WHAT IS 'Form 2106: Employee Business Expenses'

Form 2106: Employee Business Expenses is a tax form distributed by the Internal Revenue Service (IRS) and used by employees to deduct expenses incurred while conducting business. The form is only for employees of a company or organization; self-employed individuals may not file Form 2106 but instead must file a Schedule C itemization form with their tax return.

BREAKING DOWN 'Form 2106: Employee Business Expenses'

Form 2016 is divided into two parts. Part I tabulates all employee business expenses and reimbursements, then calculates whether and which expenses are eligible for a tax deduction. Part II more specifically addresses vehicle expenses.

What's Deductible, and What Isn't

In Part I, employees must list all business expenses, such as airfare, lodging, parking, tolls and car rental as well as personal vehicle expenses from Part II. So-called incidental expenses describe valet tips and other small cash transactions that don’t typically generate a receipt. Meals and entertainment are tabulated separately because most taxpayers are only allowed to claim 50 percent of those expenses, on the theory that you would need to eat and relax at some point even if you weren’t on a business trip.

An alternate method of calculating overnight expenses is to use the General Services Administration (GSA) per diem rates for cities around the United States or, in the case of foreign travel, the State Department rates for every country. Note that lodging rates vary considerably by month, based on supply and demand in any given locality. For example, the GSA allows a per diem lodging rate of $130 in Chicago during January 2018, but $226 in September. The per diem meal rate does not change monthly and, as of 2018, was listed as $74 for Chicago.

The next step in Part I is to enter any expense reimbursements from your employer, as found in Box 12 of your W2 Form under the code letter L. The difference between your actual expenses and your reimbursed expenses is the amount you may deduct from your income.

Two Ways to Deduct Vehicle Expenses

Part II addresses personal vehicle expenses, and here again filers have two choices. You can use the standard mileage rate, which means multiplying the IRS mileage for the tax year by the number of business-qualifying miles driven. The mileage rate factors in gasoline and repair expenses plus wear and tear on the average car; in 2018 it was set at 54.5 cents per mile.

The second method is to calculate actual expenses. These include gasoline, oil, repairs, insurance, registration and depreciation, which is factored with the use of a table in the instructions. You may not deduct interest on car loans. There are also limits on car valuations. Whether you use standard mileage or actual expenses, expenses incurred commuting to and from work is not an eligible business expense.

  1. Form 2106-EZ: Unreimbursed Employee ...

    A simplified IRS tax form used by employees deducting ordinary ...
  2. Per Diem Payments

    Per diem payments are a daily allowance given to employees to ...
  3. Moving Expenses

    Moving expenses are potentially tax-deductible costs that are ...
  4. Business Expenses

    Business expenses are costs incurred in the ordinary course of ...
  5. IRS Publication 463: Travel, Entertainment, ...

    IRS Publication 463 is a document which explains the deductibility ...
  6. Incidental Expenses

    Incidental expenses are gratuities and other small costs ancillary ...
Related Articles
  1. Taxes

    10 Tax Benefits for the Self-Employed

    Running your own business has both personal and financial perks.
  2. Taxes

    Understanding 'Per Diem'

    Per diem is one method for reimbursing employees for business-travel expenses. Companies using the per diem method must follow specific government rates.
  3. Small Business

    Writing Off the Expenses of Starting Your Own Business

    Learn how to navigate the complicated rules for writing off the expenses of starting your own business. It could save you a lot of money.
  4. Taxes

    6 Ways To Write Off Your Car Expenses

    Reduce the cost of owning and maintaining a car with these clever tax tips.
  5. Tech

    Tax Tips for Deducting Investment Management Fees

    Investment expenses can be deducted from your taxes when three main criteria are met. Here's how they work to help you maximize your tax deduction.
  6. Taxes

    5 Overlooked Tax Deductions for Small Businesses

    It's easy for small business owners to miss a few tax write-offs. Here's where to find them.
  7. Taxes

    9 Ways the New Tax Law Affects Millennials

    The new tax bill, the Tax Cuts and Jobs Act, includes some important changes for Millennials.
  8. Personal Finance

    The Ultimate Tax-Time Checklist

    Find out what information you need to pull together before filling out your return.
  9. Taxes

    How To Qualify For The Home-Office Tax Deduction

    Homebodies can save big on their tax bill. Learn how to get in on the action.
  10. Taxes

    Insurance-based Tax Deductions You May Be Missing

    Do you know about all these insurance-related deductions? Knowing the tax deductions you're entitled to can make or break your bank account.
  1. What are the most common operating expenses for an online business?

    Learn about the common expenses of online businesses and find out about some of the tax implications of new business expenses ... Read Answer >>
  2. Why are capital expenses (CAPEX) treated differently than current expenses?

    Learn the difference between capital expenditures, or CAPEX, and current expenses, and determine why they are treated differently ... Read Answer >>
Trading Center