means they are subject to the 2% rule. If travel expenses are involved, it may be easy to pass the 2% test.

Keep careful records of all your job-hunting expenses to determine whether you have a tax deduction. Job-hunting expenses are miscellaneous itemized deductions, which means they are subject to the 2% rule. If travel expenses are involved, it may be easy to pass the 2% text.

• Educational expenses. Just as the cost of hunting for your first job or a career switch is nondeductible, so is the cost of education that prepares you for your first job or for a position in a different business or profession. To qualify for education deductions, you must already be working—either as an employee or self-employed—and the training must either be designed to maintain or improve the skills needed for your present job or be required by your employer or the law to keep that job.

You can't deduct the cost of courses taken to meet the minimum requirements of a job, and even if you could argue that a class improves the skills used on your present job, you can flunk the deductibility test if the education is also a step toward entering a new trade or profession. (Although such expenses don't count as deductible education expenses, they may count toward the Lifetime Learning credit, which in 2006 is worth 20% of the first $10,000 of qualifying expenses each year, for a maximum annual credit of $2,000.)

a new occupation? Clearly, if you’re a sour on ditch-digging and secretary and sign onup for night law-school classes, you're preparing for a new profession, and the costs would not be deductible. But if you're an attorney, the cost of continuing-education courses could be written off.

What if you're a real estate agent who takes courses necessary to get a real estate broker's license? The Tax Court rejected such a deduction on the grounds that the broker's job was significantly different than the agent's. The IRS also says "no'' to deductions for bar-review courses, even if you're already an attorney preparing for admission to the bar in an additional state.

In general, to qualify to write off education expenses you need to mix work with schooling. But if you go to school during your vacation or during a temporary absence from your work, you can still qualify. The IRS will consider up to one year off the job temporary for these purposes, and in some cases the courts have permitted even longer absences. You don't have to go back to the same job to qualify for educational expenses, just to the same line of work.

If you qualify, your write-offs include the cost of tuition, books, supplies, tutoring and any travel and transportation related to your studies. Whether you're temporarily a full-time student at a major university, attending a week-long continuing-education seminar or taking a correspondence course, keep careful records of your expenses.

Travel as Education

In the past, it was possible for a French teacher to deduct the cost of a trip to France to maintain general familiarity with the language and culture, for example. The law now bars the deduction for the cost of travel when the travel itself is the educational activity.

Self-employed taxpayers deduct qualifying educational expenses in full on Schedule C. Again, employees have to struggle past the 2% threshold to win their deductions. These costs are miscellaneous expenses deductible only if you itemize and only to the extent that your total in this category exceeds 2% of your adjusted gross income.

Job-Security Insurance

If you buy insurance to protect yourself against being ousted from your job for reasons other than poor performance — in the aftermath of a hostile takeover — the cost of the policy is a deductible employee business expense.