Tax Chapter 9 - Chapter Outlines SWFT

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Chapter 9: Deductions: Employee and Self-Employed-Related Expenses Employee vs. Self-Employed Both perform services for another Self-employed not included in fringe bennies or retirement plans Expenses of self-employed are deductions for AGI on schedule C Expenses of employees are dedux from AGI on 2106 and Schedule A When an employee? When the employer has the right to specify the end result and the ways and means by which that result will be attained, what and how , self-employed if just what Factors that indicate employee-employer relationship: Furnishing tools, eqpt, place to work, providing support services, making training available, fringe-benefit participation, paying for services based on time, employees easier to terminate Statutory employees: workers who are not common law employees but treated as such for employment tax purposes (life ins. Agents, home workers, dry cleaning pickup services, etc.), business expenses are Schedule C, wages are not subject to federal income tax withholding but are subject to SS Employee Expenses – 6 categories Transportation Expenses – unreimbursed employment-related tx expenses are itemized deduction from AGI (not away from home in travel status), includes taxi, parking, tolls, etc. Commuting expenses not deductible unless travel from 1 job to another or between work stations or transporting work implements (when automobile would otherwise not have been used), home to temp. work station allowed, reasonable travel cost between general working area and temp work station outside the area allowed Computation of expenses: 2 choices in determining Automatic mileage method: aka standard mileage method, simplified record keeping, multiply rate by mileage driven (2010 50 cents/mile, fluctuates) Vehicle must be owned/leased by taxpayer, not used for hire, must not be more than 5 vehicles in use at one time, basis adj. req’d for changing from automatic mileage method to actual operating method Use in first year is election to waive MACRS Cannot use if S179 applied or MACRS used Actual Cost Method: includes gas, oil, depreciation, insurance, dues, repairs, parts, licenses and reg, parking and tolls Depreciation allowance subject to limitations when vehicle is mixed-use Sales tax on car recovered via depreciation NO deductions for Parking tickets and traffic violations under either method Travel Expenses: itemized dedux allowed, include transport, meals and lodging, and reasonable incidentals while away from home in pursuit of trade or business Away-from-home Req’t: crucial test for expense dedux eligibility is overnight
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Temporary assignments: must be away from home for temp. period cannot exceed 1 year Determining the tax home: area in which taxpayer derives income, may follow taxpayer as in case of itinerant taxpayer (Truckdriver example) If more than one place of business then main home is tax home, determined by time spent, level of activity involved, and income earned at each job Restrictions on travel expenses: to prevent vacations or pleasure travel from being
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Tax Chapter 9 - Chapter Outlines SWFT

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