Form 2106: Employee Business Expenses

If you were or currently are an Armed Forces reservist, performing artist, or fee-basis government official, chances are you’ve racked up several business-related expenses. Ideally, your employer would reimburse you for any expense related to your work, but that’s not always the case. If your employer falls into the latter category, fear not; you’re not totally upside-down on these expenses.

While the IRS does offer various standard deductions based on your filing status, frequent business travelers may find that their expenses far exceed these deductions. The IRS recognizes that you shouldn’t be penalized for excessive work-related expenses, and therefore allows them to be deducted from your income taxes. Enter: IRS Form 2106. In this guide, we’ll walk you through the form so you can know what to expect. You’ll also learn why this form is valuable and who qualifies for it. To skip to a particular section, use one of the links below.

What is Form 2106?

Form 2106 is an IRS document that is used to itemize and tally “ordinary and necessary” business expenses that aren’t reimbursed by your employer. The IRS defines such expenses as follows: “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 doesn’t have to be required to be considered necessary.” This may include a variety of day-to-day expenses, including:

  • Mileage
  • Lodging
  • Work-related meals
  • Transportation

Even things such as cash tips for valet services are deductible through Form 2106, as long as you qualify.

Who is Eligible for Form 2106?

The most important qualifying factor for tax Form 2106 is if you were or are a:

  • Armed Forces reservist
  • National Guard
  • Qualifying performance artist
  • Fee-basis federal or state government official
  • Employee with disability impairment-related work expenses

In addition to the parameters mentioned above, if your employer will not reimburse job-related expenses, then you are eligible to file Form 2106. While those who are self-employed or independent contractors do qualify for deductions, IRS Form 2106 is not the appropriate document for them.

Why File Form 2106?

Reimbursements ensure that you’re compensated for costs that came out of your pocket. You should get reimbursed for qualifying expenses if your employer didn’t reimburse you or if they didn’t completely reimburse you. You can also claim deductions if you used your personal vehicle for work-related matters. Eligible car expenses include car insurance, maintenance, gas, and repairs. Other common expenses are:

  • Education, licenses, and certification costs
  • Tools and supplies necessary to complete work
  • Union fees

Form 2106 Requirements

Performing artists, military reservists, the National Guard, fee-basis government officials, and those with disability-related expenses are eligible to file Form 2106. However, the requirements for each differ.

Performing Artists Requirements

Performing artists can only file Form 2106 if they provide entertainment or artistic services and work for two or more employers. Additionally, artists must receive a minimum of $200 in earnings per employer, have expenses that are more than 10% of their income, and total an adjusted gross income of $16,000 or less.

If you’re married, you need to file a joint tax return to submit Form 2106. The only exception would be if you and your spouse lived apart for the year that you’re filing.

Military Reservists, National Guard, Fee-Basis Government Officials, and Individuals with Disability-Related Work Expenses Requirements

  • Armed forces reservists: You must be a member of the U.S. Army, Navy, Marine Corps, Air Force, Coast Guard Reserve, or Reserve Corps of the Public Health Service.
  • Fee-basis government officials: An individual who is employed by the state or political entity of a state and is compensated on a fee basis.
  • Disabled employees with impairment-related work expenses: Those with physical or mental disabilities can claim workplace expenses regarding the purchase of medication or special equipment.

How Do I File Form 2106?

Form 2106 instructions are fairly straightforward. You simply tally your expenses by category in Step 1, enter reimbursements, if any, received from your employer for any items listed in Step 2, and add the two steps to calculate your deduction in Step 3.

That said, as with all other IRS forms, it is imperative that you are 100% accurate when completing Form 2106, or you may be putting yourself at risk of litigation for false or excessive claims. As such, let’s go through each item, line by line.

Step 1: Enter Your Expenses

The most important thing to remember when entering your expenses is that you must be able to provide evidence for any expense detailed in Step 1. You must present receipts for all expenses of $75 or more, including lodging expenses, as well as providing location, purpose, and the specific date of any travel and travel-related meals. This applies to expenses that have and have not been reimbursed by your employer.

Line 1: To calculate Line 1, skip down to Part II. You’ll use this worksheet to calculate any vehicle expenses. Simply go through each item line by line and answer them accurately. Remember that you’ll need evidence for everything claimed here, as well. Enter the total(s) on Lines 22 and 29 in box 1.

Line 2: This is for all transportation expenses that don’t involve overnight travel or your commute to and from work. This may include day trips on public transportation to see clients, parking expenses for business-related drives, or toll road expenses.

Line 3: Enter all travel expenses for overnight travel, including lodging, flights, car rentals, and more. Be sure not to enter any meals or entertainment on this line.

Line 4: Here, you’ll tally any other job-related expenses that don’t fall into the other categories on this form. “Include expenses for business gifts, education (tuition, fees, and books), home office, trade publications, etc.” Again, don’t list any meals or entertainment.

Line 5: This is the spot for meals and entertainment expenses. Generally, 50% of business-related meal and entertainment expenses are allowed to be expensed.

  • To calculate meal expenses, you have two options:
    1. Enter the actual amount of each meal related to business (plus, provide evidence for each meal, including location, purpose, and specific date).
    2. Claim the standard meal allowance, calculated depending on where you travel. For small locations in the US, this is $51/day, but it may be greater in other cities. You can find rate calculators online to determine your expensable amount.
  • To calculate entertainment expenses, you must “prove the business purpose and the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained.”

Line 6: Tally all the above expenses. Enter the total of lines 1-4 in Column A and the total from line 5 in Column B.

Step 2: Enter Reimbursements Received From Your Employer

Under Step 2, enter a tally of all “reimbursements received from your employer (or third party) for expenses shown in Step 1 that weren’t reported to you in box 1 of your W-2.” If your employer didn’t reimburse you for any items listed in Step 1, skip this section.

Step 3: Figure Expenses to Deduct

Now, it’s time to calculate your actual deduction. Follow the instructions on each line to calculate your exact deductible amount. While you won’t be able to deduct the entire total of your expensable items, it’s better than nothing.

How to File Form 2106 Electronically?

Since IRS Form 2106 can be attached to your tax return, submitting it electronically is easy. The IRS offers numerous ways to e-file your tax return for free online. However, you want Form 2106 to be as accurate as possible to not put yourself at risk of litigation. It’s recommended you contact a tax professional for further assistance.

Where to Mail Form 2106?

If you’re mailing Form 2106 along with your tax return, the address will depend on the state you reside in. Use the Where to File Addresses for Taxpayers and Tax Professionals Filing Form 1040 or Form 1040-SR site provided by the IRS.

Have You Incorrectly Completed IRS Form 2106?

If you’ve concluded that you may have made an error on your Form 2106, you may be at risk for fines and/or litigation by the IRS. Contact a tax services professional for tax relief help. They’ll work with you to identify any errors that have been made and create a relief plan if needed. Additionally, they’ll act as an intermediary between you and the IRS to iron out any issues as soon as possible.

Completing your IRS Form 2106 may be a pain, but it isn’t impossible. Remember to take each step line by line, double-check all of your totals, provide evidence for each, and get professional help when needed.

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