sch c - session ii

8/7/2019 Sch C - Session II

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FORM 2106FORM 2106 EMPLOYEE BUSINESS EXPENSES.EMPLOYEE BUSINESS EXPENSES.

FormForm 21062106 isis usedused toto reportreport employeeemployee businessbusiness expensesexpenses andandreimbursementreimbursement andand toto figurefigure thethe expensesexpenses toto deductdeduct onon ScheduleScheduleAA (Form(Form 10401040)) ..

PartPart II figuresfigures thethe expensesexpenses andand reimbursementsreimbursements andand thethe amountamountofof allowableallowable deductiondeduction..

PartPart IIII isis usedused toto figurefigure thethe expenseexpense ofof aa vehiclevehicle..

EmployeeEmployee VersusVersus SelfSelf--EmployedEmployed ::

When

When oneone personperson performsperforms servicesservices forfor anotheranother personperson ,, thenthenthethe performingperforming personperson cancan bebe eithereither anan employeeemployee oror selfself

employedemployed (an(an independentindependent contractor)contractor)..

ExpensesExpenses ofof selfself employedemployed areare classifiedclassified asas deductionsdeductions forforAGIAGI && reportedreported onon ScheduleSchedule CC ofof FormForm 10401040,, otherother wisewise ititshouldshould bebe reportedreported throughthrough FormForm 21062106..

QualifiedQualified ExpenditureExpenditure::WhatWhat ExpensesExpenses areare deductible?deductible?

ExpenseExpense mustmust bebe OrdinaryOrdinary && NecessaryNecessary

AnAn OrdinaryOrdinary expenseexpense isis oneone thatthat isis commoncommon && acceptedacceptedinin youryour fieldfield ofof trade,trade, business,business, andand professionprofession..

AA NecessaryNecessary expenseexpense isis oneone thatthat isis helpfulhelpful && appropriateappropriateforfor youryour businessbusiness..


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QuantumQuantum ofof DeductionDeduction::

GenerallyGenerally EmployeeEmployee cancan claimclaim deductiondeduction forfor unun--reimbursedreimbursed businessbusiness expensesexpenses whichwhich isis subjectsubject toto 22%% ofofAGIAGI ..

Note:Note: Tax payer can useTax payer can use Form 2106Form 2106--EZEZ if he satisfies theif he satisfies thefollowing two conditions:following two conditions:--

TheThe taxpayertaxpayer waswas notnot reimbursedreimbursed forfor thethe expensesexpenses or,or,ifif thethe taxpayertaxpayer waswas reimbursedreimbursed ,, thethe reimbursementreimbursementwaswas includedincluded inin thethe taxpayerstaxpayers incomeincome inin BoxBox 11 ofof thetheFormFormWW--22 ;; andand

IfIf thethe taxpayertaxpayer claimsclaims vehiclevehicle expensesexpenses usingusing thethestandardstandard mileagemileage raterate..


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Vehicle Expenses on Line 1 of Form 2106Vehicle Expenses on Line 1 of Form 2106

Standard Mileage Rate:Standard Mileage Rate:

YouYou maymay bebe ableable toto useuse thethe standardstandard mileagemileage raterate toto figurefigurethethe deductibledeductible costscosts ofof operatingoperating youryour carcar forfor businessbusinesspurposespurposes.. ForFor 20072007,, thethe standardstandard MileageMileage raterate isis

4848..55 centscents aa milemile forfor thethe yearyear 20072007..

forfor allall businessbusiness milesmiles.. IfIf youyou useuse thethe standardstandard mileagemileage raterateforfor aa year,year, youyou cannotcannot deductdeduct youryour actualactual carcar expensesexpenses forfor

thatthat yearyear..ee..gg.. 1000010000 businessbusiness milesmiles ** 4848..55 centscents == $$44,,850850 deductibledeductible onon

FormForm 21062106

You cannot use the standard mileage rate if you:You cannot use the standard mileage rate if you:

UseUse thethe carcar forfor hirehire (such(such asas aa taxi),taxi), UseUse twotwo oror moremore carscars atat thethe samesame timetime

