BIZ DEDUCTIONS

Employee uses personal car for work and is reimbursed MORE than the federal mileage rate. How much is taxable VS nontaxable?

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The actual expenses are more than the federal mileage rate. How much expenses are deductible?

THE $ UP TO THE FEDERAL RATE IS NOT TAXABLE.

THE EXCESS OVER THE FEDERAL RATE IS TAXABLE.

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IT IS NOT DEDUCTIBLE. EMPLOYEES GENERALLY CANNOT DEDUCT UNREIMBURSED EMPLOYEE BUSINESS EXPENSES

WHAT QUESTIONS ARE USED TO DETERMINE A TAX PAYERS TAX HOME?

1. HOME + WORK - YOU WORK GEOGRAPHICALLY AROUND THE HOME AND USE THAT HOME FOR PERSONAL NEEDS WHILE WORKING

2. HOME EXPENSES 2X - YOU PAY FOR YOUR TAX HOME WHILE PAYING FOR ANOTHER HOUSING FOR WORK PURPOSES

3. HOME CONNECTION - DIDN’T ABANDON YOUR MAIN HOME, YOUR FAMILY LIVES THERE OR YOU REGULARY RETURN TO USE IT

WHAT KIND OF EXPENSE IS DEPRECIATION?

BUSINESS EXPENSE

WHAT PERCENT OF ENTERTAINMENT EXPENSES ARE DEDUCTIBLE?

0%

EMPLOYER REIMBURSES EMPLOYEE WITH ACCOUNTABLE PLAN. WHO IS IT DEDUCTIBLE FOR? WHAT KIND OF EXPENSE MUST IT BE?

IF THE EMPLOYER REIMBURSES THE EMPLOYEE WITH AN ACCOUNTABLE PLAN, THEN THE EMPLOYER CAN DEDUCT. THE EXPENSE MUST BE ORDINARY AND NECESSARY TO THE BUSINESS TO DEDUCT.

ARE EMPLOYEES ABLE TO DEDUCT UNREIMBURSED EXPENSES? WHY?

NO, BECAUSE EMPLOYEES (W2) CANNOT DEDUCT EXPENSES GENERALLY.

NONBUSINESS BAD DEBT. WHAT KIND OF OBLIGATION MUST IT BE?

PERSONAL DEBT OWED TO YOU THAT BECOMES COMPLETELY UNCOLLECTIBLE AND IS UNRELATED TO YOUR TRADE OR BUSINESS. MUST BE A BONA FIDE DEBT OBLGIATION

BONA FIDE DEBT OBLGIATION

REAL, LEGALLY BINDING LOAN WHERE BOTH THE LENDER AND BORROWER GENUINELY EXPECT THE MONEY TO BE PAID BACK. MEANS THE TRANSACTION IS A TRUE LOAN RATHER THAN A HIDDEN GIFT OR A PURCHASE OF COMPANY STOCK.

WHAT KIND OF LOSS IS A BUSINESS DEBT

ORDINARY LOSS

WHAT KIND OF LOSS IS A NONBUSINESS DEBT

SHORT TERM CAPITAL LOSS

IN ORDER FOR A BAD BUSINESS DEBT TO BE FULLY DEDUCTIBLE:

THE UNPAID AMOUNT MUST BE COMPLETELY UNCOLLECTIBLE

IN ORDER TO CLAIM THE BUSINESS MEAL EXPENSE:

AN EMPLOYEE OR EMPLOYER MUST ATTEND THE MEAL TO CLAIM IT

EXPLAIN THE BUSINESS GIFT DEDUCTION

DEDUCTION IS LIMITED TO $25 PER INDIVIDUAL PER YEAR.

INCIDENTAL COSTS (PACKAGING, INSURED MAILING ECT) DO NOT COUNT TOWARDS LIMIT AS LONG AS IT DOES NOT ADD SUBSTANTIAL VALUE TO MAIN GIFT.

