Ch9 - 2015

Embed Size (px)

Citation preview

  • 7/25/2019 Ch9 - 2015

    1/69

    2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible ebsite, in hole or in part.

    Comprehensive Volume

    1

    Chapter !

    "eductions# $%ployee and

    &el'($%ployed(Related$)penses

  • 7/25/2019 Ch9 - 2015

    2/69

    2

    *he +ig icture -slide 1 o' 2

    / Morgan, a recent college graduate ho %aored in'inance, has accepted a ob ith ite Corporation. *he ob is in sales and ill re3uire travel and so%e

    entertain%ent -i.e., business lunches.

    / &he ill be based in a %aor %etropolitan area inanother state. ite has no available space in the locale, so she ill have

    to %aintain her on or4 'acility.

    n addition to her salary, Morgan ill receive a travelalloance./ 6oever, ite has %ade it clear that the alloance ill not cover

    all o' her travel e)penses.

  • 7/25/2019 Ch9 - 2015

    3/69

    3

    *he +ig icture -slide 2 o' 2

    / Morgan is delighted ith the ne ob since itill enable her to %aintain a 'le)ible or4schedule.

    7urther%ore, or4ing out o' her on apart%entavoids a ti%e(consu%ing and costly co%%ute.

    / 8hat are so%e o' the inco%e ta) proble%s

    presented by this situation9Read the chapter and 'or%ulate your response.

  • 7/25/2019 Ch9 - 2015

    4/69

    4

    $%ployee vs. &el'($%ployed-slide 1 o' 2

    / +usiness e)penses 'or sel'(e%ployed persons

    are deductibleforA:

    Reported on &chedule C

    / ;nrei%bursed business e)penses 'or

    e%ployees are generally deductiblefromA:

    subect to 2< o' A: 'loor

    Reported on 7or% 210= -$%ployee +usiness

    $)penses and &chedule A -te%i>ed "eductions

  • 7/25/2019 Ch9 - 2015

    5/69

    5

    $%ployee vs. &el'($%ployed-slide 2 o' 2

    / erson is classi'ied as an e%ployee i'#

    &ubect to ill and control o' another ith respect

    to hat shall be done and ho it shall be done

    Another 'urnishes tools or the place o' or4

    nco%e based on ti%e spent rather than tas4

    per'or%ed

  • 7/25/2019 Ch9 - 2015

    6/69

    6

    $%ployee $)penses

    / 7all into one o' the 'olloing categories#

    *ransportation

    *ravel

    Moving

    $ducation

    $ntertain%ent

    ?ther

  • 7/25/2019 Ch9 - 2015

    7/697

    *ransportation $)penses-slide 1 o' 2

    / *ransportation e)pense de'ined

    @ery li%ited, only 'ro% ob site to ob site and

    co%%uting to'ro% te%porary or4 place

    Co%%uting 'ro% ho%e to or4 and bac4 is

    nondeductible

    / $)ceptions#

    Additional costs incurred to transport heavy tools

    $%ployees ith %ore than one ob

  • 7/25/2019 Ch9 - 2015

    8/698

    *ransportation $)penses-slide 2 o' 2

    / A%ount deductible

    Actual e)penses

    / Must 4eep ade3uate records o' all e)penses and

    depreciation is li%ited, or

    Auto%atic %ileage %ethod

    / 5= cents per %ile 'or business %iles 'or 201B

    Adust%ent to basis o' auto is re3uired 'or depreciation

    considered alloed

    / lus par4ing, tolls, etc.

    / Ade3uate docu%entation o' %ileage re3uired

  • 7/25/2019 Ch9 - 2015

    9/699

    *he +ig icture ( $)a%ple !

    Co%%uting $)pense

    / Return to the 'acts o' *he +ig icture on p. !(1.

    / +ecause Morgan ill have an o''ice in her

    ho%e, the apart%ent ill be her principal placeo' business.

