![]() A taxpayer must substantiate these expenses by adequate records or by sufficient evidence corroborating the taxpayer's own statement showing: 274(d), specific proof is necessary to substantiate deductions for away- from- home travel and business gift expenses, and deductions related to listed property. ![]() In general, the Code does not require the records to be in a specific form. Substantiation requirementsĪn employee must be able to substantiate a deduction for an unreimbursed business expense by keeping (and producing for the IRS, if requested) adequate records. The burden is not shifted if the taxpayer presents incredible or implausible evidence, even if that evidence is not controverted. However, the burden of proof switches to the IRS if an individual taxpayer produces credible evidence in support of an expense, has complied with the substantiation requirements for the expense, has maintained all required records for the expense, and has cooperated with reasonable requests by the IRS for witnesses, information, documents, meetings, and interviews regarding the expense.Ĭredible evidence is evidence that, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness). Should the tax return be audited or a notice of deficiency be received, the taxpayer generally has the burden of proof. 1986), that a taxpayer's lack of knowledge that his employer had a policy of reimbursing such expenses was not relevant to whether he could take a deduction for the expenses on his personal return. The Ninth Circuit held in Orvis, 788 F.2d 1406 (9th Cir. This is true regardless of why an employee does not seek reimbursement for a business expense incurred on behalf of his or her employer. Thus, if an employee incurs an expense that he or she has a right to reimbursement for under an expense reimbursement plan of his or her employer, but the employee fails to obtain reimbursement for the expense, the employee cannot take a Sec. ![]() Also, business expenses are not "necessary" if reimbursement is possible ( Podems, 24 T.C. To prevent a taxpayer from obtaining a double benefit, only unreimbursed business expenses are deductible. An expense is necessary if it is appropriate and helpful to the taxpayer's business it does not have to be required to be considered necessary. For carrying on his or her trade or business of being an employee andĪn expense is ordinary if it is common and accepted in the taxpayer's trade, business, or profession.Paid or incurred during an employee's tax year.162(a) will be allowed for an unreimbursed expense that is: Thus, with respect to employee business expenses, a deduction under Sec. Performing services as an employee constitutes a trade or business (see, e.g., Primuth, 54 T.C. 162(a), there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. To get started, what is a deductible unreimbursed employee business expense? Per Sec. Nonetheless, because unreimbursed employee business expenses will be deductible again in 2026, and court cases involving disputes between the IRS and taxpayers over their deduction on tax returns for years before 2018 continue to make their way through the courts, knowledge of the details of the unreimbursed employee business expense deduction remains important. 67(g), which suspends the allowance of miscellaneous itemized deductions. The deduction was disallowed for the years 2018 to 2025 by the enactment in the TCJA of Sec. 68's overall limitation on itemized deductions, on Schedule A, Itemized Deductions, of Form 1040, U.S. 67's 2% floor on miscellaneous itemized deductions and Sec. 115- 97, taxpayers were allowed to deduct unreimbursed employee business expenses as miscellaneous itemized deductions, subject to Sec. Prior to the passage of the law known as the Tax Cuts and Jobs Act (TCJA), P.L.
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