Question

T is employed by KL Publishing Corporation. He is a sales representative with responsibility for college textbook sales in Alabama, Florida, Georgia. T lives in Atlanta. For each of the following situations, indicate whether T’s or the corporation’s deduction for entertainment or meals would be limited, and if so, how?

a. T flew to Birmingham on a Tuesday night. After checking in at the hotel, he caught a cab to his favorite restaurant where he ate by himself. The cost of the meal was $20, including a $1 tax and a $3 tip. The cost of the cab ride was $10. The next day he called on a customer.

b. Same as (a) except that T’s employer reimbursed him under an accountable plan for all his costs.

c. Same as (a), but further assume that T’s AGI for the year was $30,000 and that he has other miscellaneous itemized deductions of $700.

d. At the year-end Christmas party for employees, the corporation gave T a 10 pound, hone-baked ham, costing $40. The cost of the party (excluding the ham), which was held at a local restaurant was $300.

e. During the annual convention of college marketing professors in New Orleans, the corporation rented a room in the convention hotel for one night and provided hors d’oeuvres. The room cost $200 while the food and drink cost $1,000.

Answer 1

Answers : -

A. The entertainment or meals deduction is limited upto the 50% of the total expenses. The total expenses of T's = $20 + $1 + $3 = $24. 50% of $24 = $12 is deductible.

Note : $10 spend on cab is neither a meal nor an entertainment.

B. The reimbursement of the expenses done by the corporation for T's expenses is fully deductible. The amount of $24 ($20 + $1 + $3) is fully deductible.

Note : $10 spend on cab is not entertainment or meal expenses

C. If the expenses are not reimbursed by the corporation, tmemployee can deduct 2%of AGI. 2% of $30,000 = $600

Itemized deduction = $700 - $600 = $100 can be deducted.

D. The Christmas party in office is not included in the entertainment and meals deduction.

E. Such expenses are not included in the entertainment and meals expenses, it is not deductible.