Filing IRS Form 2106 with your federal Form 1040 tax return allows you to claim an "above-the-line" adjustment to income for "Employee Business Expenses." The deduction is reserved for a few select workers, including performing artists who work as employees.
Employees used to have two options for claiming job-related expenses as a tax deduction. They could take this above-the-line deduction, or they could claim an itemized deduction for unreimbursed job expenses for W-2 income. Tax reform eliminated the itemized deduction option when the Tax Cuts and Jobs Act (TCJA) went into effect in 2018.
This change affects only employees, not independent contractors. You can still claim your expenses on Schedule C if you're self-employed, subject to certain rules.
What Is Form 2106?
Certain employees can use Form 2106 to deduct "ordinary and necessary" expenses they incur as they go about their jobs. The IRS says that "ordinary" means it's a common expense in your trade or profession. "Necessary" effectively means that you could not do your job without spending this money, or at least you couldn't do it conveniently. The expense must be "helpful and appropriate."
The above-the-line deduction on the Form 1040 tax return remains unaffected by the TCJA, and these adjustments to income are actually more tax-favorable than itemized deductions. You don't have to forego claiming the standard deduction to claim them, and they reduce your adjusted gross income (AGI), a factor upon which many other tax perks are based.
Taxpayers can claim adjustments to income and itemized deductions or the standard deduction as well.
Who Uses Form 2106?
Three professions qualify for this above-the-line deduction for job-related expenses as of tax year 2019, the year for which you'll file a return in 2020.
- Performing artists
- National Guard or Reserve members
- Fee-based government officials
The bad news is that not all artists will qualify because the terms and requirements for qualifying are rather strict.
Where to Get Form 2106
Form 2106 is available from the IRS online. You can complete it online, download it, or print it out and fill it in by hand.
How to Fill Out Form 2106
Form 2106 has just three required sections on its first page. Enter your expenses in Step 1, then move on to Step 2 if your employer reimbursed you for any of them. This information should appear in box 12 of your W-2 Form under code "L." Step 3 walks you through the calculations necessary to arrive at your deduction.
You need only complete the second page of Form 2106 if you used your vehicle for work during the year.
Section A of Part II on the second page details your auto expenses. You'll next complete either Section B or Section C, depending on whether you want to claim the standard mileage rate or use your actual vehicle expenses and deduct a percentage of them equal to the percentage of miles you drove for work versus overall miles.
The standard mileage rate is 58 cents per mile as of the 2019 tax year, the return you'll file in 2020. You might find that using a percentage of your actual auto expenses provides you with a better deduction, so do the calculations both ways.
Complete Section D to depreciate your vehicle only if you own the vehicle in question and you're claiming your actual vehicle expenses, not the standard mileage rate.
You can transfer the amount that appears on line 10 of Form 2106 to line 11 of the 2019 Schedule 1, "Additional Income and Adjustments to Income." The total from Schedule 1 is then entered on line 8a of the 2019 Form 1040.
The IRS has revised Form 1040 twice, once for the 2018 tax year and again the following year. The changes between these returns and the 2017 Form 1040 are pretty significant. These lines and instructions do not apply to tax years 2018 and earlier, but to the 2019 return.
Can Form 2106 Be E-Filed?
IRS Form 2106 accompanies your Form 1040, so it can be e-filed right along with your tax return. The IRS offers several e-filing options, including one you can access for free if your income is $69,000 or less as of the 2019 tax year.
Where to Mail Form 2106
The address to which you'd mail a paper return to the IRS depends on your state and whether you're enclosing payment. The IRS provides a link for each state on its website, telling you the address you should use.
Requirements for Filing Form 2106
The qualifying rules for performing artists are somewhat different than those for National Guard, reservists and fee-based officials.
Performing artists qualify if they provide services in the arts for two or more employers and receive at least $200 in wages from those jobs. Your job-related expenses must be more than 10% of the income you earned from these jobs, and your AGI must $16,000 or less—without regard to this deduction—as of the 2019 tax year, the return you'll file in 2020.
You can't claim this deduction if you're married and file a separate return unless you lived apart from your spouse throughout the entire tax year.
National Guard, Reservists, and Fee-Based Officials
You'll also qualify for this adjustment to income if you were a member of the Reserve of the Air Force, Army, Coast Guard, Marine Corps, Navy, Army National Guard, Air National Guard, or Public Health Service Reserve Corps. You can deduct expenses for traveling more than 100 miles from your main home. Your deductible expenses are limited to the federal per diem rates for the city you're traveling to.
Your job-related expenses are also deductible if you were a government official who was compensated entirely or partly on a fee basis.
If You're Self-Employed
You haven't lost any deductions for work expenses if you're not an employee. Your expenses are the cost of doing business if you're a self-employed independent contractor and if you engage in your work activity with "continuity and regularity." These remain deductible after passage of the TCJA. They're just reported and claimed differently.
You're an independent contractor/sole proprietor if you receive Form 1099-MISC from those you perform work for rather than a Form W-2.
Deduct your expenses on Schedule C, "Profit or Loss From Business" in this case. You don't have to meet the stringent rules for qualifying as a performing artist.
Speak with a tax professional if you're not sure whether you're an independent contractor or an employee. It can be difficult to make the distinction in this profession. There's a chance that you're an employee—even if you think you're not—if you accept work through the Screen Actors Guild, Actor's Equity, or the American Federation of Television and Radio Artists.
Tax Treatment of "Loan-Out" Corporations
A personal service or "loan-out" corporation provides yet another tax option for performing artists, but these entities generally aren't feasible for any but the most successful performers. The corporation is formed to effectively sell the services of one or more entertainers. It pays the entertainers as employees, then claims their expenses as a business tax deduction.
- IRS Form 2106 reports deductible employee business expenses to the IRS, but only a few professions qualify as of 2020. They include performing artists who work as employees.
- Form 2106 provides for an “above-the-line” deduction so you can file this form and claim it, then itemize or claim the standard deduction for your filing status as well.
- Performing artists must work for two or more employers and earn a minimum of $200 from these jobs to qualify.
- Performing artists who are self-employed rather than employees can deduct these expenses on Schedule C subject to fewer rules and conditions.