Employee Business Expenses: you may deduct certain work-related expenses

Timely Tax Tips from our friends at the IRS:

Employee Business Expenses 

If you itemize deductions and are an employee, you may be able to deduct certain work-related expenses. The IRS has put together the following facts to help you determine which expenses may be deducted as an employee business expense.

Expenses that qualify for an itemized deduction include:

• Business travel away from home
• Business use of car
• Business meals and entertainment
• Travel
• Use of your home
• Education
• Supplies
• Tools
• Miscellaneous expenses

You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on the IRS website, http://www.irs.gov, or by calling 800-829-3676.

If your employer reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.
An accountable plan must meet three requirements:

1. You must have paid or incurred expenses that are deductible while performing services as an employee.
2. You must adequately account to your employer for these expenses within a reasonable time period, and
3. You must return any excess reimbursement or allowance within a reasonable time period.

If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.

Generally, report expenses on IRS Form 2106 or IRS Form 2106-EZ to figure the deduction for employee business expenses and attach it to Form 1040. Deductible expenses are then reported on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to 2% of your adjusted gross income rules. Only employee business expenses that are in excess of 2% of your adjusted gross income can be deducted.
For more information see IRS Publication 529, Miscellaneous Deductions available on the IRS website, http://www.irs.gov, or by calling 800-829-3676.

source:  IRS Tax Tips, an IRS e-mail service

And if you have any questions for your friendly neighborhood lawyer, contact me at:

Doug Humes
humeslaw@verizon.net
610-525-7150

February Tax Revenues for Pennsylvania: the wages of sin

I receive monthly announcements from the Pennsylvania Department of Revenue on various tax related issues.  I wanted to share the one that just came through:  tax collections for the month of February.  It is interesting to see the relative amounts collected from each tax that the state levies.  The figures may be slightly distorted compared to the full year - there are seasonal fluctuations in revenues.  I imagine the personal income tax revenues jump in March and April, and then drop off after that, because people who owe have waited till April 15th to file.  The state of course continues to collect withholding and estimated tax payments, so income tax collections don't completely dry up after April; they return to a relatively fixed amount - with bumps every quarter when estimated taxes must be paid.  With that said, here is a snapshot of how much income the Commonwealth of Pennsylvania collected in February:

2011 Pa. Tax Collections
(in millions)                                        Feb          Feb

                                                           (actual)     (forecast)     (+/-)          (+/-%)

Sales Tax                                           573.9        581.5             -7.6           98.69%

Personal Income Tax                           671.4        695.1           -23.7           96.59%

Corporation tax                                     80.3          68.6            11.7          117.06%

Inheritance Tax                                     62.0          56.8             5.2           109.15%

Realty Transfer Tax                               15.2          15.7             -0.5           96.82%

Sin Taxes (alcohol, cigarettes, etc.)      104.0         112.2           -8.2            92.69%

Non-tax revenue                                    23.7           21.2            2.5           111.79%

     Total General Fund Revenue      1530.5       1551.1          -20.6            98.67%

Motor License Fund                             135.6         160.3          -24.7            84.59%

     Total monthly revenue               1666.1       1711.4          -45.3            97.35%

The Motor License Fund (MLF) revenues are the under-performer of the month.  What are these funds?  Here's the explanation from PennDOT:

The MLF is the constitutionally protected account that is used to fund the commonwealth’s highway program. MLF revenues consist of fuel taxes, license and registration fees, fines and penalties, and misc. sales.

While most of the other tax revenues go into the General Fund, the Motor License Fund revenues are earmarked for highway related expenses:  maintenance and repairs, bridges, turnpike, state police.

We are definitely lagging in our sin taxes.  I expect them to be counter-cyclical - in hard times people may escape through cigarettes, booze and gambling.  But in February at least, the sin tax collections are down by 7%.

You smokers, drinkers and gamblers - you're not pulling your weight.  Go and sin some more.