When it comes to padding deductions, unreimbursed employee expenses might seem to be an easy one.
You picked up some office supplies here. You attended a work-related conference there. Your boss never paid you for those out-of-pocket costs.
So you simply add the work-related expenses to the rest of your miscellaneous itemized deductions and voila, you've overcome the 2 percent of adjusted gross income threshold. Your Schedule A deductions are a bit bigger and your tax bill is a bit smaller.
Whoa up there, cowboy. Or cowgirl, as was the case in a recent Tax Court ruling.
Cheryl Lynn de Werff contested an IRS ruling that her 2004 filing was $8,418 short on taxes paid, in large part because some of her itemized deductions weren't allowed. She also protested the IRS' penalty assessment of $1,683.60.
On her 2004 tax return, de Werff claimed the following itemized deductions:
While all these deduction claims and the Tax Court's evaluation of them are interesting, for our purposes today, let's focus on that whopping $46,651 miscellaneous expenses claim.
Of that almost 50 grand attempted write-off, de Werff listed $44,598 for unreimbursed employee business expenses.
For the 2004 tax year in question, de Werff worked as director of professional development for the Solano County Office of Education in Fairfield, Calif. On her tax return for that year, her Form 2106, Employee Business Expenses, included:
Vehicle expenses of $8,969
Parking fees, tolls, and transportation of $433
Overnight travel expenses of $5,883
Other business expenses of $26,763
Meals and entertainment expenses of $8,232
Since meals and entertainment expenses are not fully deductible (remember, you generally can claim only 50 percent of these allowable business costs) she reduced that line item.
And she also reported employer reimbursement for her meals etc. of $3,132.
But that slightly more than three grand was the only money, according to de Werff (and the Tax Court document), that she got back that year from the Solano County Office of Education.
Whoa up, cowgirl, said the Tax Court, although in more formal legalese.
What Judge Robert P. Ruwe did say was, "Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving she is entitled to the deductions claimed."
I love it when I see this sentence in a Tax Court opinion. I know that the ruling is going to be a fun read of someone trying to claim outrageous deductions.
Of course, de Werff didn't find it so entertaining.
The ruling goes into detail about the various deduction claims and ordinary and necessary business expenses and substantiation requirements.
But a section dealing with claims of her unreimbursed employee expenses caught my eye:
"A trade or business expense deduction is not allowable to an employee to the extent that the employee is entitled to reimbursement from her employer for an expenditure related to her status as an employee. This rule forecloses an avenue for tax manipulation by preventing the taxpayer from converting a business expense of her company into one of her own by simply failing to seek reimbursement."
That final phrase bears repeating: "…by simply failing to seek reimbursement."
In other words, don't try to con the IRS into giving you a tax deduction for an expense that you didn't even ask your company to pay for in the first place.
Judge Ruwe found for the IRS.
- Deducting special clothing costs
- Deductions demand documentation
- Legitimate business expense? Deduction?
- Three requirements to deduct job search costs
- Bunch your deductions
Want to tell your friends about this blog post? Check out the buttons -- Tweet This, Reblog, Like, Digg This and more -- at the bottom of this post. Or you can use the Share This icon to spread the word via e-mail and online avenues. Thanks!