Bill Lawitzke, Vice President, JK Harris Small Business Services, LLC
I know there are some employees out there who spend their own money for business expenses and do not get reimbursed by their employer. You will see this a lot in a field such as real estate when an agent actually pays a third party to do paperwork for them so they can, in turn, meet with more clients and show and possibly sell more real estate.
So, this creates the question of whether or not the employee can deduct those expenses to the third party on their tax return. Well, it can get a little tricky, so the answer is yes and no.
First, the employee will need to issue a 1099-MISC to the third party doing his paperwork. If that is not done, the employee cannot deduct anything paid to the third party.
If a 1099-MISC was issued, the employee may be able to use the expense as an itemized deduction. Thus, the employee will not be able to use the standard deduction. All of allowable itemized deductions must exceed the standard deduction before it becomes a tax benefit. And, this is where the tricky part comes into play. The first two percent of the employee’s Adjusted Gross Income (AGI) for miscellaneous itemized deductions are not deductible.
In other words, if the employee’s AGI is $75,000, the first $1,500 paid to the third party would not be deductible.
If you would like more detailed information about miscellaneous deductions and unreimbursed employee expenses, you can check out IRS Publication 529 at http://www.irs.gov/pub/irs-pdf/p529.pdf.
About Bill Lawitzke:
Bill began his stint with JK Harris in 2003 when he came to work with Small Business Services, LLC, where he is currently Vice President. He became an Enrolled Agent in 2007.