Employee Business Expenses Flashcards
What is the tax implication when employee business expenses are reimbursed under an accountable plan?
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.
Tax implication when the expenses are not reimbursed?
It can be deducted as 2% misc itemized deduction.
Tax implication when the expenses are reimbursed, but not under the accountable plan?
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.
What are 2 criteria for a plan to be an accountable plan?
- Employees must substantiate all expenses to be reimbursed.
- All excess reimbursements must be returned to the employer.
Transportation expenses: Are commuting expenses between the residence and work deductible?
Never.
Transportation expenses: Are travel expenses from one job or work area to a second place deductible?
Yes.
Transportation expenses: Is travel from home to a temporary work location deductible?
Yes, as long as it’s short-term in nature.
Transportation expenses: What are 2 ways to compute costs?
- Direct costs (airfare, tolls, gas, depreciation of a vehicle, insurance, etc).
- A mileage rate for auto use.
Transportation expenses: Is a mileage rate is used for cost computation, what are other costs that can be added?
Parking and tolls.
Travel expenses: what’s the criteria to be “travel”?
“Away from your business home” Be gone overnight away from home.
Travel expenses: what are the costs that will be deductible?
Transportation costs and meals (The cost of meals is reduced by 50%) and lodging and etc.
Travel expenses: when does tax home shifts to a new location?
The assignment is for an indefinite period of time or more than a year.
Travel expenses: when tax home shifts, whats the impact on travel expense deduction?
No deduction.
Travel expenses: When are the transportation expenses deductible when the business travel is mixed with personal travel?
The transportation to the location is deductible only if greater than 50% of the total days are business days.
How is “business day” determined?
Any day any business is done is deemed a business day.
Travel expenses: Is the weekend business day or personal day when Friday and Monday are business days?
Counted as business days.
Travel expenses: Is transportation to investment seminars deductible?
No.
Entertainment expenses: how much can be deductible?
50% of meals and entertainment expenses.
Entertainment expenses: what are the 3 criteria for meals to be deductible?
- A meal must be related to a business purpose - there has to be business discussion before, middle, or after the entertainment.
- It’s not lavish
- TP is present.
Entertainment expenses: Are dues to clubs organized for pleasure or recreation deductible? Dues for public service clubs (Rotary), professional organizations, trade associations?
No.
Yes.
Entertainment expenses: how much deduction is allowed for tickets to entertainment activity? When does 50% rule apply?
Only face value of the ticket even if more was paid.
50% applies after the face value.
Entertainment expenses: what’s the limit on business gifts?
$25 per donee per year.
Education expenses: when are they NOT deductible?
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).
Education expenses: what are 2 criteria for deduction?
- To maintain or improve existing skills required in current job or
- To meet requirements of employer or imposed by law to retain employment status.
On which form employee business expenses are reported?
Form 2106.
