Completing Forms 2106 and 2106-EZ This section briefly describes how employees complete Forms 2106and 2106-EZ. Table 5 explains what the employerreports on Form W-2 and what the employee reports on Form 2106.The instructions for the forms have more information on completingthem. Caution: If you are self-employed, do not file Form 2106 or 2106-EZ.Report your expenses on Schedule C, C-EZ, or F (Form 1040). Seethe instructions for the form that you must file. Form 2106-EZ.You may be able to use the shorter Form 2106-EZ to claim youremployee business expenses. You can use this form if you meet both ofthe following conditions. You were not reimbursed for your expenses or, if you werereimbursed, the reimbursement was included in your income (box 1 ofyour Form W-2). If you claim car expenses, you use the standard mileagerate. Car expenses.If you used a car to perform your job as an employee, you may beable to deduct certain car expenses. These are generally figured inPart II of Form 2106, and then claimed on line 1, Column A, of Part Iof Form 2106. Car expenses using the standard mileage rate can also befigured on Form 2106-EZ by completing Part II and line 1 of PartI. Information on use of cars.If you claim any deduction for the business use of a car, you mustanswer certain questions and provide information about the use of thecar. The information relates to the following items. Mileage (total, business, commuting, and other personalmileage). Percentage of business use. Date placed in service. Use of other vehicles. After-work use. Whether you have evidence to support the deduction. Whether or not the evidence is written. Employees must complete Section A, Part II, Form 2106, or PartII, Form 2106-EZ, to provide this information. Standard mileage rate.If you claim a deduction based on the standard mileage rate insteadof your actual expenses, you must complete Section B, Part II, Form2106. The amount on line 22 (Section B) is carried to line 1, Part I,Form 2106. In addition, on line 2, Part I, Form 2106, you can deductparking fees and tolls that apply to the business use of the car. Ifyou file Form 2106-EZ, complete line 1, Part I, for the standardmileage rate and line 2 for parking fees and tolls. See StandardMileage Rate in chapter 4for information on using this rate. Actual expenses.If you claim a deduction based on actual expenses, you cannot useForm 2106-EZ. You must complete Section C, Part II, Form 2106.In addition, unless you lease your car, you must complete Section D toshow your depreciation deduction and any section 179 deduction you canclaim. If you are still using a car that is fully depreciated, continue tocomplete Section C. Since you have no depreciation deduction, enterzero on line 28. In this case, do not complete Section D. Car rentals.ERROR MSGIf you claim car rental expenses on line 24a of Form 2106, you mayhave to reduce that expense by an inclusion amount as described inchapter 4.If so, you can show your car expenses and any inclusionamount as follows. Compute the inclusion amount without taking intoaccount your business use percentage for the tax year. Report the inclusion amount from (1) on line 24b, Part II,Form 2106. Report on line 24c the net amount of car rentalexpenses [total car rental expenses minus the inclusion amountcomputed in (1)]. The net amount of car rental expenses will be adjusted on line27, Part II, of Form 2106, to reflect the percentage of business usefor the tax year. Local transportation expenses.Show your local businesstransportation expenses that did not involve overnight travel on line2, Column A, of Form 2106 or on line 2, Part I, of Form 2106-EZ.Also include on this line business expenses you have for parking feesand tolls. Do not include expenses of operating your car or expensesof commuting between your home and work. Employee business expenses other than meals andentertainment.Show your other employee business expenses on lines 3 and 4, ColumnA, of Form 2106 or on lines 3 and 4 of Form 2106-EZ. Do notinclude expenses for meals and entertainment on those lines. Line 4 isfor expenses such as business gifts, educational expenses (tuition andbooks), office-in-the-home expenses, and trade and professionalpublications. TaxTip: If line 4 expenses are the only ones you are claiming, you receivedno reimbursements (or the reimbursements were all included in box 1 ofyour Form W-2), and the Special Rules discussed laterdo not apply to you, do not complete Form 2106 or 2106-EZ. Claimthese amounts directly on line 20 of Schedule A (Form 