    *hus, any transportation 'ro% her ho%e to

    business sites ill not be disalloed as a

    commuting expense

  • 7/25/2019 Ch9 - 2015

    10/6910

    *he +ig icture ( $)a%ple 11

    Auto%atic Mileage Method

    / Return to the 'acts o' *he +ig icture on p. !(1.

    / "uring Morgans senior year in college, her parentsgave her one o' the 'a%ily carsDa 200! Chevrolet

    %pala. Morgan has no idea as to the cars original cost or the

    odo%eter reading at the ti%e the car as registered in herna%e.

    &he has, hoever, 4ept trac4 o' the %iles driven 'orbusiness since she accepted her ne ob.

    / Morgan should use the automatic mileage methodinclai%ing business use o' the car.

  • 7/25/2019 Ch9 - 2015

    11/6911

    *ravel $)penses-slide 1 o' 2

    / *ravel e)pense de'ined

    $)penses hile Eaay 'ro% ta) ho%eF overnight

    on business

    ncludes transportation, lodging, %eals, and

    %iscellaneous e)penses

  • 7/25/2019 Ch9 - 2015

    12/6912

    *ravel $)penses-slide 2 o' 2

    / EAay 'ro% ho%eF re3uire%ent

    Geed not be a 2B(hour period but %ust be longer

    than ordinary or4 day and ta)payer ill need to

    rest during release ti%e

    +eing EaayF should be a te%porary situation -not

    in e)cess o' 1 year

    E*a) 6o%eF generally %eans business location,post, or station o' the ta)payer

    &o%e e)ceptions are alloed under ne

    Regulations

  • 7/25/2019 Ch9 - 2015

    13/6913

    Restrictions on *ravel $)penses-slide 1 o' 2

    / Convention travel e)pensesGo deduction 'or travel unless directly related to

    ta)payers trade or business

    / $)a%ple# "octor attending out(o'(ton se%inar onestate planning ould not have deductible travele)penses

    Restrictions apply to the deductibility o' travel

    e)penses o' the ta)payers spouse or dependent/ :enerally, acco%pani%ent by the spouse or dependent

