Chapter 6

Chapter 6 - 101 Chapter 6 Other Itemized Deductions...

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© 2010 CCH. All Rights Reserved. Chapter 6 101 Chapter 6 Other Itemized Deductions Highlights of 2010 Tax Changes The standard mileage rate in 2010 for deducting business use of a vehicle is $.50 per mile (down from $.55 per mile in 2009). The depreciation component built into the standard mileage rate for business miles driven during 2010 increased to $.24 per mile (from $.21 in 2009). Teaching Suggestions Most taxpayers do not have enough miscellaneous itemized deductions subject to the 2% of AGI rule. 1. However, employees who are not reimbursed for their travel (such as sales people) should always keep good records of these expenses, just in case. Taxpayers might have their standard deduction within reasonable range of their itemized deductions. Taxpayers 2. can minimize their tax liability by planning their payments to take the standard deduction in one year and then to itemize deductions in the next year or vice versa. Solutions to Questions and Problems The six elements include the (1) amount, (2) date, (3) place, (4) business purpose, (5) business relationship, 1. and (6) identity of the individuals. a. When the reimbursement comes from an accountable reimbursement plan, the employee is not taxed on 2. the reimbursement. Martin is entitled to deduct the amount by which his deductible car expenses ($4,305 × $.50 = $2,152.50) exceed his $1,506.75 reimbursement. Martin deducts $646 as an employee business expense. The deduction is taken as a miscellaneous itemized deduction on Schedule A (subject to the 2% AGI rule). ¶602.01. b. When the reimbursement is made from a nonaccountable reimbursement plan, the employee is taxed on the full amount of the reimbursement. Thus, the $1,506.75 would be included in Martin’s gross income as additional taxable wages. Martin is allowed to deduct on Form 2106 the $2,153 that he can substantiate as deductible car expenses. This amount is deducted as a miscellaneous itemized deduction (subject to the 2% AGI rule) on Schedule A. ¶602.01. c. An accountable plan is one that both (1) requires employees to account for (turn in) adequate substantiation for their business expenses, and (2) return any excess reimbursements. Thus, a nonaccountable plan would be one where the employer advances the employee amounts and does not require any excess to be returned. A nonaccountable plan also would be one where the employer reimburses employees without checking to see that proper documentation exists for the expense. ¶602.01. a. $2,878 [(12,400 × $.50) + $398 (12,400 × $.30)]. ¶602.03. 3. b. $1,361 [($6,927 × 12,400/18,340 + $398 (12,400 × $.30)]. ¶602.03. c. Because the standard mileage method produces a larger deduction, Estes should use this method to deduct his car expenses in 2010. However, he can only use the standard mileage method if he has not used an accelerated depreciation method to deduct car expenses in a prior year with respect to this vehicle. ¶602.03. d.
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Chapter 6 - 101 Chapter 6 Other Itemized Deductions...

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