YOU MUST KEEP RECORDS PROVING:

1) EXACT COST OF ITEM

2) DATE OF GIFT

3) DESCRIPTION OF GIFT

4) BUSINESS PURPOSE

5) RECEIPIENTS NAME AND BUSINESS RELATION

BUSINESS GIFT EXCLUSION

ITEMS COSTING $4 OR LESS WITH YOUR PERMANENT BUSINESS NAME ENGRAVED (LIKE PADS OR PENS) DO NOT COUNT TOWARD THE $25 LIMIT IF DISTRIBUTED REGULARY

SELF EMPLOYMENT — WHICH ONES ARE DEDUCTIBLE VS NONDEDUCTIBLE:

1) TRAVELING FROM HOME TO REGULAR/MAIN PLACE OF BUSINESS

2) TRAVELING FROM REGULAR/MAIN PLACE OF BUSINESS TO CLIENT

3) TRAVELING FROM HOME (which is regular place of business) TO CLIENT

1) NOT DEDUCTIBLE. CONSIDERED COMMUTING.

2) DEDUCTIBLE BECAUSE IT IS BUSINESS TRAVEL

3) DEDUCTIBLE IF HOME IS YOUR REGULAR PLACE OF BUSINESS

WHAT IS CONSIDERED A TEMPORARY WORK LOCATION

ANY WORK SITE WHERE YOU REALISTICALLY EXPECT TO WORK AND ACTUALLY DO WORK FOR ONE YEAR OR LESS

SELF EMPLOYED — IS TRAVELING FROM HOME TO TEMPORARY WORK LOCATION AND THEN BACK TO HOME DEDUCTIBLE?

YES

SELF EMPLOYED — IS TRAVELING FROM BUSINESS LOCATION A TO BUSINESS LOCATION B ECT DEDUCTIBLE?

YES

SELF EMPLOYED — IS TRAVELING FROM HOME TO YOUR REGULAR/MAIN WORKPLACE DEDUCTIBLE?

NO

CERTIFICATE OF DEPOSIT— IF YOU ACCRUE A PENALTY FOR WITHDRAWING FUNDS EARLY HOW DO YOU HANDLE IT

REPORT ALL THE INTEREST IN FULL. IF YOU RECEIVE A PENALTY FOR PRIOR INTEREST EARNED IN THE CURRENT YEAR THEN YOU MAKE AN ADJUSTED TO GROSS INCOME.

SELF EMPLOYED — WHEN CAN YOU DEDUCT MEALS AND TRAVEL FOR YOURSELF ?

WHEN YOU ARE AWAY FROM YOUR TAX HOME FOR WORK. ONLY EXPENSES FOR MEALS AND TRAVEL RELATIVE FOR WORK CAN BE DEDUCTED.

FOR REIMBURSEMENT PLAN TO QUALIFY AS AN ACCOUNTABLE PLAN, WHAT ARE THE CONDITIONS:

1) MUST BE A BUSINESS CONNECTION TO EXPENSES

2) EMPLOYEE MUST VERIFY OR BE REPORTED TO HAVE VERFIED THE EXPENSES

3) EMPLOYEE MUST RETURN ANY AMOUNTS THAT EXCEED VERIFIED EXPENSES

EMPLOYER X EMPLOYEE — PER DIEM ALLOWANCE FOR MEALS

SUBSTITUTE PLAN FOR AN ACCOUNTABLE PLAN IN WHICH THE COMPANY DEDUCTS A “REASONABLE AMOUNT” FOR THE COST OF TRAVEL EXPENSES

GUARANTEEING A DEBT

PROMISING TO PAY SOMEONE ELSE’S LOAN OR FINANCIAL OBLIGATION IF THE ORIGINAL BORROWER FAILS TO PAY.

BAD DEBT DEDUCTION —WHAT HAPPENS IF YOU GUARANTEE A DEBT THAT BECOMES WORTHLESS. IN WHAT CIRCUMNSTANCE CAN YOU NOT TAKE THE BAD DEBT DEDUCTION?

