Business expenses are expenses that are necessary to do your job or enhance your ability to do your job. The IRS allows some deductions for business expenses.
Some examples of business expenses include, but are not limited to:
- Books, trade journals, newspapers, and publications
- Professional organization dues
- Dues to chambers of commerce and similar organizations
- Continuing education
- Meals and entertaining with a clear business purpose
- Non-commuting transportation
- Business use of cellular phones
Your employer can reimburse you for these expenses by giving you a stipend each month or by setting up an accountable reimbursement plan.
The stipend method provides you with a set amount of money that is paid to you regardless of the business expenses actually incurred. You do not need to submit an expense report or receipts to your employer to support the business expenses. The amount of the stipend is included in your wages on your Form W-2, or if you are self-employed, on Form 1099-MISC. You may claim the allowable expenses as a deduction on your tax return if you are self-employed. Go to the IRS website and search "business expenses" for details.
Accountable Reimbursement Plan
Under this plan, you submit expense reports and receipts for business expenses, and your employer reimburses you for the expenses. Your employer does not report the reimbursements as income to you, nor are you able to deduct them on your income tax return. Your employer may limit the amount of business expenses that they reimburse.
- If the business expense is generated by work done as an independent contractor, the business expense may show up on your Form 1099 even though it has been reimbursed under an accountable plan. The payor has the option whether to include or exclude the amount.
The IRS has guidelines on maintaining records for business expenses under both of the payment plans. Go to the IRS website and search for "record keeping" for details.