    %ust serve a bona 'ide business purpose, and

    / *he e)penses %ust be otherise deductible

  • 7/25/2019 Ch9 - 2015

    14/69

    14

    Restrictions on *ravel $)penses-slide 2 o' 2

    / $ducation travel e)penses

    *ravel as a 'or% o' education is not deductible

    / $)a%ple# &panish language pro'essor traveling to &pain

    to or4 on the language ould not have deductibletravel e)penses

    / $)a%ple# &panish history pro'essor traveling to &pain

    to study historical docu%ents available only in &panish

    %useu%s ould have deductible travel e)penses

  • 7/25/2019 Ch9 - 2015

    15/69

    15

    Co%bined +usinessleasure *ravel-slide 1 o' B

    / ?nly actual e)penses 'or business are

    deductible

    Meals, lodging and other e)penses %ust be

    allocated beteen business and personal days

    / "eductibility o' transportation costs depends

    on hether the trip is do%estic or 'oreign

  • 7/25/2019 Ch9 - 2015

    16/69

    16

    Co%bined +usinessleasure *ravel-slide 2 o' B

    / 7or do%estic travel

    ' pri%ary purpose o' trip is business,

    transportation is deductible in 'ull

    ' pri%ary purpose is pleasure, no deduction 'or

    transportation alloed, but other e)penses -e.g.,

    lodging associated ith business days are

    deductible

  • 7/25/2019 Ch9 - 2015

    17/69

    17

    Co%bined +usinessleasure *ravel-slide H o' B

    / 7or 'oreign travel

    *ransportation e)penses %ust be allocated beteen

    business and personal unless#

    / *rip is I days or less,

    / Less than 25< o' ti%e as 'or personal purposes, or

    / *a)payer had no substantial control over arrange%ents

    'or the trip

  • 7/25/2019 Ch9 - 2015

    18/69

    18

    Co%bined +usinessleasure *ravel-slide B o' B

    / *ravel days are considered business days

    / 8ee4ends, legal holidays and intervening days

    are business days i' both the preceding and

    succeeding days are business days

    / ' trip is pri%arily 'or pleasure, no

    transportation e)penses are deductible

  • 7/25/2019 Ch9 - 2015

    19/69

    19

    Moving $)penses

    / "eductible 'or %oves in connection ith the

    co%%ence%ent o' or4 at a ne principal

    place o' or4

    / *o tests %ust be %et 'or %oving e)penses to

    be deductible

    "istance test

    *i%e test

  • 7/25/2019 Ch9 - 2015

    20/69

    20

    Moving $)penses ( "istance *est

    / "istance 'ro% old ho%e to ne ob %ust be at

    least 50 %iles 'arther than 'ro% old ho%e to

    old ob

    / Ge ho%e location not relevant 'or decision

  • 7/25/2019 Ch9 - 2015

    21/69

    21

    $)a%ple o' "istance *est

    / :ail lived 20 %iles

    'ro% her old ob

    / :ails ne ob is I5

    %iles 'ro% her old

    ho%e

    / :ail %eets the

    distance test

    ?ld

    Job

    Ge

    Job

    ?ld

    Residence

    20 mi.20 mi.

    75 mi.75 mi.

  • 7/25/2019 Ch9 - 2015

    22/69

    22

    Moving $)penses ( *i%e *est-slide 1 o' 2

    / *a)payer %ust be 'ull(ti%e e%ployee 'or H!ee4s in the 12(%onth period 'olloing the%ove, or

    / &el'(e%ployed %ust or4 in ne location 'orIK ee4s during the ne)t to years 'olloingthe %ove

    H! o' the ee4s %ust be in the 'irst 12 %onths/ *est aived i' die, disabled, discharged, or

    trans'erred

  • 7/25/2019 Ch9 - 2015

    23/69

    23

    Moving $)penses ( *i%e *est-slide 2 o' 2

    / ' ti%e test not %et during ta)able year, to

    alternatives#

    *a4e the deduction in year %oved. ' test is not

    %et in 'olloing year, either#

    / nclude the a%ount deducted in gross inco%e in the

    'olloing year, or

    / 7ile a%ended return 'or year o' %ove

    Alternatively, ait until ti%e test is %et and then

    'ile a%ended return 'or year o' %ove

  • 7/25/2019 Ch9 - 2015

    24/69

    24

    "eductible Moving $)penses

    / uali'ied %oving e)penses includereasonable e)penses o'#Moving household goods and personal e''ects to

    ne location$)penses o' travel 'or ta)payer and 'a%ily to ne

    location/ Lodging

    / Actual auto costs -not depreciation or %ileage rate o'N.2H5 per %ile 'or each car in 201B

    Meals are not deductible as %oving e)pense

  • 7/25/2019 Ch9 - 2015

    25/69

    25

    *a) *reat%ent o'

    Moving $)penses

    / ;nrei%bursed %oving e)penses are deductible

    forA:

    / Rei%burse%ent or pay%ent by e%ployer#

    7or 3uali'ied %oving e)penses, a%ount is

    e)cluded 'ro% gross inco%e, but no deduction 'or

    related e)penses

    7or non3uali'ied %oving e)penses, a%ount isincluded in gross inco%e and no deduction is

    alloed

  • 7/25/2019 Ch9 - 2015

    26/69

    26

    *he +ig icture ( $)a%ple 2!

    Moving $)penses/ Return to the 'acts o' *he +ig icture on p. !(1.

    / $ven though this is her 'irst ob, Morgan ill

    be entitled to a moving expense deduction.

    *his presu%es that she is not rei%bursed by ite

    Corporation 'or these e)penses.

    *he %ileage on her car also is alloed.

    / 6er deduction isforA: and can be clai%ed

    even i' she chooses the standard deduction

    option.

