Lecture - 9-1 9-2 In the previous lesson we discussed...

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9-1. In the previous lesson we discussed Depreciation, Cost, Recovery, Amortization, and Depletion. In this lesson we will discuss Deductions: Employee and Self-Employed-Related Expenses 9-2. Considering the large number of taxpayers affected, the tax treatment of job-related expenses is usually complex. To resolve this matter in a systematic fashion, a number of key questions must be asked: Is the taxpayer an employee or self-employed? If an employee, what expenses qualify as deductions? How are the expenses that qualify classified for tax purposes? And to the extent the expenses are classified as deductions from AGI, are they subject to any limitation? Once these questions have been answered, various planning procedures are available to maximize the deductibility of employee expenses 9-3. After completing this lesson, you should be able to: Distinguish between employee and self- employed status. Recognize deductible transportation expenses. Know how travel expenses are treated. Determine the moving expense deducted. Differentiate between deductible and nondeductible education expenses. Understand how entertainment expenses are treated. Identify other employee expenses. Become familiar with various deductions for contributions to retirement accounts. Appreciate the difference between accountable and nonaccountable employee plans. Work with limitations on miscellaneous itemized deductions, and Develop tax planning ideas related to employee business expenses. 9-4. When one person performs services for another, the person performing the service is either an employee or a self-employed, an independent contractor. Failure to recognize employee status can have serious consequences. Not only can interest penalties result, but career opportunities, such as possible political appointments or elected positions, can disappear in the wake of negative media coverage. Once the employment relationship is established, employee expenses fall into one of the following categories: Transportation Travel Moving Education Entertainment, and Other 9-5. An employee may deduct unreimbursed employment-related transportation expenses as an itemized deduction from AGI. Transportation expenses include only the cost of transporting the employee from one place to another in the course of employment when the employee is not away from home in travel status. Such costs include taxi fares, automobile expenses, tolls, and parking. If transportation expenses are incurred when in travel status, the expenses are considered to be travel expenses rater than transportation expenses. Commuting between home and one’s place of employment is a personal, nondeductible expense. A taxpayer has two choices in computing automobile expenses. The actual operating costs, which include depreciation, gas, oil, repairs, licenses, and insurance, may be used. Use of the automatic mileage method is the second alternative. The automatic mileage rate is adjusted annually. Parking fees and tolls are allowed in addition to expenses.
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