6) Pat is a sales representative for a publishing company. He entertains custome

Question

6) Pat is a sales representative for a publishing company. He entertains customers as part of his job. During the current year he spends $10,000 on business entertainment. The company reimburses him $5,000. Before consideration of the entertainment costs and the reimbursement, Pat earns AGI of $100,000, and he has itemized deductions of $12,000 due to mortgage interest and taxes. Pat is single, with no dependents. What is Pat's taxable income a. assuming the employer maintains an accountable plan? (5) b. assuming the employer does not maintain an accountable plan? (5)

Explanation / Answer

Calculation of taxable income under employer maintains accountable plan:

Details

Amount

Amount

AGI

$ 100,000

Eligible exp ($10,000 -$5,000)*.50

$ 2,500

2 % of AGI ($100,000 *2%)

$ 2,000

Deduction from AGI ($2,500 -$2,000)

$        (500)

$    99,500

deduction: Mortgage interest

$ (12,000)

Taxable income

$    87,500

Therefore, taxable income is $87,500.

Calculation of taxable income under employer maintains unaccountable plan:

Details

Amount

Amount

AGI

$ 100,000

deduction: Mortgage interest

$ (12,000)

Taxable income

$    88,000

Therefore, taxable income is $88,000.

Details

Amount

Amount

AGI

$ 100,000

Eligible exp ($10,000 -$5,000)*.50

$ 2,500

2 % of AGI ($100,000 *2%)

$ 2,000

Deduction from AGI ($2,500 -$2,000)

$        (500)

$    99,500

deduction: Mortgage interest

$ (12,000)

Taxable income

$    87,500

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