Reimbursed Expenses

• Tax-deductible expenses are those that reduce the amount of money you have effectively earned, and hence your tax liability. A reimbursed expense, however, will not impact your effective income, as the amount you have spent will have been repaid by your employer. Attempting to deduct expenses for which you have already been compensated from your taxable income would constitute tax fraud and could carry heavy criminal penalties.
  
  

Partial Reimbursement

• If you have only been partially reimbursed for an expense, the remainder may be tax deductible. For instance, you may have stayed at a hotel for a business conference, paying a total of $200 for accommodation and room service. If your company has a policy of paying a maximum of $125 per night for such occasions and reimbursed you for that amount, the remaining $75 that you effectively paid out of pocket may be tax deductible. Keep in mind, however, that all expenditures you deduct must be business related. If the hotel's nightly rate was only $150 and the rest of the $500 bill was for entertaining your in-laws who came to dine with you at the hotel's restaurant, you cannot legitimately write off this expense.
  
  

Two-Percent Rule

• Even if your out-of-pocket business expenses are all business related, you must also satisfy the two-percent criterion to deduct them from your taxable income. This rule, also known as the Two-Percent Rule, states that your itemized deductions must exceed two percent of your adjusted gross income to be tax deductible. Since the grand total of all tax-deductible expenses is considered, you may be able to deduct business expenses even if alone they fail to exceed two percent of your adjusted gross income. If, for instance, you have other deductible expenses, such as health-care costs paid out of pocket, the cumulative deductible expenses may exceed two percent.
  
  

Record Keeping

• If you wish to deduct unreimbursed business expenses, remember to keep accurate and detailed records. Save the receipts and take notes regarding what the expense was for and how it relates to your business. Remember that you may be asked to justify all deductions in case of an audit, and the burden of proving that the deductions are legitimate is on you. If a tax professional prepares your tax returns, show your records to her and ensure that they are adequate in case of an audit.