In the following paragraphs, the accounting treatment and the tax treatment of unreimbursed expenses has been explained based upon the guidelines, laws and rules which are put forth by the IRS. To know more about such deductions, read on.
The meaning of unreimbursed business expanses is simple. The expenditure which have been borne by you for some other party or person or have been made by you for some other party or person, but have not been repaid or returned by the person are connoted to be unreimbursed expenditures. The two major classifications of such expenses from the accounting and taxation point of view:
- The expenses borne by the employee on the behalf or for the employer or to fulfill a duty as an employee upon the consent and in agreement with the employer is simply deemed to be a ’employee expense’ or a ’employee business expense’.
- On the other hand, an expenditure borne by a business, company, organization or an individual in the due course of business on the behalf or for some other party with prior consent and agreement is a unreimbursed business expenses.
Both expenses are ascertained to be assets of the entity, which are intangible and also current (exceptions exist). These expenses are usually accounted as accounts receivable and are hence totaled up into the asset side of the balance sheet.
Examples of Unreimbursed Expenses
Basically, anything that you spend on the behalf of some other individual or organization is classified to be an unreimbursed business expense. The following are some of the common examples of unreimbursed expenses.
- All or any expenses borne on the behalf of some other individual or organization, for the tax year.
- Expenses incurred but not reimbursed during travel, commutation or regular work on the behalf of the employer, with prior agreement.
- Bad debts and the total liabilities paid off, during the financial year not claimed or paid for during a prior time period. Other professional expenses, to be borne by the employer in accordance of due diligence and legal decorum, but not reimbursed as of date.
- Use of finances, money and out-of-the-pocket expenses exceeding usual allowances with prior agreement or allowances unpaid as of date.
- Use of personal assets for the business or for the employer’s benefit with prior agreement, to the extent that it results into additional expenditure, for example, use of house or personal car.
In all the aforementioned cases, prior agreement and consent between both the parties is required. Further more, these expenses are chiefly connoted and understood by either parties, it’s impossible to provide a completely full-proof definition.
Tax Treatment of Unreimbursed Expenses
As per the current IRS guidelines, laws and rules, employees having unreimbursed expenses, can claim the same in the miscellaneous itemized tax deductions of the Form 1040 or Form 1040NR, Schedule A. It must be noted that the items that are claimed under this section, have a 2% limitation.
The application of this 2% is done in a rather different way. First the Adjusted Gross Income (AGI) is computed. After that 2% of the AGI is subtracted from the total expenses that you are going to claim as miscellaneous itemized deductions. The unreimbursed employee expenses can be reported under two forms.
- The first one is of course the Form 1040 or Form 1040NR both Schedule A.
- Apart from the 1040, such deductions can be claimed on Form 2106 or Form 2106-EZ, titled ‘Unreimbursed Employee Business Expenses’.
The second document where such expenses are to be reported is the Schedule E of 1040. However, only partners of partnership firms are to report such expenses, which are included under the head ‘Supplemental Income and Loss’.
In case of both the forms, instructions accompany the form and are also given on the form. I hope that the elaboration on business expenses which remain unreimbursed is resourceful.