  • 7/25/2019 Ch9 - 2015

    27/69

    27

    $ducation $)penses-slide 1 o' H

    / $ducation e)penses o' an e%ployee are

    deductible i' they are incurred#

    *o %aintain or i%prove e)isting s4ills, or

    *o %eet e)press re3uire%ents o' the e%ployer or

    re3uire%ents i%posed by la to retain

    e%ploy%ent status

  • 7/25/2019 Ch9 - 2015

    28/69

    28

    $ducation $)penses-slide 2 o' H

    / $ducation e)penses o' an e%ployee are not

    deductible i' they are incurred#

    *o %eet %ini%u% educational standards 'or

    e)isting ob, or

    *o 3uali'y ta)payer 'or ne trade or business

  • 7/25/2019 Ch9 - 2015

    29/69

    29

    $ducation $)penses-slide H o' H

    / $ducation e)penses include#

    *uition

    +oo4s

    &upplies

    *ransportation

    *ravel -including lodging and 50< %eals

  • 7/25/2019 Ch9 - 2015

    30/69

    30

    "eduction 7or uali'ied *uition and

    Related $)penses -slide 1 o' H

    / A deduction is alloedforA: 'or 3uali'ied

    tuition and related e)penses involving higher

    education -i.e., postsecondary

  • 7/25/2019 Ch9 - 2015

    31/69

    31

    "eduction 7or uali'ied *uition and

    Related $)penses -slide 2 o' H

    / *he %a)i%u% deduction depends on 'ilingstatus and Modi'ied A:

  • 7/25/2019 Ch9 - 2015

    32/69

    32

    "eduction 7or uali'ied *uition and

    Related $)penses -slide H o' H

    / uali'ied tuition and related e)penses include

    hatever is re3uired 'or enroll%ent

    ;sually, student activity 'ees, boo4s, roo% and

    board are not included

    / $)penses need not be or4 related

    / "eduction is not available 'or %arried persons

    'iling separately

  • 7/25/2019 Ch9 - 2015

    33/69

    33

    *he +ig icture ( $)a%ple H2

    $ducation $)penses/ Return to the 'acts o' *he +ig icture on p. !(1.

    / A'ter starting her ne ob, Morgan enrolls in

    the night progra% o' a local la school.

    Although Morgan does not plan to practice la,

    she 'eels that a la degree ould advance her

    career.

    / $)cept 'or the tuition she pays -see thediscussion o' O 222, none o' her e)penses

    relating to the education ill be deductible.

  • 7/25/2019 Ch9 - 2015

    34/69

    34

    $ntertain%ent $)penses-slide 1 o' H

    / "eductions are very restricted due to abusepossibilities"eductible a%ount alloed#

    / 50< o' %eals and entertain%ent costs including relatedta)es, tips, cover charges, par4ing 'ees, and roo% rental'ees

    / 100< o' transportation costs

    A%ounts cannot be lavish or e)travagantn certain situations, the 50< cutbac4 'or %eals is

    eased 'or certain, very li%ited, types o' e%ployees

  • 7/25/2019 Ch9 - 2015

    35/69

    35

    $ntertain%ent $)penses-slide 2 o' H

    / *he 50< cutbac4 rule has a nu%ber o'e)ceptions, such as#&ituations here 'ull value o' %eals or

    entertain%ent is included in inco%eMeals and entertain%ent are provided in a

    subsidi>ed eating 'acility or here the de %ini%is'ringe bene'it rule is %et

    $%ployer(paid recreational activities 'ore%ployees

    / e.g., the annual Christ%as party or spring picnic

  • 7/25/2019 Ch9 - 2015

    36/69

    36

    $ntertain%ent $)penses-slide H o' H

    / $ntertain%ent e)penses are classi'ied as

    either#

    Directly relatedto business

    / Actual business %eeting or discussion occurs during

    %eal or entertain%ent

    Associated withbusiness

    / Meal or entertain%ent that directly precedes or 'ollosbusiness %eeting or discussion

