Tax Issues (Essay Sample)

Tax Issues
Student’s Name
Institution
Tax Issues
Employers today encourage their employees to be engaged in travelling as a requirement for their continued employment. However, employees who use their money to cater for travel and other expenses during the course of their work are expected to be reimbursed. Employees have therefore developed policies that comply with the current tax laws aimed at deducting the expenses and treating them in their books of account as business expenses. Employers may develop policies to save them money by limiting the reimbursable expenses or making the reimbursement process cumbersome and time consuming. However, employers should also consider the fact that policies that are simple and less restrictive improve the commitment and productivity of employees. This paper examines the tax issues that an employee should consider in a job that has a lot of travelling and entertainment expenditure.
The law requires that an individual is taxed on his or her adjusted gross income. Andree should be aware of the fact that he may deduct reimbursements paid by the employer for expenses incurred while performing duties on behalf of an employer from the gross income (Marcum, Perry & Robin, 2010). Personal expenses are not deductible. Only ‘necessary and ordinary’ expenses are allowed for deduction. Necessary and ordinary expenses in this case vary from industry to industry. Travel expense is an ordinary and necessary expense that is deductible. It includes expenses incurred while travelling on behalf of the business such as lodging, meals and transportation (Marcum, Perry & Robin, 2010).
The travel and entertainment expenses should also be supported by valid documents. Substantiation of the expenses requires details that include dates of travel, purpose of the business, receipts for the expenses incurred, business relationship all the individuals and descriptions of the expenses (Marcum, Perry & Robin, 2010). The expenses incurred should not be extravagant or lavish. In case there are no supporting documents, there is a risk that part or full deduction will not be allowed if an individual’s tax return is audited. In cases where documentation is not sufficient and complete, an employee can still take a deduction for some of the business-related expenses incurred. Therefore, regardless of the tax-reporting framework chosen, an employee will always be faced with a high potential abuse by the tax system (Marcum, Perry & Robin, 2010).
Generally, only 50% of the business-related entertainment and meals expenses can be deducted (Marcum, Perry & Robin, 2010). The 50% limit is applied after determining the amount that will be deducted. However, there are exceptions to this genera...