Tax Related Issues

Lisa RiccardiTax Manager, VonLehman & Company

Agenda

• Types of Reimbursement Plans• Common Deductions• Substantiation Requirements• Questions

Accountable Plan

• Not included in employee’s income• No deduction for expense• Requirements– Business Connection– Substantiation– Return of Excess Reimbursement

• Reasonable period of time

Nonaccountable Plan

• Treated as taxable wages– Reported on W-2

• Employee can utilize Form 2106 (discussed later)

• Cannot convert payments• Half & Half– Each treated separately

Common Deductions - Supplies

• Eligible Educator– Kindergarten through grade 12– Work 900 hours

• $250 maximum deduction– Above the line

• Various supplies qualify• Health & Physical Education– Must be related to athletics

Continuing Education Credit

• Lifetime Learning Credit– Unreimbursed tuitions and fees– Graduate classes apply– Up to $2,000– Unlimited number of years– AGI phase-out• $107,000-$127,000 MFJ• $53,000-$63,000 Single

Tuition & Fees Deduction

• Above the line deduction• Tuition and fees includes books, supplies, and

equipment• Undergraduate and graduate• Not allowed if expenses are deducted under

another provision• Up to $4,000 qualifying expenses, depending

on income

Employee Business Expenses

• Reported on Form 2106• Itemized Deduction (Below the Line)– Subject to 2% of Adjusted Gross Income (AGI)

• Why File?– Unreimbursed Job Related Cost – travel, meals,

transportation, vehicle, entertainment– Expenses in excess of employer reimbursements

Do you need a Form 2106?

• No reimbursements by employer or reimbursement equals expense

• Only expenses except for:– Vehicle – Travel– Transportation– M&E

• Directly on Line 21 Schedule A• 2% AGI Limitation

What is a Deductible Business Expense?

• IRS has no specific list “All ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business are deductible. An ordinary expense is one that is common and accepted in a particular field of business, trade, or profession. A necessary expense is one that is helpful and appropriate for a particular business, trade, or profession.”

Employee Expense - Meals

• Directly related– Main purpose business related– Not lavish or extravagant

• Limited to 50% of expense• Exceptions– De Minimis fringe benefits– Treated as taxable compensation– Employer provided

Employee Expense -Travel

• Transportation and Lodging – Must be away from tax home

• Time away determination– Longer than ordinary work day– Rest or sleep

• 100% deductible

Employee Expense - Uniforms

• Cost and Upkeep – Condition of employment– Not suitable for everyday wear

Employee Expense - Vehicle

• Two methods to calculation deduction– Standard mileage– Actual expenses

• Necessary Information– Total miles driven for year– Total business miles for year– Date placed in service

Employee Expense - Vehicle

• Only deduct business portion of expenses• Need substantiation– Amount of each expense (receipts)– Track mileage (log)– Date of each expense

• Standard mileage rate for 2014– 56.5 cents per mile

Employer Provider Vehicle

• Fringe benefit -taxable depending on use• Tax free– 100% for business– De minimis use – personal use too small to

account for– Written policy against personal use

Commuting Expenses

• Commute between home and work location not deductible

• Deductible if commute is between:– Home and temporary work location outside metro

area– One or more regular work locations away from

home, in same trade or business

Work-Related Education Costs

• Required by employer• Required by law• Required by government regulation• Maintain or improve skills required in

performing present job

Work-Related Education Costs

• Even if standards met cannot deduct cost to:– Help return to a job, business, or profession– Meet minimal requirements for a trade or

business – Qualify for a new job, trade or business

Deductible Education Expenses

• Tuition, textbooks, registration fees and supplies

• Transportation• Meals & lodging while attending school away

from home• Writing expenses for term papers or

dissertations

Teachers’ Education Expenses

• All ordinary and necessary expenses incurred to:– Meet employer’s or state requirements for

keeping salary, job status or employment– Maintain or improve job skills– Become licensed in another state

Teachers’ Education Expenses

• Change positions or duties within the teaching field– Elementary to secondary teacher– Teacher in one subject to another subject– Teacher to counselor or school administrator

• Additional college courses even if lead to higher degree or salary

• Sabbatical or leave of absence

Charitable Deduction

• Unreimbursed gifts to school– Classroom supplies– Textbooks– Library books– Gym equipment– Money to assist with fundraiser or school project

QUESTIONS & COMMENTS

Thank you !!