YOU CANNOT TAKE A BAD DEBT DEDUCTION FOR YOUR PAYMENTS ON THE DEBT UNLESS YOU CAN SHOW:

1) REASON FOR MAKING THE GUARANTEE WAS TO PROTECT YOUR INVESTMENT

OR

2) YOU ENTERED THE GUARANTEE TRANSACTION WITH A PROFIT MOTIVE.

IF YOU MAKE THE GUARANTEE AS A FAVOR TO FRIENDS AND DO NOT RECEIVE ANY CONSIDERATION IN RETURN, YOUR PAYMENTS ARE CONSIDERED A GIFT AND CANNOT TAKE THE DEDUCTION.

THERE CANNOT BE A BAD DEBT UNLESS THERE IS A TRUE

CREDITOR-DEBTOR RELATIONSHIP BETWEEN YOU AND THE PERSON/ORGANIZATION THAT OWES YOU THE MONEY

IF YOU INCUR A LOSS ON DEPOSITS HOW CAN YOU DEDUCT IT?

ORDINARY LOSS OR SHORT TERM CAPITAL LOSS.

WHAT KIND OF LOSS IS A NONBUSINESS BAD DEBT?

SHORT TERM CAPITAL LOSS

SELF EMPLOYED — THE COST OF PARKING AT YOUR PLACE OF WORK. IS IT DEDUCTIBLE?

NO

SELF EMPLOYED— IN ORDER FOR TRAVEL EXPENSES TO QUALIFY?? GIVE EXAMPLES OF SOME EXPENSES

YOU MUST BE AWAY FROM HOME FOR WORK PURPOSES, THE EXPENSES INCURRED WHILE AWAY FROM HOME OVERNIGHT OR FOR A PERIOD OF TIME LONG ENOUGH TO REQUIRE A REST PERIOD.

EXAMPLES- TRANSPORTATION, MEALS, LODGING, EXPENSES INCIDENT TO TRAVEL, INCLUDING REASONABLE LAUNDRY EXP

WHAT HAPPENS IF AN EMPLOYEE DOESN’T RETURN THE EXCESS REIMBURSEMENT?

EXCESS REIMBURSEMENT AMOUNT IS INCLUDED IN EMPLOYEE’S GROSS INCOME AND NONE OF THE EXPENSES ARE DEDUCTIBLE BY THE EMPLOYEE

EXCEPTION TO THE DISALLOWED EMPLOYEE DEDUCTIONS FOR BUSINESS EXPENSES

IT IS AN ABOVE THE LINE ADJUSTMENT TO INCOME FOR CERTAIN EXPENSES OF:

RESERVISTS, PERFORMING ARTS AND FEE BASIS GOVERNMENT OFFICIALS. YOU REPORT THESE EXPENSES ON 2106.

STANDARD MILEAGE SUBSTANTIATION

RECORD OF TIME, PLACE AND BUSINESS PURPOSE

1099-MISC

MISC INCOME OR PAYMENTS TO INDIVIUDALS OR ENTITIES OTHER THAN W2 EMPLOYEES

1099-NEC

FREE LANCE OR CONTRACTOR PAY IS REPORTED ON THIS FORM

FOR A 1099-MISC, WHAT IS THE MINIMUM AMOUNT PAID TO GET THE FORM?

$600

TRADE OR BUSINESS DEFINED

REGULAR AND CONTINOUS ACTIVITY THAT IS ENTERED INTO WITH EXPECTATION OF MAKING PROFIT. “REGULAR” MEANS THE TP DEVOTES A SUBSTANTIAL AMOUNT OF BUSINESS TIME TO THE ACTIVITY

DIFFERENTIATE HOBBY VS BUSINESS

ACTIVITY THAT RESULTS IN A PROFIT IN ANY 3 OF 5 CONSECUTIVE TAX YEARS (2 OUT OF 7 FOR THE BREEDING AND RACING OF HORSES) IS PRESUMED NOT TO BE A HOBBY

