Last Updated : January 14, 2009
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Form 2106

Employee Business Expenses

Use this form if taxpayer is an employee deducting ordinary and necessary expenses for his/her job. If taxpayer is an employee, he/she may be able to deduct work-related expenses as an itemized deduction. These employee business expenses include the cost of business travel away from home, local transportation, entertainment, gifts, and other ordinary and necessary expenses related to taxpayer’s job.

Part I – Employee Business Expenses and Reimbursements
Fill in this part I if taxpayer is reimbursed for employee business expenses. If taxpayer is not reimbursed for his/her expenses, skip line 7 and complete the rest of Part I.

Step 1– Enter Your Expenses:

Line 1: Vehicle expenses form line 22 or line 29
The program transfers vehicle expenses to this line from line 22 or line 29 of this form.

Line 2:
Enter here expenses for parking fees, tolls, and transportation, including train, bus, etc., but do not include overnight travel or commuting to and from work.

Line 3: Travel Expenses
Enter on this line lodging and transportation expenses connected with overnight travel away form taxpayer’s tax home. Do not include expenses for meals and entertainment.

Taxpayer’s tax home is his/her regular or main place of business or post of duty regardless of where taxpayer maintains his/her family home. If taxpayer does not have a regular or main place of business because of the nature of his/her work, then tax home is the place where taxpayer regularly live.

Line 4: Business Expenses not included on lines 1 through 3
In this line include expenses for business gifts, education (tuition fees and books), home office, trade publications, etc. Do not include expenses for meals and entertainment, taxes, or interest on this line.

Line 5: Meals and Entertainment Expenses
Enter on this line allowable meals and entertainment expenses. Also include meals while taxpayer is away from tax home overnight and other business meals and entertainment.

Step 2- Reimbursements Received Form Your Employer for Expenses Listed in Step 1

Line 7: Employer Reimbursement not reported in box 1 of Form W-2
Enter on this line reimbursements received from employer (or third party) for expenses shown in step 1 that were not reported in box 1 of taxpayer’s Form W-2. This includes reimbursements reported under code “L” in box 12 of Form W-2. Amounts reported under code “L’ are reimbursements received for business expenses that were not included as wages on Form W-2 because the expenses met specific IRS substantiation requirements.

Normally, when employer pays for expenses, the payments should not be included in box 1 of Form W-2 if, within a reasonable period of time, taxpayer;
- Accounted to employer for the expenses, and
- Were required to return, and did return, any payment not spent for business expenses.

Step 3- Figure Expenses to Deduct on Schedule A

Line 9:
Normally, taxpayer can deduct only 50% of business meal and entertainment expenses, including meals incurred while away from home on business. However, if taxpayer were employee subject to the Department of Transportation (DOT) hours of service limits, that percentage is increased to 75% fir business meals consumed during, or incident to, any period of duty for which those limits are in effect.

Part II – Vehicle Expenses
There are two methods for computing vehicle expenses—the standard mileage rate and the actual expense method. Taxpayer can use the standard mileage rate for 2006 only if:

  • Taxpayer owned the vehicle and used the standard mileage rate for the first year vehicle placed in service, or
  • Taxpayer leased the vehicle and is using the standard mileage rate for the entire lease period (except the period, if any, before 1998).

Section A – General Information
Complete line 11 to 21. This section must be completed if claiming vehicle expenses.

Section B – Standard Mileage Rate
Taxpayer may use the standard mileage rate instead of actual expenses to figure the deductible costs of operating a passenger automobile, including a van, spot utility vehicle (SUV), pickup, or panel truck.

If taxpayer wants to use the standard mileage rate for a vehicle own, he/she must do so in the first year vehicle placed in service. In later years, taxpayer can deduct actual expenses instead, but taxpayer can not use a depreciation method other than straight line.

Section C – Actual Expenses

Line 28:
If completed Section D, enter the amount from line 38. If used Form 4562 to figure depreciation deduction, enter the total of the following amounts.

  • Depreciation allocable to vehicle(s) (from Form 4562, line 28).
  • Any section 179 deduction allocable to vehicle(s) (from Form 4562, line 29.)

Section D – Depreciation of Vehicles

Line 31:
If 2006 is the first year of vehicle placed in service and the percentage on line 14 is more than 50%, taxpayer can elect to deduct as an expense a portion of the cost.

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