What form and line do I deduct the 36.5 cents per mile on for my business travel and do I need to figure depreciation of the vehicle, too?

A Sole Proprietor's business use of a car or truck is claimed on line 10 of Form 1040 (PDF), Schedule C, Profit or Loss from Business or, if eligible, line 2 of Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You may use either the actual expense method in calculating your car or truck expense or, if eligible, the 2002 standard mileage rate of 36.5 cents per mile. Depreciation expense is already included in this standard mileage rate. Depreciation is only calculated as a separate expense when using the actual expense method. Deductible employee business use of a car or truck may be taken on Form 2106 (PDF), Employee Business Expenses, or if, eligible, line 1 of Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses. The car and truck expenses are then taken with other employee business expenses on line 22, Form 1040, Schedule A&B (PDF) Itemized Deductions. For more information, refer to Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses, and Publication 535 (PDF), Business Expenses.

References:

• Publication 535 (PDF), Business Expenses
• Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses
• Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship)
• Form 1040, Schedule C-EZ (PDF), Unreimbursed Employee Business Expenses.
• Form 2106 (PDF), Employee Business Expenses
• Form 2106EZ (PDF), Unreimbursed Employee Business Expenses

If we give an employee a monthly car allowance, must it be included in the employee's taxable wages on their Form W-2?

Generally yes, unless paid under an accountable plan.

To be an accountable plan, your reimbursement or expense allowance arrangement must meet the qualifying requirements, explained later. A reimbursement or expense allowance arrangement is a system by which you substantiate and pay the advances, reimbursements, and charges for your employees' business expenses. If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement.

Qualifying requirements. To qualify as an accountable plan, your reimbursement or expense allowance arrangement must require your employees to meet all of the following rules:

They must have paid or incurred deductible expenses while performing services as your employees,

They must adequately account to you for these expenses within a reasonable period of time, and

They must return any excess reimbursement or allowance within a reasonable period of time.

Please refer to Publication 535 (PDF), Business Expenses, for additional information about accountable and nonaccountable plans.

References:

• Publication 535 (PDF), Business Expenses

If our business pays for an employee's airfare on a business trip, but the employee does not submit an expense form relating to the travel, do we need to issue a Form 1099-MISC?

No, you should report the amounts as wages on Form W-2. Generally, Form 1099-MISC is not issued to employees. Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if:

Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or

You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses.

The amount of the airfare should be included on the employee's Form W-2.

References:

• Publication 15 (PDF), Circular E, Employer's Tax Guide
• Publication 15-A (PDF), Employer's Supplemental Tax Guide

For business travel, are there limits on the amounts deductible for meals?

Meal expenses are deductible only if your trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. The amount of the meal expenses must be substantiated, but instead of keeping records of the actual cost of your meal expenses you can generally use a standard meal allowance ranging from $30 to $46 in 2001 depending on where and when you travel.

Generally, the deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.

For more information on business travel expenses and restrictions, refer to Tax Topic 511, or Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses, and Publication 1542, Per Diem Rates.

References:

• Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses
• Tax Topic 511, Business travel expenses
• Publication 1542 (PDF), Per Diem Rates

Where can I find the per diem rates for foreign countries?

The federal per diem rates for foreign locations are published monthly in the Maximum Travel Per Diem Allowances for Foreign Areas. Your employer may have these rates available, or you can purchase the publication from the:

You can also order it by calling the Government Printing Office at (202) 512-1800 (not a toll-free number) or if you have a computer and modem, you can check rates at the U.S. Department of State Office of Allowances.

References:

• U.S. Department of State Office of Allowances
• Revenue Procedure 2000-9 SEC 3.02
• Publication 1542 (PDF), Per Diem Rates

Tax Topics & FAQs | 2002 Tax Year Archives | Tax Help Archives | Home

© 2004, UncleFed.com