Listed below are the top reasons contributing to the disallowance of employee business expense, along with our Audit Division’s recommendations for how to avoid possible errors. Take a look before you, or your practitioner file.
1) Lack of documentation to support an expense
- Business purpose of expense
- Ballpark estimates
Solution: Retain all business related receipts. Ideally, the receipts should be retained in chronological order. Maintain a calendar to record business purpose/contact/time/location of the business meeting.
2) Incomplete or insufficient travel log.
Solution: Maintain a real time daily travel log that includes necessary information including, address of location, mileage and business purpose/contact of the trip.
3) Failure to respond to a DOR Notice.
Solution: Respond to the notice if you believe you are entitled to the deduction.
4) Failure to properly account for reimbursements:
- Did not report reimbursements received from employer
- Could have requested reimbursement from employer but did not
- Failure to provide a copy of company’s reimbursement policy
Solution: Review your employer’s reimbursement policy prior to claiming the deduction.
- Verify whether you received any reimbursements from your employer. Amounts received reduce the allowable deduction depending on the type of plan.
- If you are eligible for reimbursement from your employer and you did not claim it from them, it will still reduce the allowable deduction on your return.
- If you do not provide a copy of the policy, we are not able to determine if the company maintains an accountable or non-accountable plan which dictates the amount of reimbursements that are taxable.
5) Not an outside salesperson as a result not eligible for Form 2106 line 4 deductions.
Solution: If you go to the office on a regular basis you are most likely not allowed to claim “other” deductions shown on line 4 of Form 2106.
6) Commuting expenses not allowable
Solution: Amounts going to and from your work location are not allowed as deductions.
Solution: If you have no set work location and travel to different job sites, your expenses are most likely non-deductible commuting expenses.
7) Bad advice from return preparer
Solution: Provide all of your records to your tax preparer. If something sounds too good to be true it probably is. Ask the preparer for something in writing if you are unsure of any amounts shown on your return when it is prepared.