Economicss Essay, Research Paper
Taxpayers will be reimbursed by the corporation for all out of pocket disbursals incurred including transit, and lodging disbursals. However, taxpayers will non be reimbursed for costs incurred in the operation and care of employee place offices.
1. What procedures must the corporation take in developing and transporting out any type of accountable program?
2. What should employees be cognizant of sing revenue enhancement intervention of reimbursements and unreimbursed employee disbursals?
Sec. 62 ( a ) ( 2 ) Employee disbursals reimbursed under an accountable program are non reported by the employee at all. In consequence, these disbursals are treated as tax write-offs for agi. Reg. 1.162-17 ( B ) ( 4 ) An accountable program requires that the employee adequately history for all disbursals through return of reception and records to the employer, and that the Sec. 274 ( vitamin D ) employee return all extra reimbursements. No tax write-off will be allowed for any employee disbursal unless decently substantiated by adequate records, which include the disbursal sum, the clip and topographic point of travel, the concern intent of the disbursal, and the concern relation to the taxpayer. Reg. 1.162-2T ( vitamin E ) ( 3 ) Unreimbursed employee disbursals are reported as assorted itemized tax write-offs.
It would be good for the employee and wise for the corporation to prosecute an accountable program, for, pursuant to sec. 62 ( a ) ( 2 ) , the mechanics of an accountable program allows employees to non describe any incom
e nor any expense, therefore avoiding any deduction limitations that would occur if the taxpayer was forced to itemize the given deduction, as would occur under a non accountable plan However, an accountable plan requires thorough substantiation to comply with sec. 274(d). If Robert and Elizabeth wish to be reimbursed for their employee expenses, they must submit records and receipts of all costs which include the amount of the expense, the time and place of travel, the business purpose of the expense, and the business relation to the taxpayer. Failure to substantiate denies both the reimbursement to the employee and the deduction by the employer. There are a few things that the employee must remember for tax purposes regarding an accountable plan. First, employees must return all excess reimbursement or face a gross income inclusion. Next, pursuant to reg. 1.162-2T(e)(3), employees may deduct unreimbursed employee expenses as miscellaneous itemized deductions only, which are subject to 2% of agi limitations. Ideally, Flatirons Inc. should construct a fully accountable plan which covers home office expenses as well, for the employees with home offices would, in effect, get deductions for agi rather than itemized deductions, and the corporation could deduct those reimbursements if adequate substantiation was present. However, as it stands now, the shareholders do not report any reimbursements nor any expenses relating to all allowable employee expenses except those dealing with home offices. All home office expenses may be deducted as miscellaneous itemized deductions subject to the 2% of agi limitation.