1040). List thetype and amount of each expense on the dotted lines and include thetotal on line 20. Meal and entertainment expenses.Show the full amount of yourexpenses for business-related meals and entertainment on line 5,Column B, of Form 2106. Include meals while away from your tax homeovernight and other business meals and entertainment. Enter 50% of theline 8, Column B, meal and entertainment expenses on line 9, Column B,of Form 2106. If you file Form 2106-EZ, enter the full amount of your mealsand entertainment on the line to the left of line 5 and multiply thetotal by 50%. Enter the result on line 5. Hours of service limits.If you are subject to the Department of Transportation's "hoursof service" limits (as explained earlier under Individualssubject to "hours of service" limits in chapter 2),use 55%instead of 50%. Reimbursements.Enter on line 7 of Form 2106 (You cannot use Form 2106-EZ.)the amounts your employer (or third party) reimbursed you that werenot reported to you in box 1 of your Form W-2. Thisincludes any amount reported under code L in box 13 of FormW-2. Allocating your reimbursement.If you were reimbursed under an accountable plan and want to deductexcess expenses that were not reimbursed, you may have to allocateyour reimbursement. This is necessary when your employer pays yourreimbursement in the following manner: Pays you a single amount that covers meals and/orentertainment, as well as other business expenses, and Does not clearly identify how much is for deductible mealsand/or entertainment. You must allocate that single payment so that you know how muchto enter in Column A and Column B of line 7 of Form 2106. Example.Rob's employer paid him an expense allowance of $5,000 this yearunder an accountable plan. The $5,000 payment consisted of $2,000 forairfare and $3,000 for entertainment and car expenses. The employerdid not clearly show how much of the $3,000 was for the cost ofdeductible entertainment. Rob actually spent $6,500 during the year($2,000 for airfare, $2,000 for entertainment, and $2,500 for carexpenses). Since the airfare allowance was clearly identified, Rob knows that$2,000 of the payment goes in Column A, line 7, of Form 2106. Toallocate the remaining $3,000, Rob uses the worksheet from theinstructions for Form 2106. His completed worksheet follows. 1. Enter the total amount of reimbursements youremployer gave you that were not reported to you in box 1 ofForm W-2   3,000   2. Enter the total amount of your expenses for theperiods covered by this reimbursement   4,500   3. Of the amount on line 2, enter your totalexpense for meals and entertainment   2,000   4. Divide line 3 by line 2. Enter the result as adecimal (rounded to at least three places)    .444    5. Multiply line 1 by line 4. Enter the resulthere and in Column B, line 7   1,332   6. Subtract line 5 from line 1. Enter the resulthere and in Column A, line 7   1,668   On line 7 of Form 2106, Rob enters $3,668 ($2,000 airfare and$1,668 of the $3,000) in Column A and $1,332 (of the $3,000) in ColumnB. After you complete the form.After you have completed your Form 2106 or 2106-EZ, followthe directions on that form to deduct your expenses on the appropriateline of your tax return. For most taxpayers, this is on line 20 ofSchedule A (Form 1040). However, if you are a government official paidon a fee basis, a performing artist, or a disabled employee withimpairment-related work expenses, see Special Rules, later. Limits on employee business expenses.Your employee business expenses may be subject to any of the threelimits described next. They are figured in the following order on thespecified form. 1. Limit on meals and entertainment.Certain meal and entertainment expenses are subject to a 50% limit.If you are an employee, you figure this limit on line 9 of Form 2106or line 5 of Form 2106-EZ. (See 50% Limit in chapter 2.) 2. Limit on employee business expenses.If you are an employee, deduct your employee business expenses (asfigured on Form 2106 or 2106-EZ) on line 20 of Schedule A (Form1040). Most miscellaneous itemized deductions, including employeebusiness expenses, are subject to a 2%-of-adjusted-gross-income limit.This limit is figured on line 25 of Schedule A (Form 1040). 