You can use IRS Form 2106 (available here) to deduct work-related expenses that are not reimbursed by your employer. If you have such expenses, they can potentially be deducted as part of your "Miscellaneous Itemized Deductions" on your income taxes. To be deductible, the total of all your Miscellaneous Itemized Deductions (including deductions taken on Form 2106) need to be more than 2% of your adjusted gross income.
If you qualify for a deduction, it lowers your taxable income, and thus saves you money on your taxes. So, if you do have unreimbursed business expenses, be sure to keep good records of your relevant mileage on your car and receipts for other costs, as you'll need them to justify the deduction.
What expenses can you deduct on IRS Form 2106?
According to the IRS, you can deduct expenses that are "ordinary" and "necessary" parts of your job if you're an employee who doesn't get reimbursed for those expenses by your employer. Here's a helpful hint from the IRS as to what's considered "ordinary" and "necessary":
An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
Common such expenses are mileage and other transportation expenses (aside from commuting between your house and your office) and certain work-related meals -- such as while you're traveling. You can also use IRS Form 2106 to deduct the costs of such unreimbursed expenses as business gifts, trade publications, and certain home office expenses.
You would typically use your actual expenses, but for some items, like mileage in your personal vehicle, you can use a standardized rate. The rate for mileage is currently $0.575 per mile, but it changes annually based on the IRS's estimates of the total costs of owning and operating a typical vehicle.
What should you watch out for?
It's incredibly important to keep detailed records if you're using IRS Form 2106 to deduct expenses. The IRS requires receipts for all lodging expenses and any other expense of $75 or more. It also requires you to detail the location, business purpose, and date/time of any travel and travel-related meals you're deducting -- even if you're using standardized rates rather than your actual expenses.
If you have high unreimbursed expenses, it increases the chances of an IRS audit. If the IRS audits you, your records and receipts will be critically important, as they will provide a large part of the justification for whether you're entitled to the deductions you claimed.
It's also important to keep up with your employer's policy and method of reimbursing business expenses -- and to request timely reimbursement for any reimbursable expenses under that policy. If your employer would reimburse your expenses but didn't because you failed to turn in your expense report on time, then you're out of luck.
Still -- if you legitimately incurred unreimbursed business expenses, then IRS Form 2106 is your means to report them and claim your deduction.
Not quite as nice as a reimbursement -- but better than nothing
Of course, you'd very likely be better off getting completely reimbursed for those expenses instead of simply getting the tax deduction. The deduction keeps the allowable expenses above 2% of your Adjusted Gross Income from being included in your taxable income, whereas a full reimbursement would shift the expense to your employer.
Despite the shortcomings involved, if you have sufficient unreimbursed employee expenses, it's in your interest to fill out IRS Form 2106 and claim your deductions. Just be sure to keep your receipts and other supporting documentation, and to submit your expense reports for the costs your employer would reimburse. That way, you'll get the deductions you deserve and will have the paper trail to better keep yourself on the right side of the IRS should they start questioning your deductions.
Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.