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JOB EXPENSE DEDUCTIONS FOR EXPAT EMPLOYEES

November 29, 2020

By Joshua Ashman, CPA & Nathan Mintz, Esq.

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Common Job Expenses for Expats

As is the case with employees working around the world, expats working abroad may have job-related expenses that are not reimbursed, so you may end up paying these expenses yourself.

Common job expenses include:

  • Travel for work
  • Transportation to and from work
  • Meals
  • Entertainment
  • Office supplies
  • Work tools
  • Work clothes
  • Educational classes
  • Dues to local membership or societies / unions
  • Legal fees
  • Insurance premiums
  • Academic journal or database subscriptions
  • Research expenses

Are Unreimbursed Job Expenses Deductible?

Due to Trump’s Tax Reform, the law regarding the deductibility of unreimbursed job expenses changed significantly starting with the 2018 tax year.

Prior to the reform, if taxpayers chose to itemize deductions, instead of taking the standard deduction, taxpayers could deduct unreimbursed job expenses as a so-called miscellaneous itemized deduction. This was a type of deduction for expenses if, and to the extent, they exceeded 2% of one’s adjusted gross income.

The Trump Tax Reform eliminated the deduction for miscellaneous itemized deductions subject to the 2% floor. The change is actually temporary because if there is no further legislation to extend the change, the deduction is scheduled to return following the 2025 tax year.

What Should Expats Do About Job Expenses?

Given the current elimination of the deduction for job expenses, our advice for expats is this – Don’t pay them yourself!

Aside from the unavailability of the deduction, most expats do not need to use itemized deductions to eliminate their U.S. tax liability. Most expats can use the foreign earned income exclusion, foreign tax credits, and the standard deduction, if needed, to eliminate any liability.

From a U.S. tax perspective, the better option is to have your employer reimburse you for the expenses. Such reimbursements are not considered taxable income. You should make sure the payments are made in accordance with your company’s accountable plan that has an official reimbursement policy.

Alternatively, and perhaps ideally, you should have your employer billed directly or use a company credit card to pay for expenses.

How We Can Help with Deducting Expenses

The choice between the standard deduction and itemizing your deductions is not a simple one, even after Trump’s Tax Reform. There are a number of deductions you may not have realized are available to you as a U.S. citizen living abroad.

At Expat Tax Professionals, our team of experts will carefully prepare your tax return, so that if you end up getting audited, your return will withstand the scrutiny of the IRS.  If you are a U.S. expat who needs help with tax return preparation, contact us and we’ll get the process started immediately.

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