For per diem amounts, use the rate in effect for the area where you stop for sleep or rest.

Regular federal per diem rate.    The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meals, and incidental expenses (or meals and incidental expenses only) while they are traveling away from home in a particular area. The rates are different for different locations. Your employer should have these rates available. (Employers can get Publication 1542, which gives the rates in the continental United States for the current year.)

The standard meal allowance.    The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). The rate for most small localities in the United States is $30. Most major cities and many other localities qualify for higher rates. The rates for all localities within the continental United States are listed in Publication 1542.

You receive an allowance only for meals and incidental expenses when your employer does one of the following.

1. Provides you with lodging (furnishes it in kind).
2. Reimburses you, based on your receipts, for the actual cost of your lodging.
3. Pays the hotel, motel, etc., directly for your lodging.
4. Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck.
5. Computes the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled.

High-low rate.    This is a simplified method of computing the federal per diem rate for travel within the continental United States. It eliminates the need to keep a current list of the per diem rate for each city.

Under the high-low method, the per diem amount for travel during 2000 is $201 (including $42 for M&IE) for certain high-cost locations. All other areas have a per diem amount of $124 (including $34 for M&IE). (Employers can get Publication 1542, which gives the areas eligible for the $201 per diem amount under the high-low method for all or part of the year.)

Prorating the standard meal allowance on partial days of travel.    The standard meal allowance is for a full 24-hour day of travel. If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. This rule also applies if your employer uses the regular federal per diem rate or the high-low rate.

You can use either of the following methods to figure the federal M&IE for that day.

1. Method 1:
   1. For the day you depart, add ¾ of the standard meal allowance amount for that day.
   2. For the day you return, add ¾ of the standard meal allowance amount for the preceding day.
2. Method 2: Prorate the standard meal allowance using any method that you consistently apply and that is in accordance with reasonable business practice. For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a.m. of one day to 5 p.m. of the next day as being no more than the federal rate. This is true even though a federal employee would be limited to a reimbursement of M&IE for only 11/ days of the federal M&IE rate.

The standard mileage rate.   This is a set rate per mile that you can use to compute your deductible car expenses. For 2000, the standard mileage rate is 32½ cents a mile for all business miles. This rate is adjusted periodically.

Fixed and variable rate (FAVR).   This is an allowance your employer may use to reimburse your car expenses. Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc.) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc.). If your employer chooses to use this method, your employer will request the necessary records from you.

Reporting your expenses with a per diem or car allowance.    If your reimbursement is in the form of an allowance received under an accountable plan, the following two facts affect your reporting.

1. The federal rate.
2. Whether the allowance or your actual expenses were more than the federal rate.

The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate.

Allowance LESS than or EQUAL to the federal rate.   If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance.

However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount.

Example 1.   In April, Jeremy takes a 2-day business trip to Denver. The federal rate for Denver is $125 per day. As required by his employer's accountable plan, he accounts for the time (dates), place, and business purpose of the trip. His employer reimburses him $125 a day ($250 total) for living expenses. Jeremy's living expenses in Denver are not more than $125 a day.

Jeremy's employer does not include any of the reimbursement on his Form W-2 and Jeremy does not deduct the expenses on his return.

Example 2.   In June, Matt takes a 2-day business trip to Boston. Matt's employer uses the high-low method to reimburse employees. Since Boston is a high-cost area, Matt is given an advance of $180 a day ($360 total) for his lodging, meals, and incidental expenses. Matt's actual expenses totaled $490.

Since Matt's $490 of expenses are more than his $360 advance, he includes the excess expenses when he itemizes his deductions. Matt completes Form 2106 (showing all of his expenses and reimbursements). He must also allocate his reimbursement between his meals and other expenses as discussed later under Completing Forms 2106 and 2106-EZ.

Example 3.   Nicole drives 10,000 miles a year for business. Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Her employer pays her a mileage allowance of 20 cents a mile.

Since Nicole's $3,250 expenses computed under the standard mileage rate (10,000 miles × 32½ cents) are more than her $2,000 reimbursement (10,000 miles × 20 cents), she itemizes her deductions to claim the excess expenses. Nicole completes Form 2106 (showing all of her expenses and reimbursements) and enters $1,250 ($3,250 - $2,000) as an itemized deduction.

