The Tax Cuts and Jobs Act (TCJA) brought wholesale changes to the tax code. Taxpayers are starting to feel the effects of this bill as they file the first year’s tax returns affected by the changes in the tax law. While this law increased certain credits and deductions, it eliminated others. Fortunately, in some cases a minor adjustment can allow you to still take advantage of deductions that would ordinarily be eliminated by the TCJA.
Prior to TCJA, taxpayers could report a itemized deduction for unreimbursed employee-related expenses. In short, these are expenses deemed ordinary and necessary for your employment. This was the deduction used by teachers for any expenses incurred for supplies and classroom materials purchased out of pocket. Specific examples of unreimbursed business expenses include travel, transportation, meal expenses, dues to professional organizations, safety equipment and small tools or supplies. Further, the IRS allowed you to deduct certain expenses for the business use of your home, subscriptions to professional journals and some educational expenses.
One of the most common unreimbursed business expenses was mileage driven in a personal vehicle as a required part of your job. The IRS previously allowed you to deduct unreimbursed mileage related to business trips or situations where an employer required you to drive to multiple job sites.
For many taxpayers these expenses added up to a significant amount and therefore a significant tax deduction. Based on the new tax law they are completely eliminated.
However, there is a simple way to regain the deduction for these expenses. You can start a business related to your profession and write them off as business expenses. This is a very simple change that will create the structure needed to take full advantage of the expenses you already incur. Plus, the costs associated with forming the business are also 100% deductible.
Bear in mind, it is not advisable to simply report these expenses in a schedule C without a proper business structure. Expenses included in a schedule C with no related income are one of the favorite targets of the IRS for review and disallowance of the expense. You need to formalize a business to safely take advantage of these expenses without putting yourself at risk for further review by the IRS.
Check out our blog post from January 2019 that outlines the 3 easy steps to form your business and position yourself to take back your employee-related deductions. Need help with your set up? Contact us, we’d love to help!