Outside sales representatives hit by a tax increase January 2018

If you are an employee with large unreimbursed business expenses then you either need to ask for a raise immediately of prepare for a potentially large tax increase. One of the most common types of occupations affected is outside sales representative however any employee in any occupation with work-related expenses would be affected the same way. Effective January 1, 2018 the following expenses are no longer deductible by employees:

  • Auto expenses or mileage allowance.
  • Business liability insurance premiums.
  • Damages paid to a former employer for breach of an employment contract.
  • Depreciation on a computer your employer requires you to use in your work.
  • Dues to a chamber of commerce if membership helps you do your job.
  • Dues to professional societies.
  • Educator expenses.
  • Home office or part of your home used regularly and exclusively in your work.
  • Job search expenses in your present occupation.
  • Laboratory breakage fees.
  • Legal fees related to your job.
  • Licenses and regulatory fees.
  • Malpractice insurance premiums.
  • Medical examinations required by an employer.
  • Occupational taxes.
  • Passport for a business trip.
  • Repayment of an income aid payment received under an employer’s plan.
  • Research expenses of a college professor.
  • Rural mail carriers’ vehicle expenses.
  • Subscriptions to professional journals and trade magazines related to your work.
  • Tools and supplies used in your work.
  • Travel, transportation, meals, entertainment, gifts, and local lodging related to your work.
  • Union dues and expenses.
  • Work clothes and uniforms if required and not suitable for everyday use.
  • Work-related education.

The tax law change means that a typical outside sales person loses a tax deduction of about $3,500 per year. In other words a typical tax increase for this occupation is $3,500. It would take a raise of about $300 per month to make up for the tax increase. Of course, it could be larger or smaller. depending on the unique situation.

If a pay raise cannot be negotiated then it might make sense to consider becoming a subcontractor and not an employee.

Another option is to establish an accountable expense plan and reimburse these expenses through the employer.

I am available to discuss the details under any of these options.

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2 responses to “Outside sales representatives hit by a tax increase January 2018”

  1. Royce Allen Avatar
    Royce Allen

    The company will not give the outside sales people raises to cover expenses associated with their sales. They are supposed to pay them from their commissions. Can the sales people submit expense vouchers for reimbursement and have the employer subtract them from the commissions.

  2. Royce: thanks for your comment. Yes, that would be a smart strategy as you propose; it should be designed and probably documented in a way to distinguish earnings from expense reimbursement allowance.

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