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PH9ky412 - CHAPTER 9 EMPLOYEE EXPENSES I CLASSIFICATION A...

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CHAPTER 9
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EMPLOYEE EXPENSES I. CLASSIFICATION - A. Dfor or Dfrom AGI - Dfor or Dfrom Type of Expense Employee 1 Self-Employed 1 Transportation Dfrom 2,3 Dfor Travel Dfrom 2,3 Dfor Entertainment Dfrom 2,3,5 Dfor 5 Moving Expense Dfor Dfor Education Dfor 4 or Dfrom 2,3 Dfor Office in Home Dfrom 2,3 Dfor Misc. Employee Expenses Dfrom 2,3 Dfor 1 Meals are only 50% deductible. (Meals are not deductible for moving expenses.) 2 If these expenses are reimbursed they are Dfor AGI. However, see B below. 3 These are miscellaneous itemized deductions, therefore, they are deductible only in excess of 2% of AGI. 4 A limited amount of expenses are allowed Dfor within AGI limits. 5 These are only 50% deductible (before applying the 2% of AGI limit).
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B. REPORTING OF REIMBURSED EMPLOYEE EXPENSES - Applies to all expenses except Moving Expenses, IRAs, and Keogh plans. Reporting of Expenses 1. Reimbursement = Expenses a. If adequate accounting is made 1) Reimbursement not reported on W-2 No Reporting 2) Reimbursement reported on W-2 Dfor b. If adequate accounting is not made Dfrom 2. Reimbursements < Expenses a. If adequate accounting is made 1) Reimbursement not reported on W-2 or Dfrom (excess reported on W-2 but not as wages expenses only) 2) Reimbursement reported on W-2 Reimbursed - Dfor Unreimb. - Dfrom b. If adequate accounting is not made Dfrom 3. Reimbursements > Expenses a. If adequate accounting is made 1) Excess reimbursement is returned a) Reimbursement not reported on W-2 No Reporting b) Reimbursement reported on W-2 Dfor (amt. of exp.) 2) Excess reimbursement is not returned Dfrom b. If adequate accounting is not made Dfrom
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Adequate Accounting (or Accountable Plan) requirements— a. Substantiate expenses to employer and provide receipts (per diem may be used for meals and mileage). b. Return to employer any excess reimbursements. Substantiation— 1. Amount. 2. Time and place. 3. Business purpose. 4. Business relationship of the taxpayer to person entertained. C. EXPENSES MUST BE ALLOCATED ON A PRO RATA BASIS FOR PARTIAL REIMBURSEMENTS - Example --H, a salesman for XYZ Corporation, paid the following expenses for which he was reimbursed $700: Meals $600 Lodging 400 Dfor AGI - 600/1,000 X 700 = 420 Meals 400/1,000 X 700 = 280 Lodging 700 Total Dfor AGI
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Dfrom AGI - (600 - 420) X 50% = 90 Meals 400 - 280 = 120 Lodging 210 Total Less: 2% X AGI II. TRANSPORTATION EXPENSES - Includes expenses for autos, taxi, bus, plane, and other modes of transportation as well as parking and tolls. A. COMMUTING EXPENSES - Generally not deductible. However, there are some exceptions: 1. Two jobs - commuting distance between jobs is deductible. 2. Miles greater than the normal commuting distance are deductible. 3. Temporary assignments - all or nothing! (with some exceptions) Temporary = 1 year. Travel must be further than general vicinity of work. B. AMOUNTS DEDUCTIBLE -
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