  • 7/25/2019 Ch9 - 2015

    37/69

    37

    Restrictions on $ntertain%ent

    $)penses -slide 1 o' H

    / Club dues

    :enerally not deductible

    / $)ception# Clubs 'or%ed 'or public service and

    co%%unity volunteeris% -e.g., ianis, Rotary

    +usiness entertain%ent e)penses incurred at club

    are still deductible -50

  • 7/25/2019 Ch9 - 2015

    38/69

    38

    Restrictions on $ntertain%ent

    $)penses -slide 2 o' H

    / *ic4et purchases 'or entertain%ent

    A%ounts paid in e)cess o' 'ace value o' tic4et are

    not deductible

    Li%itation on deductibility o' lu)ury s4ybo)

    e)penditures

  • 7/25/2019 Ch9 - 2015

    39/69

    39

    Restrictions on $ntertain%ent

    $)penses -slide H o' H

    / +usiness gi'ts

    +usiness gi'ts o' tangible personalty ith a value

    o' N25 or less per person per year are deductible

    / ncidental costs -e.g., gi't(rapping are not included inthe cost o' the gi't in applying the li%it

    ' the value is NB or less -e.g., pen ith co%pany

    na%e then not subect to N25 li%it

    / :i'ts to e%ployers or superiors are not

    deductible

  • 7/25/2019 Ch9 - 2015

    40/69

    40

    ?''ice in the 6o%e-slide 1 o' 2

    / "eductibility is very restricted due to abuse

    possibilities

    ?''ice %ust be used e)clusively and on a regular

    basis as#/ *he principal place o' business, or

    / A place o' business used by clients, patients, or

    custo%ers

    7or e%ployees, o''ice %ust also be 'or the

    convenience o' the e%ployer

  • 7/25/2019 Ch9 - 2015

    41/69

    41

    ?''ice in the 6o%e-slide 2 o' 2

    / 8hat constitutes Eprincipal place o'

    businessF9

    6o%e o''ice 3uali'ies as a principal place o'

    business i'#/ *a)payer conducts ad%in. and %g%t. activities in the

    ho%e o''ice, and

    / *here is no other 'i)ed location here ta)payer

    conducts these activities

  • 7/25/2019 Ch9 - 2015

    42/69

    42

    ?''ice in the 6o%e "eduction-slide 1 o' 5

    / "eduction can be deter%ined in either o' to

    ays#

    *he regular -actual e)pense %ethod, or

    *he si%pli'ied -sa'e harbor %ethod

  • 7/25/2019 Ch9 - 2015

    43/69

    43

    ?''ice in the 6o%e "eduction-slide 2 o' 5

    / Regular %ethod

    Relevant e)penses are categori>ed as direct or

    indirect

    / "irect e)penses bene'it only the business part o' theho%e -e.g., the o''ice is repainted

    "educted in 'ull

    / ndirect e)penses are 'or %aintaining and operating the

    ho%e Allocate beteen business and personal

  • 7/25/2019 Ch9 - 2015

    44/69

    44

    ?''ice in the 6o%e "eduction-slide H o' 5

    / Regular %ethod

    Alloable ho%e o''ice e)penses cannot create a

    loss

    / A%ounts alloed as ite%i>ed deductions anyay

    %ust be deducted 'irst

    e.g., %ortgage interest P real estate ta)es

    Any disalloed a%ounts are carried 'orard and

    used in 'uture years subect to the sa%e li%itations

  • 7/25/2019 Ch9 - 2015

    45/69

    45

    ?''ice in the 6o%e "eduction-slide B o' 5

    / Regular %ethod

    All ho%e o''ice e)penses o' an e%ployee are %isc.

    ite%i>ed deductions, e)cept those -such as interest

    and ta)es that 3uali'y as other personal ite%i>eddeductions

    6o%e o''ice e)penses o' a sel'(e%ployed

    individual are trade or business e)penses and are

    deductiblefor A:

