Over the years, I have worked on quite a number of audits, often as a consultant to other tax professionals. Sometimes, I have taken over audits of other tax pros’ tax returns because even the tax pros fear IRS.
One of the most important things I’ve learned, when it comes to employee business expenses is – IRS will look at the company’s written reimbursement policy. If the employee is a member of a union, IRS will look at the reimbursement policy dictated by the union contract. Here are some key points that are important to your tax deduction.
1) When the employer’s reimbursement plan says they will reimburse an expense, you must submit the expense to the employer for reimbursement. If you don’t submit the expense, because you think it’s too high, or because the company has an unwritten policy that they won’t reimburse it – you won’t get to take the tax deduction.
2) When you own your own business, as a partner or shareholder, you must have a written reimbursement plan. You must handle your reimbursements based on the written plan.
3) Written plans may have limits. For instance, the employer’s plan may say that they will reimburse all expenses up to $1,000 for the year. Any additional expenses are your responsibility. You may deduct those on your tax return.
4) The written plan must be consistent for all people in the same position or at the same level of the company’s organization chart.
5) When the company’s actual reimbursement practices don’t match the written policy, it’s time to update the written policy to match the practice. If the practice was changed several years ago, update the written plan as of the date the reimbursement practices changed. Memorialize this in the company’s minutes, or other official documents.
It’s important that actions always match the written word. Bring this up with your company’s management. They may be annoyed at first. But in the long-run, they will really appreciate you.
And remember, you can find answers to all kinds of questions about employee business expenses and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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