Slide 1EMPLOYEE EXPENSES & DEFERRED COMPENSATION (1 of 2)EMPLOYEE EXPENSES & DEFERRED COMPENSATION (2 of 2)Classification and Limitations of Employee Expenses (1 of 3)Classification and Limitations of Employee Expenses (2 of 3)Classification and Limitations of Employee Expenses (3 of 3)Travel ExpensesDeductibility of Travel ExpensesDefinition of Travel ExpensesGeneral Qualification Requirements (1 of 2)General Qualification Requirements (2 of 2)Business vs. PleasureForeign TravelAdditional Limitations on Travel ExpensesTransportation ExpensesDefinition and Classification (1 of 2)Definition and Classification (2 of 2)Treatment of Automobile ExpensesEntertainment ExpensesClassification of ExpensesBusiness MealsEntertainment Facilities and Club DuesBusiness GiftsLimitations on Entertainment TicketsReimbursed Employee Business Expenses (1 of 2)Reimbursed Employee Business Expenses (2 of 2)Moving Expenses Distance and Duration RequirementsMoving Expenses Definition of Moving ExpensesEducation Expenses (1 of 3)Education Expenses (2 of 3)Education Expenses (3 of 3)Office in Home Expenses General RequirementsOffice in Home Expenses Deduction and Limitations (1 of 2)Office in Home Expenses Deduction and Limitations (2 of 2)Deferred Compensation (1 of 3)Deferred Compensation (2 of 3)Deferred Compensation (3 of 3)Qualified Pension and Profit-Sharing PlansQualification Requirements for a Qualified PlanTax Treatment to Employees and EmployersNonqualified PlansEmployee Stock Options Incentive Stock Options (ISOs)Employee Stock Options Nonqualified Stock Options (NSOs)Traditional IRA (1 of 2)Traditional IRA (2 of 2)Roth IRACoverdell Education Savings AccountHealth Savings AccountsSimplified PlansTax Planning Considerations (1 of 2)Tax Planning Considerations (2 of 2)Compliance and Procedural Considerations (1 of 2)Compliance and Procedural Considerations (2 of 2)Slide 549-1©2007 Prentice Hall, Inc.©2007 Prentice Hall, Inc.9-2EMPLOYEE EXPENSES & EMPLOYEE EXPENSES & DEFERRED COMPENSATIONDEFERRED COMPENSATION (1 of 2)(1 of 2)Classification and limitations of employee expensesTravel expensesTransportation expensesEntertainment expensesReimbursed employee business expenses©2007 Prentice Hall, Inc.9-3EMPLOYEE EXPENSES & EMPLOYEE EXPENSES & DEFERRED COMPENSATIONDEFERRED COMPENSATION (2 of 2)(2 of 2)Moving expensesEducation expensesOffice in home expensesDeferred compensationTax planning considerationsCompliance and procedural considerations©2007 Prentice Hall, Inc.9-4Classification and Classification and Limitations of Employee Limitations of Employee ExpensesExpenses (1 of 3) (1 of 3)Nature of the employment relationshipEmployer-employee relationship exists where employer has right to control the end result of work and means by which result is accomplishedIf employee, employer pays ½ FICA and MedicareIf self-employed, taxpayer pays all FICA and Medicare©2007 Prentice Hall, Inc.9-5Classification and Classification and Limitations of Employee Limitations of Employee ExpensesExpenses (2 of 3) (2 of 3)Limitations on unreimbursed employee expenses2% of AGI floor applies toUnreimbursed employee business expensesInvestment expenses other than interestTax return preparation fees and other deductions©2007 Prentice Hall, Inc.9-6Classification and Classification and Limitations of Employee Limitations of Employee ExpensesExpenses (3 of 3) (3 of 3)Limitations (continued)If total misc itemized deductions ≤ 2% of AGI or if total allowable itemized deductions do not exceed std deductionUnreimbursed employee expenses provide no tax benefitHigh-income taxpayers will have reduced benefit if have 3% scale down of itemized deductions©2007 Prentice Hall, Inc.9-7Travel ExpensesTravel ExpensesDeductibility of travel expensesDefinition of travel expensesGeneral qualification requirementsBusiness vs. pleasureForeign travelAdditional limitations on travel expenses©2007 Prentice Hall, Inc.9-8Deductibility of Travel ExpensesDepend on nature of expenditure and if employee reimbursedTaxpayers engaged in ToB or production of rents or royaltiesTravel expenses deductible for AGIEmployeeDeduction for AGI if reimbursed2% misc deduction if not reimbursed©2007 Prentice Hall, Inc.9-9Definition of Travel ExpensesIncludes Transportation, meals, & lodging related to a ToB, or employee status incurred while away from taxpayer’s tax homeRequires overnight stayDeductible amount of travel expenses may be reduced if actual expenses are lavish or extravagant©2007 Prentice Hall, Inc.9-10General Qualification Requirements(1 of 2)Away-from-tax-home requirementTax home is work locationAssignment must be temporaryAssignment not temporary if Assignment indefinite OR Expected to last > 12 months©2007 Prentice Hall, Inc.9-11General Qualification Requirements(2 of 2)Overnight requirementMust be reasonable for taxpayer to be away overnightShort rest stops on long day-trip not considered overnight©2007 Prentice Hall, Inc.9-12Business vs. PleasureTravel to and from destinationIf trip primarily personal, no deductionIf trip primarily business, all travel to and from destination deductibleOther travel-related expensesAllocated to business and personal activities©2007 Prentice Hall, Inc.9-13Foreign TravelGenerally disallowedAllowed only if taxpayer shows activity directly related to business, ANDReasonable for meeting to be held outside north America©2007 Prentice Hall, Inc.9-14Additional Limitations on Travel ExpensesTravel expenses disallowed actual travel is for educationE.g., French student traveling through FranceLuxury water travel limitedTravel to conventions, seminars not deductible if for production of income activity©2007 Prentice Hall, Inc.9-15Transportation ExpensesTransportation ExpensesDefinition and classificationTreatment of automobile expensesReimbursement of automobile expensesExcess expenses over reimbursement deductible as 2% misc itemized deductions©2007 Prentice Hall, Inc.9-16Definition and Classification(1 of 2)Commuting costs generally nondeductible personal expensesCommuting costs between multiple jobs for same taxpayer deductibleTransportation costs from employee’s regular work site to temporary one deductible©2007 Prentice Hall, Inc.9-17Definition and Classification(2 of 2)Commuting costs between home