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Chapter 9 - Employee Expenses

This chapter explores the complexities of employee expenses, including the distinctions between independent contractors and employees. Key topics include itemized deductions, disallowed percentages for meals and entertainment since 1994, and the substantiation requirements as per IRC 274. It also examines accountable vs. nonaccountable plans, travel deductions, moving expenses, and education costs. Additionally, it covers changes to entertainment expense disallowances and home office deductions, alongside an analysis of miscellaneous employee expenses such as clothing and union dues.

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Chapter 9 - Employee Expenses

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  1. Chapter 9 - Employee Expenses • Independent Contractor v. Employee • Miscellaneous Itemized Deductions - 2% limit • Meals and Entertainment - Substantiation - history: 0% disallowance, 20% disallowance, 50% disallowance (effective 1994)

  2. Interstate truckers, airline employees, merchant marines, RR workers, bus drivers (interstate) • Starting 1998: increase % allowed of meals 5% every 2 yrs to 80% by 2008

  3. Substantiation • IRC 274: Amount, time and place, business purpose, business relationship - Diary and Doc - Doc if lodging or other > 75 (10/1/95) • Travel, ent, bus, gifts, listed prop • Accountable Plans - Requirements, substantiation, return excess, deemed substantiation • Nonaccountable plans:W-2 and unreimbursed treatment

  4. Local Transportation • Not travel away from home • Not commuting • Actual v. standard mileage 40.5¢ (05), 48.5¢ (9/05), 44.5¢ (06) • Occasionally

  5. Travel away from home (overnight) • Temporary v. indefinite • Conventions (dir. Rel’d), travel as educat (no) • U.S. combined business and pleasure travel - prim bus: all air, travel days = bus • Foreign travel - alloc bus/pleas on air unless 7 days or less or <25% pers; or no allocat if no substan control arrans or vac not major factor; (travel days = bus)

  6. Moving Expenses • Distance and time tests - Classification of expenses - (Form 3903) • A. Transportation of goods • B. Expenses of moving self and family - travel, lodging, but no meals • Mileage: 15¢ (05), 22¢ (9/05), 18¢ (06), (Same as medical)

  7. Effective 94 - A+B only, no meals, above line; • reimbs of deductible = excluded = chap 5 • mileage

  8. Education Expenses • Tests: Maintain or improve skills or meet express reqs of ER • v. meet min stand to qualify for new T or B • Suspended participation

  9. Entertainment Expenses • 50% disallowance,(effective 1994) - Substantiation; meals; entertainment - directly related, associated with: >50% dir & assoc • Business gifts - deductibility - $25 per dee per yr (unless) • Club dues no longer deductible (e.g., country club) (effective 1994) - pub serv clubs OK (e.g. Kiwanis, Rotary, Lions)

  10. Home Office • Exclusive and regular use - principal place of bus or used by clients/patients/customers or separate structure • + Employees - convenience of employer • Limited to income - CF loss - yes - 280A vac home and home office; no 183-hobby • Misc itemized subj to 2% if EE • Soliman - relative importance, time spent • New Law 1997 - Repealed Soliman

  11. Repeal of Soliman (97 Law) • 280A “Prin Place of Bus” - includes used for adm & man bus activs if no other fixed locat for substan adm & man • By 3p, not deny (at another locat) • OK: 1) adm & man at another locat by TP not substan • 2) substan non adm & man at another locat by TP (e.g. client mtgs)

  12. IRA’s • Misc EE exps • clothing - special req’d, not fit for ord wear; union dues, prof exps, mtgs, job skg (not 1st job, not new T or B), pubs, etc

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