The California Franchise Tax Board will be sending out between 10,000 and 50,000 travel and entertainment audit notices for the 2011 and 2012 tax years. This is another reminder to always keep your receipts!
In August 2015, the FTB announced that it will be increasing the number of audits of employee business expenses claimed on Schedule A for the 2011 and 2012 tax years. Letters will be mailed to 10,000 to 50,000 taxpayers that claimed these expenses. In general, employee business expenses are reported on Form 2106, and are claimed as itemized deductions subject to the 2% of adjusted gross income limit on Schedule A of Form 1040.
Employees generally claim these deductions for unreimbursed vehicle, travel, transportation, meals, entertainment and other job related expenses. Deductions can be claimed for any of the above expenses in excess of employer reimbursements.
The FTB is increasing the number of these “correspondence audits” as part of an ongoing compliance program. If you receive a letter, you will be asked to send in a copy of your employer’s policy or contract for expense reimbursements, other employment information such as name and address of the employer and other details regarding the expenses deducted.
In the event you are audited, the best thing you can do is be prepared! Stay current with your documentation and avoid problematic audits by remembering the following tips when reporting employee business expenses:
- Avoid using estimates;
- Maintain complete and accurate contemporaneous auto logs;
- Don’t deduct expenses that are reimbursable by your employer because you failed to request the reimbursement;
- Keep receipts for all travel, meal and entertainment expenses.