  • 7/25/2019 Ch9 - 2015

    46/69

    46

    ?''ice in the 6o%e "eduction-slide 5 o' 5

    / &i%pli'ied %ethod

    A ho%e o''ice e)pense deduction o' N5 per s3uare

    'oot is alloed

    / &ince no %ore than H00 s3uare 'eet can be counted, the%a)i%u% deduction is li%ited to N1,500

    Go deduction is alloed 'or depreciation or other

    actual e)penses o' operating the ho%e

    / ?therise deductible a%ounts 'or interest and ta)es %ay

    still be deducted in 'ull

    Go carryover o' unused a%ounts is alloed

  • 7/25/2019 Ch9 - 2015

    47/69

    47

    ?ther $%ployee $)penses

    / A partial list o' other e%ployee e)penses that

    are deductible includes#

    &pecial clothing -uni'or%s

    ;nion dues

    ro'essional e)penses

    Job hunting in sa%e pro'ession

    $ducator e)penses -deductiblefor A:/ Li%ited to N250 per year 'or supplies, etc. o' ele%entary

    and secondary school teachers

  • 7/25/2019 Ch9 - 2015

    48/69

    48

    *he +ig icture ( $)a%ple BI

    Job 6unting $)penses

    / Return to the 'acts o' *he +ig icture on p. !(1.

    / Recall that Morgan conducted an e)tensive ob

    search be'ore obtaining her position ith ite

    Corporation.

    +ecause this is her 'irst ob, the e)penses she

    incurred in the search are not deductible.

  • 7/25/2019 Ch9 - 2015

    49/69

    49

    Contributions to Retire%ent Accounts-slide 1 o' 2

    / Retire%ent plans 'all into to %aorclassi'ications depending on ho is covered7or e%ployees usually 'ollo one o' to inco%e

    ta) approaches/ Most plans allo an exclusion'ro% inco%e 'or the

    contributions the e%ployee %a4es to the pension plan

    / Alternatively, using the approach 'olloed by a

    traditional RA, a contributing e%ployee is alloed adeductionforA: Ma)i%u% deduction is N5,500 'or 201B

  • 7/25/2019 Ch9 - 2015

    50/69

    50

    Contributions to Retire%ent Accounts-slide 2 o' 2

    / Retire%ent plans 'or sel'(e%ployed ta)payers

    Called eogh -or 6.R. 10 plans

    / 7ollo the deduction approach o' traditional RAs

    / A%ounts contributed under a plan are deductibleforA:

  • 7/25/2019 Ch9 - 2015

    51/69

    51

    Classi'ication o' $%ployee $)penses-slide 1 o' 2

    / "epends on hether they are rei%bursed and,

    i' rei%bursed, under hat type o' plan

  • 7/25/2019 Ch9 - 2015

    52/69

    52

    Classi'ication o' $%ployee $)penses-slide 2 o' 2

    / $%ployers can have three types o'

