Unreimbursed business expenses and how they were affected by the 2018 tax law changes


Last week, we discussed tracking business expenses, ways to track them, and why they are crucial to record for your tax purposes. We hope you found our custom business expensive worksheet as a useful checklist to make sure no expense is overlooked.

This week we are continuing our talk on business expenses and what’s different since the 2018 tax law changes.

A significant change that came with the Tax Reform is unreimbursed business expenses. Many individuals noticed a big hit to their itemized deductions in 2018 due to this new rule. 

Unreimbursed Business Expenses 

Prior to the Tax Reform, certain employees were able to claim deductions on business expenses to reduce their tax liability. Travel, mileage, and supplies were common deductions and could be claimed if an individual itemized their deductions. 

As a typical W2 employee, unreimbursed business expenses are no longer deductible; they have completely removed this section on the itemized deductions form. You now get nothing back for anything you pay out of pocket. If you’re someone who typically drives a lot of miles, such as a traveling salesperson, it was not uncommon to see a deduction in the tens of thousands in this section.

Those are now eliminated under tax law changes and this same salesperson would now get a zero dollar deduction for incurring these same expenses. 

How to off-set a zero dollar deduction

To save yourself from seeing no benefits on your expenses, we have come up with a different approach. It may sound strange, but we suggest you go to your employer and ask for a pay cut and a reimbursement instead.

As an example, let’s say you regularly incur $10,000 of out of pocket expenses every year. Normally, you would have deducted those. That’s not the case anymore. We suggest you go to your employer and ask them to reduce your wage by $10,000 annually and to give you a $10,000 reimbursement instead. You will then save income taxes on the $10,000 since your wages will be taxed at the lower amount and reimbursements are not taxable income. Your employer should be thrilled to do this because the $10,000 reimbursement is not subject to FICA taxes. This means they will be saving their portion of the FICA taxes which would be roughly $750. Everyone wins in this scenario. 

It is also worth noting that the entire miscellaneous section of the itemized deduction form that contained the unreimbursed business expenses deduction was removed. This means that the other items deducted in this section are also no longer deductible. Examples of expenses previously deducted in this category would include such expenses as union dues, professional publications, tax preparation fees, legal fees, investment expenses, and safety deposit box fees. 

With these changes, a lot of people were no longer able to itemize last year and unexpectedly saw a large increase in their tax bill.

What are your thoughts on the tax law changes?

Schedule an appointment with our licensed tax professionals to discuss what you can do to avoid unreimbursed expenses. Verdant offers FREE tax consultations. Contact us to set up your appointment.

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