Even the best-intentioned employees can fall into the trap of mixing business expenses and personal expenses. Business expenses are deductible for federal tax purposes. According to the IRS, a business expense is something ordinary and necessary
-- expenses that are commonplace in your trade or profession and which are helpful for your business. Employees can deduct reasonable work-related expenses, but cannot deduct personal expenses. What counts:
Don't deduct these personal expenses:
- Travel expenses―If you are traveling for business for more than a day, your food and lodging is a business expense.
- Local transportation that involves travel between workplaces (cabs or public transit between offices)
- Dues or subscriptions to professional or business organizations
- Union dues
- Uniforms or other work clothes that are required for work and are not suitable for other wear
- Work-related educational expenses
- Tools and any supplies necessary for your work
- Home office expenses -- only if the office is used exclusively for work
- Business use of your car (mileage shouldn't include personal trips)
- Commuting expenses -- you have to cover your own expense from home to work.
- Fines or penalties -- parking tickets are your own responsibility!
- Accreditation Fees -- Fees used for continuing education are business expenses, but fees required to obtain accreditation, such a bar or licensing exam, are personal expenses.
- Business attire -- Unless it's a required uniform, suits must be purchases on your own dime.
- Travel expenses for spouse or children -- Many employees make the most of their business travel by bringing family along. That's fine, as long as you aren't expensing their portion of the trip.
When in doubt about whether something is a personal or business expense, consult the IRS Publication 535, Business Expenses
. Make sure you know your company's expense policy. For more information on employee expenses, download PEX Card's free Employee Expense Management Guide