Allowance MORE than the federal rate.   If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 13 of your Form W-2. This amount is not taxable. However, the excess allowance will be included in box 1 of your Form W-2. You must report this part of your allowance as if it were wage income.

If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return.

However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 13 of your Form W-2) and all your expenses. You should be able to prove these amounts to the IRS.

Example 1.   Laura lives and works in Austin. Her employer sent her to Albuquerque for 2 days on business. Laura's employer paid the hotel directly for her lodging and reimbursed Laura $40 a day ($80 total) for meals and incidental expenses. Laura's actual meal expenses were not more than the federal rate for Albuquerque, which is $38 per day.

Table 5. Reporting Travel, Entertainment, Gift and Car Expenses and Reimbursements

Her employer included the $4 that was more than the federal rate [($40 - $38) × 2] in box 1 of Laura's Form W-2. Her employer shows $76 ($38 a day × 2) in box 13 of her Form W-2. This amount is not included in Laura's income. Laura does not have to complete Form 2106; however, she must include the $4 in her gross income as wages (by reporting the total amount shown in box 1 of her Form W-2).

Example 2.   Joe also lives in Austin and works for the same employer as Laura. In May the employer sent Joe to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. The employer reimbursed Joe $50 a day for his meals and incidental expenses. The federal rate for San Diego is $46 a day.

Joe can prove that his actual meal expenses totaled $290. His employer's accountable plan will not pay more than $50 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $290. However, he does account for the time, place, and business purpose of the trip. This is Joe's only business trip this year.

Joe was reimbursed $200 ($50 × 4 days), which is $16 more than the federal rate of $184 ($46 × 4 days). The employer includes the $16 as income on Joe's Form W-2 in box 1. The employer also enters $184 in box 13 of Joe's Form W-2.

Joe completes Form 2106 to figure his deductible expenses. He enters the total of his actual expenses for the year ($290) on Form 2106. He also enters the reimbursements that were not included in his income ($184). His total deductible expense, before the 50% limit, is $106. After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $53, as an itemized deduction.

Example 3.   Debbie drives 10,000 miles for business. Under her employer's accountable plan, she gets reimbursed 35 cents a mile, which is 21/ cents a mile more than the standard mileage rate.

Debbie's employer must include the reimbursement amount up to the standard mileage rate, $3,250 (10,000 miles × 32½ cents), in box 13 of her Form W-2. That amount is not taxable. Her employer must also include $250 (10,000 miles × 21/2 cents) in box 1 of her Form W-2. This is the reimbursement that is more than the standard mileage rate.

If Debbie's expenses are equal to or less than the standard mileage rate, she would not complete Form 2106. If her expenses are more than the standard mileage rate, she would complete Form 2106 and report her total expenses and reimbursement (shown in box 13 of her Form W-2). She would then claim the excess expenses as an itemized deduction.

Returning Excess Reimbursements

Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. For example, if you received a travel advance and you did not spend all the money on business-related expenses, or you do not have proof of all your expenses, you have an excess reimbursement.

Adequate accounting and reasonable period of time were discussed earlier in this chapter.

Travel advance.    You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time.

If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later).

Unproved amounts.   If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 4), you must return this unproved amount of the travel advance within a reasonable period of time. If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later).

Per diem allowance MORE than federal rate.   If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. However, the difference will be reported as wages on your Form W-2. This excess amount is considered paid under a nonaccountable plan (discussed later).

Example.   Your employer sends you on a 5-day business trip to Phoenix and gives you a $225 ($45 × 5 days) advance to cover your meals and incidental expenses. The federal per diem for meals and incidental expenses for Phoenix is $42. Your trip lasts only 3 days. Under your employer's accountable plan, you must return the $90 ($45 × 2 days) advance for the 2 days you did not travel. You do not have to return the $9 difference between the allowance you received and the federal rate for Phoenix [($45 - $42) × 3 days]. However, the $9 will be reported on your Form W-2 as wages.

Nonaccountable Plans

A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans.

In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan:

1. Excess reimbursements you fail to return to your employer, and
2. Reimbursement of nondeductible expenses related to your employer's business. See Reimbursement of nondeductible expenses, earlier, under Accountable Plans.

