Kami Export - Tax Ch 10 and some of 4.pdf

SP tax consequences: chapter 10 1. files schedule C and pays self-employment taxes 2. any business expenses are deducted FOR AGI Employee tax consequences: 1. files a 1040 2. unreimbu...

SP tax consequences: chapter 10 1. files schedule C and pays self-employment taxes 2. any business expenses are deducted FOR AGI Employee tax consequences: 1. files a 1040 2. unreimbursed busn exp are not deductible 3. employers withhold and pay SS and income tax Employee exclusions: 1. Workers comp 2. employer paid health insurance premiums and insurance reimbursements under such plans 2a. if Joe receives $500 in insurance reimbursement, he can deduct all of it 2b. if Joe receives $500 and deducts it in the PY tax returns, he must consider it as GI in the CY 3.Reimbursements for loss of a limb 4.Sick pay premiums, but only the amount the employee paid for them 5.Meals: a. general rule: excludable if for a noncompensatory reason, the convenience of the employer, and on business premises b. If the meal is free, it's NOT excludable unless: the employee is stand by on duty for an emergency limited time to eat not able to secure a meal anywhere in a reasonable period of time for a food service employee, immediately before, during, or after the shift if the employee was supposed to get a meal during the shift but didn't get it until after if it promotes the morale of the employee c. If the meal is not free and the employee chooses to buy it, it is NOT excludable 6.Lodging: excludable if lodging on on business premises, is furnished for the convenience of the employer, and the employee is required to accept as a condition of employment a. if the lodging is considered "no additional cost" meaning it doesn't cost the employer anything to let them stay there, it is also excludable ex. Ira recently moved to take a new job. For the first month on the new job, Ira was searching for a home to purchase or rent. During this time, his employer permitted Ira to live in an apartment that the company maintains for customers during the buying season. The month that Ira occupied the apartment was not during the buying season, however, and the apartment would not otherwise have been occupied. 7.HSA 8.Qualified benefits provided under cafeteria plans 9.Group term life insurance coverage provided by the employer a. formula for determining what is INCLUDABLE in GI: Employee business expenses: 1. Reimbursement received by employee for business expenses is excludable if reimbursement plan is accountable. A plan qualifies to be accountable if: a. there is a business connection between the reimbursement and the employee's expenses b. the plan requires reimbursed expenses be given in a reasonable period of time c. the plan requires that excess reimbursements be returned to the employer in a reasonable period of time If the plan doesn't meet all three requirements, it is a nonaccountable plan and any reimbursement must be included in GI  2.Special accountable plan rule: in an accountable plan, if the employee doesn't provide proof of expenses or fails to return excess reimbursement, only the amount in excess of the actual expenses is includable in GI 3.Per diem/fixed rate reimbursement: if reimbursements do not exceed the federal rate of 67 cents per mile for car usage, all of it is excludable even if the actual expenses are less "Employee business expenses" incurred by SPs: The following are deductible for AGI: 1. Transportation expenses, but only 67 cents per mile and only if: a. cost from going from one job to a second job b. cost of going from residence to a temporary worksite (not normal place of business) c. if the SP uses their personal vehicle to conduct business, there are two options c1: the actual cost is fully deductible but must be substantiated with receipts c2: the per diem rate of 67 cents per mile is used d. toll charges and parking fees are also deductible 2.Travel expenses: only if the travel is away from home and overnight and usually includes meals, lodging, laundry b. Away from home: employed for 1 year or less in an area other than the normal place of business c. Overnight: any period long enough to necessitate sleep 3.Educational expenses only if they improve/maintain skills required in their current field or the education is required to keep the job in the current field a. deductible items include tuition, fees, books, and relevant travel but does NOT include room and board 4.Entertainment expenses: NOT deductible 5.Business meal: 50% deductible if the meal is business related, the expense is reasonable, and the taxpayer is present 6.Business gifts: only $25 per recipient (married couples are counted as one recipient) is deductible but it can be up to $400 for gifts of length of service 7.Other related expenses such as cost of uniforms, union dues, and safety gear Keogh Plans: - retirement plans established by SPs and partners - the maximum amount deductible is the lesser of a. 0.2 x (net income - self employment deduction) b. 69k - the deduction is FOR AGI Traditional IRAs: - maximum amount contributable is the lesser of a. 7k (8k for 50+) b. 100% of compensation - spousal IRA: if a spouse makes less than 7k (8k if 50+), the other spouse can contribute on behalf of that spouse so that the max contributable amount between spouses is 14k (15k for one 50+ spouse and 16k for 2) -qualified plans: if AGI is