HOBBY EXPENSES AND INCOME WHAT IS REPORTED

EXPENSES IS NOT DEDUCTIBLE BUT INCOME MUST BE REPORTED

ORDINARY EXPENSE DEFINITION

EXPENSE NORMALLY OCCURS OR IS LIKELY TO OCCUR IN CONNECTION WITH BUSINESSES SIMILAR

NECESSARY EXPENSE DEFINITION

EXPENDITURE MUST BE APPROPRIATE AND HELPFUL IN DEVELOPING OR MAINTAINING THE TRADE OR BUSINESS

SHAREHOLDER EXCEEDING REASONABLE COMPENSATION. WHAT HAPPENS TO THE EXCESSIVE PAYMENT?

MAY CONSTITUTE AS A NONDEDUCTIBLE DIVIDEND

COMPENSATION DEDUCTION

CASH AND THE FMV OF PROPERTY PAID TO AN EMPLOYEE ARE DEDUCTIBLE BY THE EMPLOYER. THE EMPLOYER REPORTS THE EXCESS OF THE FMV LESS COST AS INCOME TO EMPLOYEE

VESTED MEANING

HAVING OWNERSHIP OVER THE PROPERTY THAT CANNOT BE TAKEN AWAY

EMPLOYER IS AN ACCRUAL BASIS TAX PAYER. WHAT CAN THEY DEDUCT IN REFERENCE TO VESTED COMPENSATION

UNPAID SICK TIME, VACATON TIME, PTO, AND BONUSES THAT HAVE VESTED (EARNED) BY END OF TAX YEAR 1, MUST BE PAID BY 2 ½ MONTHS AFTER END OF TAX YEAR 1 TO DEDUCT ON TAX YEAR 1. IF IT IS PAID OUT AFTER THE 2 ½ MARK OF TAX YEAR 2, IT IS DEDUCTED IN TAX YEAR 2 INSTEAD. THE COMPENSATION IS TREATED AS DEFERRED COMPENSATION IF IT IS AFTER THE 2 ½ MONTH MARK.

AS AN EMPLOYER ACCRUAL BASIS TAX PAYER, WHEN IS DEFERRED COMPENSATION TAXED?

WHEN IT IS PAID OUT TO EMPLOYEE

WHEN IS A 1099-NEC REQ TO BE PROVIDED?

$600

LESSEE DEFINITION

THE TENANT

LESSOR

THE OWNER OF PROPERTY BEING RENTED TO LESSEE

WHEN ARE ADVANCED RENTAL PAYMENTS DEDUCTABLE?

MAY BE DEDUCTED BY THE LESSEE ONLY DURING THE TAX PERIODS TO WHICH THE PAYMENTS APPLY. (AMORTIZE THE PREPAID RENT)

EXCEPTION TO RULE FOR CASH METHOD TAXPAYER AMORITIZING PREPAID RENT

IF RENTAL CONTRACT IS FOR 12 MONTHS OR LESS AND THE PAYMENTS DO NOT EXTEND BEYOND THE END OF THE NEXT TAXABLE YEAR YOU CAN DEDUCT IT IN THE CURRENT YEAR

IS THE TRAVEL EXPENSE DEDUCTION ALLOWED FOR THE TAXPAYERS SPOUSE?

NO. UNLESS:

• BONA FIDE BUSINESS PURPOSE FOR THE SPOUSE’S PRESENCE

• SPOUSE IS AN EMPLOYEE AND THE EXPENSES WOULD BE DEDUCTIBLE

WHEN CAN YOU NOT TAKE THE TRAVEL DEDUCTION?

IF THE REASON FOR TRAVEL IS FOR EDUCATION OR INVESTMENT MEETINGS

HOW IS AIRFARE EXPENSE TREATED DIFFERENTLY AS FOR OTHER TRAVEL EXPENSES

AIR FAIRE YOU MUST BE ON THE TRIP FOR BUSINESS. ONCE THE PERSONAL DAYS ARE MORE THAN 50% THEN YOU CANNOT DEDUCT ANY AIRFAIRE.

