Form 2106

Overview of Form 2106

Form 2106, Employee Business Expenses, is an IRS tax form that employees can use to deduct unreimbursed work-related expenses. This form was largely phase-out for most taxpayers following the enactment of the Tax Cuts and Jobs Act (TCJA), which eliminated miscellaneous itemized deductions subject to the 2% floor for tax years 2018 through 2025. However, certain categories of employees, such as Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses, can still use this form to claim these deductions.

The Form 2106 is used to calculate the total amount of eligible expenses and then transfer the allowable deduction amount to the appropriate line of the taxpayer’s Form 1040.

Who Can Use Form 2106?

Reservists

Armed Forces reservists who travel more than 100 miles away from home and stay overnight for reserve duties can use Form 2106 to deduct travel expenses related to their self-employment income. This includes meal expenses, lodging, and transportation costs like airfare and mileage.

Performing Artists

Qualified performing artists can deduct work-related expenses if they meet certain conditions such as having at least two W-2 jobs in the industry and having expenses exceeding 10% of their gross income from those jobs. These expenses can include costs for musical instruments, union dues, and travel to auditions.

Fee-Basis State or Local Government Officials

Fee-basis government officials can deduct their qualifying job-related expenses using Form 2106. These costs may include professional licenses, supplies, and travel expenses to meet with constituents.

Employees With Impairment-Related Work Expenses

Employees who have a physical or mental impairment that limits their employment can use Form 2106 to deduct expenses necessary for them to work. This might include specialized equipment or transportation services.

Structure of Form 2106

Form 2106 is divided into several parts:

Part I: Employee Business Expenses and Reimbursements

This section requires you to list all unreimbursed employee expenses, including vehicle expenses, parking fees, and tolls. The section asks for details such as the employer’s reimbursement plan and the method of accounting used.

Part II: Vehicle Expenses

This part asks for detailed information about the vehicle(s) used for work-related activities. Details include purchase date, the total number of miles driven, and specifics on the business use percentage of the vehicle.

Part III: Depreciation of Vehicles

If you’re claiming depreciation on a vehicle, you’ll need to complete this part. It’s used to calculate any allowable depreciation deductions.

Part IV: Other Business Expenses

Here, you list other business expenses not covered in the previous sections. These can include tools, training materials, and office supplies.

Part V: Meals and Entertainment Expenses

If you incurred expenses for meals and entertainment that are deductible, you’d itemize them here. Note that the TCJA disallowed most entertainment expenses, but meals under certain conditions remain deductible at 50%.

Special Rules

Standard Mileage Rate vs. Actual Expenses

For vehicle expenses, you have the option to use either the standard mileage rate or actual expenses. The standard mileage rate is simpler and involves multiplying the miles driven for business purposes by the IRS mileage rate for that year. The actual expense method involves deducting the actual costs of operating the vehicle, such as gas, oil, repairs, insurance, and depreciation.

Reimbursement Plans

If your employer has an accountable plan, any reimbursements received under this plan are not included in your wages and are not deductible on Form 2106. If the employer has a non-accountable plan, or if you incur expenses not covered by an accountable plan, you would use Form 2106 to claim these deductions.

Depreciation

Depreciation can be a complex area, requiring you to understand Modified Accelerated Cost Recovery System (MACRS) rules, section 179 deductions, and limits on luxury cars. Form 2106 makes provisions for calculating vehicle depreciation, which can be critical given the significant cost impact of vehicles on business expenses.

Record-Keeping Requirements

Accurate and detailed records are crucial for claiming deductions on Form 2106. This includes keeping receipts, mileage logs, and any other documentation that substantiates the claimed expenses. The IRS can disallow deductions if adequate records are not kept or provided upon request.

Filing Form 2106

For those eligible to file Form 2106, you’ll need to attach it to your Form 1040. The net amount of deductible expenses from Form 2106 is transferred to Schedule 1, Form 1040, under the section for adjustments to income.

Conclusion

Although Form 2106 is not as widely used since the TCJA, it remains a critical tool for certain taxpayers to deduct necessary and ordinary unreimbursed employee expenses. Understanding the qualifications, the specific expenses that can be deducted, and the detailed record-keeping required are essential to leveraging this tax benefit.