3. Limit on total itemized deductions.If your adjusted gross income (line 34 of Form 1040) is more than$126,600 ($63,300 if you are married filing separately), the total ofcertain itemized deductions, including employee business expenses, maybe limited. See your form instructions for information on how tofigure this limit. Special Rules This section discusses special rules that apply only to governmentofficials who are paid on a fee basis, performing artists, anddisabled employees with impairment-related work expenses. Officials Paid on a Fee Basis Certain fee-basis officials can claim their employee businessexpenses whether or not they itemize their other deductions onSchedule A (Form 1040). alberghi a GranadaFee-basis officials are persons who are employed by a state orlocal government and who are paid in whole or in part on a fee basis.They can deduct their business expenses in performing services in thatjob as an adjustment to gross income rather than as a miscellaneousitemized deduction. If you are a fee-basis official, include your employee businessexpenses from line 10 of Form 2106 or line 6 of Form 2106-EZ inthe total on line 32 of Form 1040. Write "FBO" and the amount ofyour employee business expenses in the space to the left of line 32 ofForm 1040. TaxTip: This special rule is retroactive to 1987, and you can file anamended return on Form 1040X for any year that is affected by thischange. However, you generally must file the amended return withinthree years from the time you filed the original return or within twoyears from the time you paid the tax, whichever is later. Expenses of CertainPerforming Artists If you are a performing artist, you may qualify to deduct youremployee business expenses as an adjustment to gross income ratherthan as a miscellaneous itemized deduction. To qualify, you must meetall of the following requirements. During the tax year, you perform services in the performingarts for at least two employers. You receive at least $200 each from any two of theseemployers. Your related performing-arts business expenses are more than10% of your gross income from the performance of thoseservices. Your adjusted gross income is not more than $16,000 beforededucting these business expenses. Special rules for married persons.If you are married, you must file a joint return unless you livedapart from your spouse at all times during the tax year. If you file ajoint return, you must figure requirements (1), (2), and (3)separately for both you and your spouse. However, requirement (4)applies to your and your spouse's combined adjusted gross income. Table 6. Daily Business Mileage and expense Log Where to report.If you meet all of the above requirements, you should firstcomplete Form 2106 or 2106-EZ. Then you include yourperforming-arts-related expenses from line 10 of Form 2106 or line 6of Form 2106-EZ in the total on line 32 of Form 1040. Write"QPA" and the amount of your performing-arts-related expenses inthe space to the left of line 32 of Form 1040. If you do not meet all of the requirements, you do not qualify todeduct your expenses as an adjustment to gross income. Instead, youmust complete Form 2106 or 2106-EZ and deduct your employeebusiness expenses as an itemized deduction on line 20 of Schedule A(Form 1040). Impairment-Related Work Expenses of Disabled Employees If you are an employee with a physical or mental disability, yourimpairment-related work expenses are not subject to the2%-of-adjusted-gross-income limit that applies to most other employeebusiness expenses. After you complete Form 2106 or 2106-EZ,enter your impairment-related work expenses from line 10 of Form 2106or line 6 of Form 2106-EZ on line 27 of Schedule A (Form 1040),and identify the type and amount of this expense on the dotted linenext to line 27. Enter your employee business expenses that areunrelated to your disability from line 10 of Form 2106 orline 6 of Form 2106-EZ on line 20 of Schedule A (Form 1040). Impairment-related work expenses are your allowable expenses forattendant care at your workplace and other expenses in connection withyour workplace that are necessary for you to be able to work. You are disabled if you have: A physical or mental disability (for example, blindness ordeafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight orhearing impairment) that substantially limits one or more of yourmajor life activities, such as performing manual tasks, walking,speaking, breathing, learning, or working. You can deduct impairment-related expenses as business expenses ifthey are: Szeged luxury hotelsNecessary for you to do your work satisfactorily, For goods and services not required or used, other thanincidentally, in your personal activities, and Not specifically covered under other income tax laws. Example.You are blind. You must use a reader to do your