ClaimedClaimed aa depreciationdepreciation deductiondeduction forfor thethe carcar usingusing anyanymethodmethod otherother thanthan straightstraight lineline depreciation,depreciation,

ClaimedClaimed aa sectionsection 179179 deductiondeduction onon thethe car,car,

ClaimedClaimed actualactual carcar expensesexpenses afterafter 19971997 forfor aa carcar youyou leased,leased,


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Actual Car Expenses:Actual Car Expenses:

IfIf youyou dodo notnot useuse thethe standardstandard mileagemileage rate,rate, youyou maymay bebe ableabletoto deductdeduct youryour actualactual carcar expensesexpenses..

IfIf youyou qualifyqualify toto useuse bothboth methods,methods, youyou maymay wantwant toto figurefigureyouryour deductiondeduction bothboth waysways toto seesee WhichWhich givesgives aa largerlargerdeductiondeduction..

Actual car expenses include:Actual car expenses include:

DepreciationDepreciation

Lease paymentsLease payments

Registration feesRegistration fees

Garage rent LicensesGarage rent Licenses

RepairsRepairs

Gas Oil TiresGas Oil Tires

InsuranceInsurance

Parking fees TollsParking fees Tolls

Travel Expenditure for another individual:Travel Expenditure for another individual:

IfIf aa spouse,spouse, dependent,dependent, oror otherother individualindividual goesgoes withwith youyou (or(or youryouremployee)employee) onon aa businessbusiness triptrip oror toto aa businessbusiness convention,convention, youyougenerallygenerally cannotcannot deductdeduct hishis oror herher traveltravel expensesexpenses..


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5050%% limitlimit onon mealsmeals::

YouYou cancan figurefigure youryour mealmeal expensesexpenses usingusing eithereither ofof thethefollowingfollowing twotwo methodsmethods

ActualActual costcost

TheThe standardstandard mealmeal allowanceallowance

BothBoth ofof thesethese methodsmethods areare explainedexplained belowbelow.. But,But, regardlessregardlessofof thethe methodmethod youyou use,use, youyou generallygenerally cancan deductdeduct onlyonly 5050%%ofof thethe UnUn reimbursedreimbursed costcost ofof youryour mealsmeals..

IfIf youyou areare notnot reimbursed,reimbursed, thethe 5050%% limitlimit appliesapplies whetherwhetherthethe unun reimbursedreimbursed mealmeal expenseexpense isis forfor businessbusiness traveltravel ororbusinessbusiness entertainmententertainment..


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Standard meal allowance:Standard meal allowance:

Generally,Generally, youyou cancan useuse thethe standardstandard mealmeal allowanceallowance methodmethod asasanan alternativealternative toto thethe actualactual costcost methodmethod..

ItIt allowsallows youyou toto useuse aa setset amountamount forfor youryour dailydaily mealsmeals andandincidentalincidental expensesexpenses (M&IE),(M&IE), insteadinstead ofof keepingkeeping recordsrecords ofof youryouractualactual costscosts.. TheThe setset amountamount variesvaries dependingdepending onon wherewhere andand whenwhen

youyou traveltravel..

StandardStandard mealmeal allowanceallowance refersrefers toto thethe federalfederal raterate forfor M&IE,M&IE,AmountAmount ofof standardstandard mealmeal allowanceallowance.. IfIf youyou useuse thethe standardstandard mealmealallowance,allowance, youyou stillstill mustmust keepkeep recordsrecords toto proveprove thethe time,time, place,place,andand businessbusiness purposepurpose ofof youryour traveltravel.. 5050%% limitlimit maymay applyapply ifif youyouuseuse thisthis methodmethod forfor mealmeal expensesexpenses andand youyou areare notnot reimbursedreimbursed oror

youyou areare reimbursedreimbursed underunder aa nonnon--accountableaccountable plan,plan, youyou cancangenerallygenerally deductdeduct onlyonly 5050%% ofof thethe standardstandard mealmeal allowanceallowance.. IfIf youyouareare reimbursedreimbursed underunder anan accountableaccountable planplan andand youyou areare deductingdeductingamountsamounts thatthat areare moremore thanthan youryour reimbursements,reimbursements, youyou cancan deductdeductonlyonly 5050%% ofof thethe excessexcess amountamount..