    rei%burse%ent plans

    Accountable

    Gonaccountable

    Go rei%burse%ent is given

  • 7/25/2019 Ch9 - 2015

    53/69

    53

    Accountable lan-slide 1 o' 2

    / lan %ust re3uire adequate accountingto the

    e%ployer 'or e)pense rei%bursed, and

    / Any e)cess rei%burse%ents %ust be returned

    to the e%ployer

  • 7/25/2019 Ch9 - 2015

    54/69

    54

    Accountable lan-slide 2 o' 2

    / Ade3uate accounting is

    &ub%itting a record, ith receipts, to the

    e%ployer, or

    ;sing a per die% alloance that is not %ore thanthe 7ederal per die% rate

    / $%ployee reports no inco%e and ta4es no

    deduction to the e)tent o' the rei%bursede)penses

  • 7/25/2019 Ch9 - 2015

    55/69

    55

    &ubstantiation 'or $)penditures-slide 1 o' 2

    / Go deduction alloed 'or an e)pense i' the

    ta)payer does not have ade3uate records 'or

    the e)pense

    *here'ore, ta)payers need to have good records 'or

    e%ployee or sel'(e%ployed e)penses

    / n so%e cases, use o' per die% alloance ill be

    dee%ed substantiation

  • 7/25/2019 Ch9 - 2015

    56/69

    56

    &ubstantiation 'or $)penditures-slide 2 o' 2

    / Records should include#

    *he a%ount o' the e)pense

    *he ti%e and place o' travel or entertain%ent -or

    date o' gi't

    *he business purpose o' the e)pense

    *he business relationship o' the ta)payer to the

    person entertained -or receiving the gi't

  • 7/25/2019 Ch9 - 2015

    57/69

    57

    Gonaccountable lan

    / lan that does not re3uire ade3uate accounting

    or return o' e)cess rei%burse%ent or both

    Rei%bursed a%ounts received under this plan are

    included in gross inco%e

    $)penses are deductiblefromA: as

    %iscellaneous ite%i>ed deductions subect to the

    2< o' A: li%itation

  • 7/25/2019 Ch9 - 2015

    58/69

    58

    ;nrei%bursed $%ployee $)penses

    / $)penses are deductiblefromA: as

    %iscellaneous ite%i>ed deductions subect to

    the 2< o' A: li%itation

    ' e%ployee could have received, but did not see4,rei%burse%ent 'or hatever reason, none o' the

    e%ploy%ent(related e)penses are deductible

    Mi ll t i d

  • 7/25/2019 Ch9 - 2015

    59/69

    59

    Miscellaneous te%i>ed

    "eductions

    / Miscellaneous ite%i>ed deductions subect to

    the 2< o' A: li%itation

    Certain %iscellaneous e)penses %ust be added

    together and the a%ount in e)cess o' 2< o'ta)payers A: is deductiblefromA: -i.e.,

    ite%i>ed deduction reported on &ch. A

    $ l ' Mi ll t i d

  • 7/25/2019 Ch9 - 2015

    60/69

    60

    $)a%ples o' Miscellaneous te%i>ed

    "eductions &ubect to 2< 7loor

    / Most rei%bursed e)penses under a nonaccountable

    plan

    / ;nrei%bursed e%ployee e)penses

    / &ection 212 e)penses not related to rents androyalties

    / *a) return preparation 'ee

    / 6obby e)penses/ nvest%ent e)penses -e)cept interest and ta)es

    $ l ' Mi ll t i d

  • 7/25/2019 Ch9 - 2015

    61/69

    61

    $)a%ples o' Miscellaneous te%i>ed

    "eductions Got &ubect to 2< 7loor

    / %pair%ent(related or4 e)penses o'

    handicapped individuals

    / :a%bling losses to the e)tent o' innings

    / Certain ter%inated annuity pay%ents

  • 7/25/2019 Ch9 - 2015

    62/69

    62

    Co%puting 2< o' A: Li%itation-slide 1 o' 2

    / $)a%ple

    *a)payer, a single individual, provides the 'olloing

    in'or%ation 'or 201B

    / NH0,000 A:/ N =,500 deductible interest e)pense and ta)es paid

    / N 1,500 e%ployee business e)penses, and

    / N 500 ta) return preparation 'ee

  • 7/25/2019 Ch9 - 2015

    63/69

    63

    Co%puting 2< o' A: Li%itation-slide 2 o' 2

    / $)a%ple -contd

    nterest and ta)es N=,500

    Misc. e)penses#$%ployee bus. e)p. N1,500

    *a) return prep. 500

    *otal N2,000

    Less 2< A: ( =00 1,B00

    te%i>ed deductions NI,!00

  • 7/25/2019 Ch9 - 2015

    64/69

    64

    Re'ocus ?n *he +ig icture -slide 1 o' 5

    / &everal ta) issues %ight arise as a result o' Morgansne ob. *he 'irst ta) issue relates to the dependency e)e%ption.