work. You use thereader both during your regular working hours at your place of workand outside your regular working hours away from your place of work.The reader's services are only for your work. You can deduct yourexpenses for the reader as business expenses. Illustrated Examples The following examples illustrate the reporting of travel,entertainment, gift, and transportation expenses on Forms 2106 and2106-EZ. Business use of a car is shown using actual carexpenses in Example 1 and the standard mileage rate inExample 2. Sample records that prove some of the claimedexpenses are also shown. Form 2106, Page 1, for David Pine Form 2106, Page 2, for David Pine Table 7. Weekly Traveling Expense and Entertainment Record Form 2106-EZ for Bill Wilson Example 1.David Pine purchased a car for $18,500 (including sales tax) onJanuary 6, 1999. In 1999, he used the car 70% for business purposes. Asample page from David's logbook is illustrated in Table 6.He records his business mileage (but not his personal miles) andexpenses daily. David uses Form 2106 to claimactual car expenses. He completes PartII, Section A, as shown later on his illustrated form. He does notclaim the section 179 deduction. He uses the MACRS double decliningbalance method (200% DB) to determine his depreciation deduction. His depreciation deduction normally would be $2,590 [$18,500(unadjusted basis) 70% (business use) 20% (fromTable 3 )]. However, it is limited in the first yearto $2,142 [$3,060 (from the Maximum Depreciation Limits forCars table shown in chapter 4Hotels pas chers Marbella) 70%]. He entersthese amounts in Part II, Section D. His other car expenses included $3,080 for gas, oil, repairs, andinsurance. He enters this amount in Part II, Section C, and multipliesit by the 70% business use. He adds this amount ($2,156) to thedepreciation deduction ($2,142) and reports the total ($4,298) on line1, Part I. His other transportation expenses for parking fees, tolls, andtaxis were $1,190. He enters this amount on line 2, Part I. David'semployer reimbursed him a total of $2,940 for his car andtransportation expenses. This amount was paid from an accountable planand was not shown on David's Form W-2. However, since he isclaiming expenses that are more than his reimbursements, he must showthe entire reimbursement amount on line 7, Column A, Part I. SinceDavid had no meal or entertainment expenses, he enters his excessdeductible expenses ($2,548) on line 10, Part I. He can deduct theseexpenses (subject to the 2%-of-adjusted-gross-income limit) on line 20of Schedule A (Form 1040) if he itemizes his deductions. Example 2.Bill Wilson is an employee ofFashion Clothing Co. in Manhattan, NY. In a typical week, Bill leaveshis home on Long Island on Monday morning and drives to Albany toexhibit the Fashion line for 3 days to prospective customers. Then hedrives to Troy to show Fashion's new line of merchandise to TownDepartment Store, an old customer. While in Troy, he talks with TomBrown, purchasing agent for Town Department Store, to discuss the newline. He later takes John Smith of Attire Co. out to dinner to discussAttire Co.'s buying Fashion's new line of clothing. Bill purchased his car on January 3, 1996. He uses the standardmileage rate for car expense purposes. He records his total mileage,business mileage, parking fees, and tolls for the year. Bill recordshis expenses and other pertinent information in his WeeklyTraveling Expense and Entertainment Record, shown in Table7. He obtains receipts for his expenses for lodging and for anyother expenses of $75 or more. During the year, Bill drove a total of 25,000 miles of which 20,000miles were for business. Following the instructions for Part II ofForm 2106, he answers all the questions and figures his car expense tobe $6,260 (4,000 business miles 32 1/2 centsstandard mileage rate and 16,000 31 cents standard mileagerate). His total employee business expenses are shown in the followingtable.  Type of Expense    Amount   Parking fees and tolls $ 325    Car expenses 6,260    Meals 2,632    Lodging, laundry, dry cleaning 8,975    Entertainment 1,870    Gifts, education, etc. 430    Total $20,492   Bill received an allowance of $3,600 ($300 per month) to helpoffset his expenses. Bill did not have to account to his employer forthe reimbursement and the $3,600 was included as income in box 1 ofhis Form W-2. Because Bill's reimbursement was included in his income and he isusing the standard mileage rate for his car expenses, he filesForm 2106-EZ with his tax return.