An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses.

If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer.

Reporting your expenses under a nonaccountable plan.   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Also, your total expenses will be subject to the 2%-of- adjusted-gross-income limit that applies to most miscellaneous itemized deductions.

Example 1.   Kim's employer gives her $500 a month ($6,000 total for the year) for her business expenses. Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend.

Kim is being reimbursed under a nonaccountable plan. Her employer will include the $6,000 on Kim's Form W-2 as if it were wages. If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions.

Example 2.   Kevin is paid $2,000 a month by his employer. On days that he travels away from home on business, his employer designates $50 a day of his salary as paid to reimburse his travel expenses. Because his employer would pay Kevin his monthly salary whether or not he was traveling away from home, the arrangement is a nonaccountable plan. No part of the $50 a day designated by his employer is treated as paid under an accountable plan.

Rules for Independent Contractors and Clients

This section provides rules for independent contractors who incur expenses on behalf of a client or customer. The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers.

You are considered an independent contractor if you are self-employed and you perform services for a customer or client.

Accounting to Your Client

If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses.

If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses. See 50% Limit in chapter 2.

Adequate accounting.   As a self-employed person, you adequately account by reporting your actual expenses. You should follow the recordkeeping rules in chapter 5.

How to report.   For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter.

Required Records for Clients or Customers

If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. However, you must keep records if:

1. You reimburse the contractor for entertainment expenses incurred on your behalf, and
2. The contractor adequately accounts to you for these expenses.

Contractor adequately accounts.   If the contractor adequately accounts to you for entertainment expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5. Use your records as proof for a deduction on your tax return. If entertainment expenses are accounted for separately, you are subject to the 50% limit on entertainment. If the contractor adequately accounts to you for reimbursed amounts, you do not have to report the amounts on an information return.

Contractor does not adequately account.   If the contractor does not adequately account to you for allowances or reimbursements of entertainment expenses, you do not have to keep records of these items. You are not subject to the 50% limit on entertainment in this case. You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. However, you must file Form 1099-MISC, Miscellaneous Income, to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year.

Completing Forms 2106 and 2106-EZ

This section briefly describes how employees complete Forms 2106 and 2106-EZ. Table 5 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. The instructions for the forms have more information on completing them.

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). See the instructions for the form that you must file.

Form 2106-EZ.    You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. You can use this form if you meet both of the following conditions.

1. You were not reimbursed for your expenses or, if you were reimbursed, the reimbursement was included in your income (box 1 of your Form W-2).
2. If you claim car expenses, you use the standard mileage rate.

Car expenses.   If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. These are generally figured in Part II of Form 2106, and then claimed on line 1, Column A, of Part I of Form 2106. Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and line 1 of Part I.

Information on use of cars.   If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. The information relates to the following items.

• Mileage (total, business, commuting, and other personal mileage).
• 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 Part II, Form 2106-EZ, to provide this information.

Standard mileage rate.    If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Section B, Part II, Form 2106. 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 deduct parking fees and tolls that apply to the business use of the car. If you file Form 2106-EZ, complete line 1, Part I, for the standard mileage rate and line 2 for parking fees and tolls. See Standard Mileage Rate in chapter 4 for information on using this rate.

Actual expenses.    If you claim a deduction based on actual expenses, you cannot use Form 2106-EZ. You must complete Section C, Part II, Form 2106. In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you can claim.

If you are still using a car that is fully depreciated, continue to complete Section C. Since you have no depreciation deduction, enter zero on line 28. In this case, do not complete Section D.

Car rentals.    If you claim car rental expenses on line 24a of Form 2106, you may have to reduce that expense by an inclusion amount as described in chapter 4. If so, you can show your car expenses and any inclusion amount as follows.

1. Compute the inclusion amount without taking into account your business use percentage for the tax year.
2. Report the inclusion amount from (1) on line 24b, Part II, Form 2106.
3. Report on line 24c the net amount of car rental expenses [total car rental expenses minus the inclusion amount computed in (1)].

The net amount of car rental expenses will be adjusted on line 27, Part II, of Form 2106, to reflect the percentage of business use for the tax year.

