Question

You are a senior manager of a large public accounting firm. One of your clients, Sam Sellit, recently called you for some tax advice. Sam is a salesperson for Panoramic Pools, a construction company that builds and sells prefabricated swimming pools. The company operates several franchises throughout the United States. Sam has progressed to become the top salesperson for the franchise where he is employed. Sam has done so well that he is considering purchasing his own franchise. This year he contacted the regional office about the possibility of opening up his own shop. The vice president in charge of expansion, Greg Grow, suggested that the two of them meet at the company’s annual meeting of franchises, held in Orlando, Florida. Greg knew that Sam, although not a franchisee, would be attending because he was the top salesperson in his office, and the company invites the top salesperson from each office as well as his or her spouse to attend the meeting. While at the four-day meeting (Tuesday through Friday) in Orlando, Sam and his wife, Sue, met with Greg and discussed the potential venture. In addition, Greg allowed Sam and Sue to attend the parts of the meeting that were only for franchisees so that they could get a glimpse of how the company operated. Of course, while they were in Orlando, Sam and his wife visited all of the tourist attractions. On Tuesday, there were no meetings scheduled and everyone spent the day at Disney World and Epcot Center. On Thursday afternoon, no meetings were scheduled and the couple went with Greg and his wife to Sea World. Sam attended meetings for several hours on Friday while his wife played golf. The couple stayed over through Sunday and continued their sightseeing activities. The company picked up the tab for the couple’s trip, reimbursing Sam $3,500 which included the cost of air fare, meals, lodging, and entertainment. Sam wants to know if the $3,500 payment he received is considered taxable income to him. If any of the $3,500 is taxable, Sam also wants to know if he will be allowed any offsetting deductions for the expenses he incurred.

Answer 1

All money paid to Sam which included the cost of air fare, meals, lodging, and entertainment, is gross taxable income to him. He can then deduct his expenses and pay tax on the net income, these expenses could be without taxes as long as the company isn’t paying Sam in the form of money. Unreimbursed business expenses are deductible as itemized miscellaneous deductions, so Sam’s actual benefit will be reduced and subject to other tax situations. He can deduct expenses that are ordinary and reasonable in line of work.