How to Reduce AGI With Business Expenses

When you incur business-related expenses which your employer doesn't reimburse, you can deduct them as a miscellaneous itemized deduction if they are ordinary or necessary job expenses. An ordinary expense is commonly incurred in your business and a necessary expense is one that is helpful in your business. Form 2106 is used to report unreimbursed travel and other expenses on your Form 1040.

Difficulty: Moderately Easy

Instructions

1. Review your expenses during the year to identify those which can be deducted as business related expenses. If you use your auto for business purposes, keep a business mileage log for the entire year.

2. Claim the deduction for unreimbursed business auto use on Form 2106 or on Form 2106-EZ. The business auto expense deduction can be computed using the standard mileage rates applicable for the year or by using actual auto expenses.

3. Limit your deduction for meals and entertainment expenses to 50 percent of what you actually paid as shown on Line 9 of Form 2106 or Line 5 of Form 2106-EZ.

4. Transfer the total allowable business expenses from either Form 2106 or Form 2106-EZ to miscellaneous itemized deductions on Form 1040 Schedule A. Employee business expenses included in miscellaneous itemized deduction are also reduced by the 2 percent of adjusted gross income (AGI) limitation and may further be affected by the limit on total itemized deductions.

Resources

• Access Form 2106 from the IRS website.
• Access Form 2106-EZ from the IRS website.
• Download Form 1040 Schedule A from the IRS website.