Employee Business Expenses

Question 1

What is the tax implication when employee business expenses are reimbursed under an accountable plan?

Answer 1

The reimbursement is not taxable (for FICA or income tax) and it does not have to included in W-2. And the employee gets no deduction for the expense.

Question 2

Tax implication when the expenses are not reimbursed?

Answer 2

It can be deducted as 2% misc itemized deduction.

Question 3

Tax implication when the expenses are reimbursed, but not under the accountable plan?

Answer 3

The reimbursement must be included in income (for FICA and income tax) and the deduction is a 2% misc itemized deduction - not very good because if the total of 2% deduction doesn’t exceed the 2% of AGI, no deduction is allowed.

Question 4

What are 2 criteria for a plan to be an accountable plan?

Answer 4

1. Employees must substantiate all expenses to be reimbursed.
2. All excess reimbursements must be returned to the employer.

Question 5

Transportation expenses: Are commuting expenses between the residence and work deductible?

Answer 5

Never.

Question 6

Transportation expenses: Are travel expenses from one job or work area to a second place deductible?

Answer 6

Yes.

Question 7

Transportation expenses: Is travel from home to a temporary work location deductible?

Answer 7

Yes, as long as it’s short-term in nature.

Question 8

Transportation expenses: What are 2 ways to compute costs?

Answer 8

1. Direct costs (airfare, tolls, gas, depreciation of a vehicle, insurance, etc).
2. A mileage rate for auto use.

Question 9

Transportation expenses: Is a mileage rate is used for cost computation, what are other costs that can be added?

Answer 9

Parking and tolls.

Question 10

Travel expenses: what’s the criteria to be “travel”?

Answer 10

“Away from your business home” Be gone overnight away from home.

Question 11

Travel expenses: what are the costs that will be deductible?

Answer 11

Transportation costs and meals (The cost of meals is reduced by 50%) and lodging and etc.

Question 12

Travel expenses: when does tax home shifts to a new location?

Answer 12

The assignment is for an indefinite period of time or more than a year.

Question 13

Travel expenses: when tax home shifts, whats the impact on travel expense deduction?

Answer 13

No deduction.

Question 14

Travel expenses: When are the transportation expenses deductible when the business travel is mixed with personal travel?

Answer 14

The transportation to the location is deductible only if greater than 50% of the total days are business days.

Question 15

How is “business day” determined?

Answer 15

Any day any business is done is deemed a business day.

Question 16

Travel expenses: Is the weekend business day or personal day when Friday and Monday are business days?

Answer 16

Counted as business days.

Question 17

Travel expenses: Is transportation to investment seminars deductible?

Answer 17

No.

Question 18

Entertainment expenses: how much can be deductible?

Answer 18

50% of meals and entertainment expenses.

Question 19

Entertainment expenses: what are the 3 criteria for meals to be deductible?

Answer 19

1. A meal must be related to a business purpose - there has to be business discussion before, middle, or after the entertainment.
2. It’s not lavish
3. TP is present.

Question 20

Entertainment expenses: Are dues to clubs organized for pleasure or recreation deductible? Dues for public service clubs (Rotary), professional organizations, trade associations?

Answer 20

No.

Yes.

Question 21

Entertainment expenses: how much deduction is allowed for tickets to entertainment activity? When does 50% rule apply?

Answer 21

Only face value of the ticket even if more was paid.

50% applies after the face value.

Question 22

Entertainment expenses: what’s the limit on business gifts?

Answer 22

$25 per donee per year.

Question 23

Education expenses: when are they NOT deductible?

Answer 23

If to meet minimum standards of current job or
If to qualify TP for a new trade or business.
(There is $4000 max deduction for AGI, this rule is when TP has more or doesn’t qualify for $4000 one because AGI is too high).

Question 24

Education expenses: what are 2 criteria for deduction?

Answer 24

1. To maintain or improve existing skills required in current job or
2. To meet requirements of employer or imposed by law to retain employment status.

Question 25

On which form employee business expenses are reported?

Answer 25

Form 2106.