BUT FOR HOTELS, MEALS ECT. YOU CAN ALLOCATE THE BUSINESS VS PERSONAL AND DEDUCT THE BUSINESS ONLY.

SUBSTANTIAN FOR TRAVEL EXPENSES

AMOUNT, TIME, PLACE AND BIZ PURPOSES

ACTUAL EXPENSES METHOD FOR AUTOMOBILE

THE ACTUAL EXPENSES FOR SERVICES, REPAIRS, GAS, INSURANCE, LICENSES ECT ARE DEDUCTIBLE

STANDARD MILEAGE RATE

$0.70 PER MILE. PLUS PARKING FEES, TOLLS ECT

WHAT HAPPENS IF A TAXPAYER SWITCHES FROM STANDARD MILEAGE RATE TO ACTUAL EXPENSES?

DEPRECIATION DEDUCTION MUST BE COMPUTED USING THE STRAIGHT LINE METHOD

HOW TO CALCULATE STRAIGHT LINE METHOD

COST BASIS MINUS DEPRECIATION AMOUNT TAKEN FROM ALL YEARS. MINUS THE SALVAGE VALUE. DIVIDE THAT NUMBER BY THE YEARS LEFT IN THE CARS LIFE.

SALVAGE VALUE

the estimated cash amount an asset is worth when its useful life ends

TRUE OR FALSE Once you switch from standard mileage to actual expenses, you generally cannot switch back to standard mileage for that vehicle.

TRUE

ITINERANT MEANING

PERSON WHO TRAVELS FROM PLACE TO PLACE, USUALLY TO FIND SHORT TERM WORK OR PERFORM A DUTY

HOW TO DETERMINE PRINCIPAL PLACE OF BUSINESS FOR PURPOSES OF TRAVEL EXPENSE DEDUCTION. (WHEN TP HAS MULTIPLE PLACE OF BUSINESSES)

1) TOTAL TIME SPENT AT EACH PLACE OF BUSINESS

2) THE DEGREE OF BUSINESS ACTIVITY AT EACH PLACE OF BUSINESS

3) THE RELATIVE INCOME EARNED AT EACH PLACE OF BUSINESS

DETERMINING PRINCIPAL PLACE OF BUSINESS FOR TAXPAYERS WITHOUT ANY REGULAR OR MAIN PLACE OF BUSINESS:

THEY ARE CONSIDERED ITINERANTS AND THEIR TAX HOME IS WHEREVER THEY WORK. SINCE THEY ARE NEVER AWAY FROM HOME, THEY ARE NOT ALLOWED ANY TRAVEL EXPENSE DEDUCTIONS

FOREIGN TRAVEL EXPENSES:

MUST ALLOCATE BETWEEN TIME SPENT ON THE TRIP FOR BUSINESS AND TIME SPENT FOR PLEASURE

WHEN DO YOU NOT HAVE TO ALLOCATE EXP FOR TRAVEL EXP IF YOU ARE TRAVELLING IN A FOREIGN PLACE?

1) TRIP IS NO MORE THAN 1 WEEK

2) TAXPAYER CAN ESTABLISH THAT A PERSONAL VACATION IS NOT THE MAJOR CONSIDERATION OR THE PERSONAL TIME SPENT ON THE TRIP IS LESS THAN 25% TOTAL

NON BUSINESS BAD DEBT DEDUCTION LIMIT.

$3,000 LIMIT. REMAINING AMOUNT CAN BE CARRIED FORWARD

HAULING TOOLS AND EQUIPMENT IN A VEHICLE WHILE COMMUTING TO AND FROM A REGULAR PLACE OF WORK. IS IT A DEDUCTIBLE TRANSPORTATION EXPENSE?

NO. TAXPAYER CANT DEDUCT COSTS OF COMMUTING TO AND FROM WORK EVEN IF HAULING TOOLS AND EQUIMENTS MAKES THE TYPICAL COSTS EXTRA. BUT THE EXTRA COSTS SUCH AS RENTING A TRAILER TO HAUL EQUIPMENT CAN BE DEDUCTED.