Local transportation expenses.   Show your local business transportation expenses that did not involve overnight travel on line 2, 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 fees and tolls. Do not include expenses of operating your car or expenses of commuting between your home and work.

Employee business expenses other than meals and entertainment.   Show your other employee business expenses on lines 3 and 4, Column A, of Form 2106 or on lines 3 and 4 of Form 2106-EZ. Do not include expenses for meals and entertainment on those lines. Line 4 is for expenses such as business gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications.

If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Claim these amounts directly on line 20 of Schedule A (Form 1040). List the type and amount of each expense on the dotted lines and include the total on line 20.

Meal and entertainment expenses.    Show the full amount of your expenses for business-related meals and entertainment on line 5, Column B, of Form 2106. Include meals while away from your tax home overnight and other business meals and entertainment. Enter 50% of the line 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 meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Enter the result on line 5.

Hours of service limits.   If you are subject to the Department of Transportation's hours of service limits (as explained earlier under Individuals subject to hours of service limits in chapter 2), use 60% 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 were not reported to you in box 1 of your Form W-2. This includes any amount reported under code L in box 13 of Form W-2.

Allocating your reimbursement.    If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. This is necessary when your employer pays your reimbursement in the following manner:

1. Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and
2. Does not clearly identify how much is for deductible meals and/or entertainment.

You must allocate that single payment so that you know how much to 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 year under an accountable plan. The $5,000 payment consisted of $2,000 for airfare and $3,000 for entertainment and car expenses. The employer did not clearly show how much of the $3,000 was for the cost of deductible entertainment. Rob actually spent $6,500 during the year ($2,000 for airfare, $2,000 for entertainment, and $2,500 for car expenses).

Since the airfare allowance was clearly identified, Rob knows that $2,000 of the payment goes in Column A, line 7, of Form 2106. To allocate the remaining $3,000, Rob uses the worksheet from the instructions for Form 2106. His completed worksheet follows.

1.	Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2	3,000
2.	Enter the total amount of your expenses for the periods covered by this reimbursement	4,500
3.	Of the amount on line 2, enter your total expense for meals and entertainment	2,000
4.	Divide line 3 by line 2. Enter the result as a decimal (rounded to at least three places)	.444
5.	Multiply line 1 by line 4. Enter the result here and in Column B, line 7	1,332
6.	Subtract line 5 from line 1. Enter the result here and in Column A, line 7	1,668

$1,668 of the $3,000) in Column A and $1,332 (of the $3,000) in Column B.

After you complete the form.   After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. For most taxpayers, this is line 20 of Schedule A (Form 1040). However, if you are a government official paid on a fee basis, a performing artist, or a disabled employee with impairment-related work expenses, see Special Rules, later.

Limits on employee business expenses.    Your employee business expenses may be subject to any of the three limits described next. They are figured in the following order on the specified 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 2106 or line 5 of Form 2106-EZ. (See 50% Limit in chapter 2.)

2. Limit on miscellaneous itemized deductions.   If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 20 of Schedule A (Form 1040). Most miscellaneous itemized deductions, including employee business 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 $128,950 ($64,475 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. See your form instructions for information on how to figure this limit.

Special Rules

This section discusses special rules that apply only to government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses.

Officials Paid on a Fee Basis

Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040).

Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction.

If you are a fee-basis official, include your employee business expenses from line 10 of Form 2106 or line 6 of Form 2106-EZ in the total on line 32 of Form 1040. Write FBO and the amount of your employee business expenses in the space to the left of line 32 of Form 1040.

Table 6. Daily Business Mileage and expense Log

Expenses of Certain Performing Artists

If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. To qualify, you must meet all of the following requirements.

1. During the tax year, you perform services in the performing arts for at least two employers.
2. You receive at least $200 each from any two of these employers.
3. Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services.
4. Your adjusted gross income is not more than $16,000 before deducting these business expenses.

Special rules for married persons.   If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. If you file a joint 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.

Where to report.   If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Then you include your performing-arts-related expenses from line 10 of Form 2106 or line 6 of Form 2106-EZ in the total on line 32 of Form 1040. Write QPA and the amount of your performing-arts-related expenses in the space to the left of line 32 of Form 1040.