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OtherOther BusinessBusiness ExpensesExpenses::BusinessBusiness entertainmententertainment expensesexpenses andand businessbusiness giftgift expensesexpenses maymaybebe deductible,deductible, butbut subjectsubject toto certaincertain limitslimits $$ 2525 limitlimit

YouYou cancan deductdeduct notnot moremore thanthan $$2525 forfor businessbusiness giftsgifts youyou givegivedirectlydirectly oror indirectlyindirectly toto anyany oneone personperson duringduring youryour taxtax yearyear..

AA giftgift toto aa companycompany thatthat isis intendedintended forfor thethe eventualeventual personalpersonal useuseoror benefitbenefit ofof aa particularparticular personperson oror aa limitedlimited classclass ofof peoplepeople willwillbebe consideredconsidered anan indirectindirect giftgift toto thatthat particularparticular personperson oror toto thetheindividualsindividuals withinwithin thatthat classclass ofof peoplepeople whowho receivereceive thethe giftgift..

Depreciation,Depreciation, SectionSection 179179 DeductionDeductionSectionSection 179179 deductiondeduction:: IfIf 20072007 isis thethe firstfirst yearyear youryour vehiclevehicle waswasplacedplaced inin serviceservice andand thethe percentagepercentage ofof businessbusiness useuse ofof vehiclevehicle isismoremore thanthan 5050%%,, youyou maymay electelect toto deductdeduct asas anan expenseexpense aa portionportionofof thethe costcost (subject(subject toto aa yearlyyearly limit)limit).. ToTo calculatecalculate thisthis sectionsection 179179deduction,deduction, multiplymultiply thethe partpart ofof thethe costcost ofof thethe vehiclevehicle thatthat youyouchoosechoose toto expenseexpense byby thethe percentagepercentage ofof businessbusiness useuse ofof thethevehiclevehicle.. TheThe totaltotal ofof youryour depreciationdepreciation andand sectionsection 179179 deductiondeductiongenerallygenerally cannotcannot bebe moremore thanthan thethe percentagepercentage ofof businessbusiness useusemultipliedmultiplied byby thethe applicableapplicable limitlimit.. YourYour sectionsection 179179 deductiondeduction forforthethe yearyear cannotcannot bebe moremore thanthan thethe incomeincome fromfrom youryour jobjob andand anyanyotherother activeactive tradetrade oror businessbusiness onon youryour FormForm 10401040..


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Example for Section 179 Deduction for Vehicle Placed in service duringExample for Section 179 Deduction for Vehicle Placed in service during

the yearthe year

Cost including taxes . . .Cost including taxes . . . $25,000$25,000

Section 179 basis . .Section 179 basis . . $22,000$22,000

Limit on depreciation and section 179 deduction $2,960Limit on depreciation and section 179 deduction $2,960

Smaller of:Smaller of:

Section 179 basis, orSection 179 basis, or

limit on depreciation and section 179 deduction $2,960limit on depreciation and section 179 deduction $2,960Percentage . . . . . .(% of Business Use)Percentage . . . . . .(% of Business Use) .75.75

Section 179 deduction . . .Section 179 deduction . . . $2,220$2,220

LimitLimit onon depreciationdepreciation andand thethe sectionsection 179179 deductiondeduction:: TheThe firstfirst--yearyearlimitlimit onon depreciationdepreciation andand thethe sectionsection 179179 deductiondeduction forfor mostmost vehiclesvehicles

eligibleeligible forfor thethe yearyear 20072007 isis $$22,,960960.. ForFor truckstrucks andand vans,vans, thethe firstfirst--yearyear limitlimit

isis increasedincreased byby $$300300


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WHO MUST FILE FORM 2106WHO MUST FILE FORM 2106

sch c - session ii

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