    / ' Morgan as living at ho%e and accepted the ob late in the year,

    she could 3uali'y as a dependent o' her parents. ' so, they %ight also be able to clai% the 3uali'ied tuition deduction

    -or the li'eti%e learning credit.

    ', hoever, her e%ploy%ent began early in the year, it%ay not be possible 'or her parents to clai% her as a

    dependent either because/ &he is not a 3uali'ying child due to the sel'(supporting li%itation,

    or

    / &he is not a 3uali'ying relative due to the gross inco%e li%itationDsee Chapter H.

  • 7/25/2019 Ch9 - 2015

    65/69

    65

    Re'ocus ?n *he +ig icture-slide 2 o' 5

    / ?ther ta) issues ould include the 'olloing./ Job hunting e)penses ( Morgans e)tensive search 'or e%ploy%ent

    suggests that she %ay have incurred ob hunting e)penses &uch e)penses are not deductible in a 'irst ob setting.

    / Moving $)penses ( 6er 3uali'ied %oving e)penses are not so restricted.

    Moving e)penses are deductionsforA:./ ?''ice in the ho%e deduction ( ;nder the circu%stances, Morgan isusti'ied in clai%ing an o''ice in the ho%e deduction using either theregular %ethod or the si%pli'ied %ethod. ;nder the regular %ethod, the deduction ould include a portion o' the rent

    and utilities paid and related %aintenance costs.

    *he sa'e harbor %ethod ould allo Morgan N5 per s3uare 'oot 'or businessspace, but not %ore than H00 s3uare 'eet, or N1,500. ;nder either %ethod, she ould also be alloed depreciation -or e)pensing o'

    o''ice e3uip%ent and 'urnishings -e.g., co%puter, copier, des4, 'ile cabinet. &he %ust be care'ul not to violate the e)clusive use restriction.

  • 7/25/2019 Ch9 - 2015

    66/69

    66

    Re'ocus ?n *he +ig icture-slide H o' 5

    / *ravel Morgan is re3uired to travel as part o' her ob and soill use her car 'or business. *hus, she ill need to %a4e a choice beteen the auto%atic %ileage

    %ethod and the actual cost %ethod. &ince her ta) ho%e is in her apart%ent, she ill have no nondeductible

    co%%uting e)penses.

  • 7/25/2019 Ch9 - 2015

    67/69

    67

    Re'ocus ?n *he +ig icture-slide B o' 5

    / *ravel Alloance *a) treat%ent depends on hether it is anaccountable plan ' she renders an ade3uate accounting -and has to return any e)cess to

    ite Corporation, then her alloance need not be reported on her7ederal inco%e ta) return.

    / Gonrei%bursed a%ounts, hoever, %ust be allocated beteen %eals andentertain%ent -subect to the 50< cutbac4 and other e%ploy%ent(relatede)penses.

    / *he balance is an ite%i>ed deduction subect to the 2 percent(o'(A: 'loor.

    ' she does not render an ade3uate accounting, the 'ull alloance isincluded in her gross inco%e.

    / All o' the %eals and entertain%ent e)penses are subect to the 50e herdeductions. nstead, she ill clai% the standard deduction e''ectively

    eli%inating her ability to deduct any e%ploy%ent(relatede)penses.

    / Morgan %ust %aintain ade3uate substantiationregarding all o' these e%ploy%ent related

    transactions. "etailed records are particularly i%portant in arriving at

    the o''ice in the ho%e deduction and the business use o' anauto%obile under the actual cost %ethod.

  • 7/25/2019 Ch9 - 2015

    69/69

    If you have any comments or suggestions concerning this

    PowerPoint Presentation for South-Western Federal

    Taxation, please contact

    !r" !onald #" Trippeer, $P%

    [email protected]

    S&'( )neonta