Pat is a sales representative for a publishing company. He entertains customers
ID: 2578890 • Letter: P
Question
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? (Show calculation)
b. assuming the employer does not maintain an accountable plan? (Show calculation)
Explanation / Answer
Answer:
Accountable Nonaccountable
Prelimary AGI $100,000 $100,000
Expense reimbursement 0 5,000
AGI 100,000 105,000
Taxes and interest 12,000 12,000
Entertainment * 2,500( 5,000 2% of AGI) 2,000 500 -2,100 2,900
Total itemized deductions 12,500 14,900
Personal exemption 4,000 4,000
Taxable income $83,500 $86,100
*Under the accountable plan, the entertainment included in itemized deductions before the application of the 2% of AGI floor is the unreimbursed $5,000 x 50%. With the nonaccountable plan, 50 % of the full entertainment cost is included in itemized deductions before the floor.