If you do not meet all of the requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business 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, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from line 10 of Form 2106 or 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 line next to line 27. Enter your employee business expenses that are unrelated to your disability from line 10 of Form 2106 or line 6 of Form 2106-EZ on line 20 of Schedule A (Form 1040).

Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your 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 or deafness) that functionally limits your being employed, or
• A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.

You can deduct impairment-related expenses as business expenses if they are:

• Necessary for you to do your work satisfactorily,
• For goods and services not required or used, other than incidentally, 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 the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as business expenses.

Illustrated Examples

The following examples illustrate the reporting of travel, entertainment, gift, and transportation expenses on Forms 2106 and 2106-EZ. Business use of a car is shown using actual car expenses in Example 1 and the standard mileage rate in Example 2. Sample records that prove some of the claimed expenses are also shown.

Example 1.   David Pine purchased a car for $18,500 (including sales tax) on January 6, 2000. In 2000, he used the car 70% for business purposes. A sample page from David's logbook is illustrated in Table 6. He records his business mileage (but not his personal miles) and expenses daily.

David uses Form 2106 to claim actual car expenses. He completes Part II, Section A, as shown later on his illustrated form. He does not claim the section 179 deduction. He uses the MACRS double declining balance method (200% DB) to determine his depreciation deduction.

His depreciation deduction normally would be $2,590 [$18,500 (unadjusted basis) × 70% (business use) × 20% (from Table 3 )]. However, it is limited in the first year to $2,142 [$3,060 (from the Maximum Depreciation Limits for Cars table shown in chapter 4) × 70%]. He enters these amounts in Part II, Section D.

His other car expenses included $3,080 for gas, oil, repairs, and insurance. He enters this amount in Part II, Section C, and multiplies it by the 70% business use. He adds this amount ($2,156) to the depreciation deduction ($2,142) and reports the total ($4,298) on line 1, Part I.

His other transportation expenses for parking fees, tolls, and taxis were $1,190. He enters this amount on line 2, Part I. David's employer reimbursed him a total of $2,940 for his car and transportation expenses. This amount was paid from an accountable plan and was not shown on David's Form W-2. However, since he is claiming expenses that are more than his reimbursements, he must show the entire reimbursement amount on line 7, Column A, Part I. Since David had no meal or entertainment expenses, he enters his excess deductible expenses ($2,548) on line 10, Part I. He can deduct these expenses (subject to the 2%-of-adjusted-gross-income limit) on line 20 of Schedule A (Form 1040) if he itemizes his deductions.

Example 2.   Bill Wilson is an employee of Fashion Clothing Co. in Manhattan, NY. In a typical week, Bill leaves his home on Long Island on Monday morning and drives to Albany to exhibit the Fashion line for 3 days to prospective customers. Then he drives to Troy to show Fashion's new line of merchandise to Town Department Store, an old customer. While in Troy, he talks with Tom Brown, purchasing agent for Town Department Store, to discuss the new line. He later takes John Smith of Attire Co. out to dinner to discuss Attire Co.'s buying Fashion's new line of clothing.

Bill purchased his car on January 3, 1997. He uses the standard mileage rate for car expense purposes. He records his total mileage, business mileage, parking fees, and tolls for the year. Bill records his expenses and other pertinent information in his Weekly Traveling Expense and Entertainment Record, shown in Table 7. He obtains receipts for his expenses for lodging and for any other expenses of $75 or more.

During the year, Bill drove a total of 25,000 miles of which 20,000 miles were for business. Following the instructions for Part II of Form 2106, he answers all the questions and figures his car expense to be $6,500 (20,000 business miles × 32½ cents standard mileage rate.

His total employee business expenses are shown in the following table.

Type of Expense	Amount
Parking fees and tolls	$ 325
Car expenses	6,500
Meals	2,632
Lodging, laundry, dry cleaning	8,975
Entertainment	1,870
Gifts, education, etc.	430
Total	$20,732

Bill received an allowance of $3,600 ($300 per month) to help offset his expenses. Bill did not have to account to his employer for the reimbursement and the $3,600 was included as income in box 1 of his Form W-2.

Because Bill's reimbursement was included in his income and he is using the standard mileage rate for his car expenses, he files Form 2106-EZ with his tax return.

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