Chapter 9 - CHAPTER 9 CHAPTER 9 Employee and Self­...

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Unformatted text preview: CHAPTER 9 CHAPTER 9 Employee and Self­ Employed Expenses Dilemma! Employee or Dilemma! Employee or Self­Employed? Determining Factors for Employee or Self­Employed – – – Level of Control of Work Environment by the Employer Facts & Circumstances Test “20 Question” Test is used by IRS agents High Level of Scrutiny currently by IRS Big Tax Implications for Misclassification Payroll Taxes – IRS will assess back taxes Work­Related Expenses – IRS will disallow them Dilemma! Employee or Dilemma! Employee or Self­Employed? ­cont­ Self­Employed Deductions Business Expenses Reduce Earned Income dollar for dollar Detail of Expenses Reported on Schedule C Business Owner is Responsible for All Taxes Most Are Classified as Miscellaneous Itemized Deductions (From AGI) Subject to 2% of AGI Floor Employee Deductions Transportation Categories of Categories of Employee Expense Deductions Business Travel Not Away From Home: (auto, taxi, tolls, parking) Includes Travel to Temporary Work Sites Commuting Not Deductible (home to work & back) Auto Expenses – Two methods: Actual costs vs. mileage method 50¢/mile for 2010 (Choose the one that gives greatest deduction) Both methods require substantiation of business miles and a mileage log TRAVEL EXPENSES Employee Deductions ­ cont’d Employee Deductions ­ cont’d – Definition Transportation, Meals & Lodging are deductible while away from home overnight – Temporary Assignments (cannot exceed 1 yr) – Importance of the Definition of Tax Home Certain Restrictions: Conventions – must be related to employee’s trade Education – must meet deductible education rules Business/Pleasure Trips – Primary purpose is business. All transportation costs are deductible but must allocate meals & lodging $ between business & pleasure. Moving Expenses Employee Deductions ­cont­ Employee Deductions Education Expenses (much confusion!) Must Meet a Time (39 weeks) & a Distance (>50 miles) Tests Only “Qualified” Moving Expense Allowed (direct costs of move + lodging + mileage) Mileage is paid at 16.5¢/mile for 2010 Deduction is Allowed For AGI To Maintain or Improve Skills in present job or; To Meet Legal Requirements of Job but; Cannot Qualify Taxpayer for New Trade Deductible costs include tuition, books, supplies, transportation, meals, lodging. Employee Deductions ­cont­ Employee Deductions Meals & Entertainment associated with business 50% Cutback on meal + tips Tickets – Only face value of regular priced tickets deductible Business Gifts – limited to $25 per receipient Club Dues – generally not deductible (country club, etc.) Home Office Deductions – – – Must be for convenience of employer Area in home must be used EXCLUSIVELY for business Deductions may consist of pro rata share of interest, utilities, taxes, etc. Uniforms, Professional Dues Job Hunting Costs IRA Contributions (Subject to various limitations) Employer Reimbursements Employer Reimbursements and Reporting If Employer Reimburses Employee then Reimbursement is Not Income if Expenses were not originally deducted Accountable vs. Non­Accountable Plans Substantiation Requirements – Accountable Plans require business expense reports – Non­accountable Plans include “Monthly Allowances” Business Purpose, Amount, Time & Place in writing IRS ALLOWS PER DIEM RATES IN LIEU OF ACTUAL RECEIPTS! These Expenses are Reported on Form 2106 then carried to Schedule A in summary For employees Retirement Plans Retirement Plans For Self­employed – Contributions reduce income BEFORE tax. – Examples: 401k, 403b, 457, – Contributions are deductions FOR AGI – Examples: Solo 401k; KEOUGH, SEP, Traditional IRA Non­deductible contributions are also allowed ...
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This note was uploaded on 12/04/2010 for the course ACCT 3200 taught by Professor Martin during the Fall '08 term at Kennesaw.

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