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YOU LOSE!
September 12, 2001
Document
Transmitted Via: ___________________
President
Dr. Jill PA
Pennsylvania Avenue
Washington D.C.
Regarding: Professional Association Tax
Return
Financial Risks
Payments for Automobile and
You claimed $10,453 for gasoline and other
automobile expenses.
Financial Risk
This
is a real danger, as the Internal Revenue Service will nearly
always ask about this type of deduction. Therefore you must always prepare yourself.
Usually you will be the only person aware of the
information the Internal Revenue Service requires.
Amount
of Risk: If you
do not furnish to the Internal Revenue Service the documents it
asks for the Internal Revenue Service may deny the entire
deduction. As always,
we support you on the deduction — however, remedial actions are
always more time consuming and take a higher level of skills than
routinely creating and filing the documents the Internal Revenue
Service mandates. The
prudent alternative if you do not want to maintain the records is
to discontinue paying non-documented expenses from your P.A. and
pay yourself an added salary to cover the expenses.
Your deduction claimed $10,453.
If the Internal Revenue Service were to
successfully challenge the entire amount the following would be
charged to you and your P.A.:
1.
Taxes charged to the Professional Association $3,554
2.
Added interest and penalties can easily sum another $3,000
3.
Taxes charged to you personally $4,139
4.
Added interest and penalties can easily sum another $4,000
Your total Cost
$14,693 charged to you and your
medical practice.
You
may use information from more than one source to prove you are
entitled to the deduction. The
following are a few examples that may be a part of your routine
business records:
1.
Appointment Calendars
2.
Patient file notes
3.
Seminar or Continuing Medical Education records
4.
Billing Records
Proving
you paid for gasoline or some other automobile related item does
not prove you used it for providing medical services to patients
or conducting other medical practice business.
The Internal Revenue Service requires you show them in writing the
following information to qualify for deducting the gasoline or
other automobile expenses from the medical practice income:
1.
Mileage for each business use (Sampling can be used.
If you are on the internet while reading this you can read
about Sampling by Clicking Here)
2.
Total of all miles for the year
3.
Date of the local trip or overnight business trip
4.
City, Town and other destination
5.
Business purpose – what you did
The following are frequently asked
questions about gasoline and other automobile expenses:
Is my employer
supposed to include mileage reimbursement as a part of my gross
income on my Form W-2, and do I include it on my return as wages,
tips & salaries?
 That
depends on whether you were reimbursed under an accountable plan
or under a nonaccountable plan. Generally, an employer will have
an accountable plan if it pays business expenses that would
otherwise be deductible by the employee, requires the employee to
substantiate the expense, and does not permit the employee to keep
any reimbursements that exceed expenses. If the employer does not
use an accountable plan, mileage reimbursement would be included
in your wages on Form W-2. For more information on reimbursements
and accountable plans, refer to Chapter 6 of Publication
463, Travel, Entertainment, Gift, and Car Expenses.
If your mileage reimbursement is included in
box 1 on Form W-2, you need to enter that amount on the
"wages, salaries, and tips" line of your tax return. If
you itemize your deductions on Form
1040, SCHEDULE A, Itemized Deductions, you may deduct the
business transportation expense as an employee business expense,
subject to the 2% of adjusted gross income limitation. You may
usually deduct either your actual business automobile expenses or
use the standard mileage rate. For more information on when you
may use the standard mileage rate, refer to Chapter 4 of Publication
463, Travel, Entertainment, Gift, and Car Expenses.
References:
Publication
463, Travel, Entertainment, Gift, and Car Expenses
Publication
529, Miscellaneous Deductions
Tax
Topic 501, Should I itemize?
Tax
Topic 510, Business use of car
Tax
Topic 514, 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, Business Expenses, for additional information about
accountable and nonaccountable plans.
References:
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. 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:
Important Reminders
Standard meal allowance The standard
meal allowance (also referred to as the limit on meals and
incidental expenses (M&IE rate)) for most small localities in
the United States is $30. However, the standard meal allowance is
higher for most major cities and many other localities in the
continental United States. See Publication
1542, Per Diem Rates. These rates (allowances/limits)
are also listed in Appendix A of Chapter
41, Part 301 of the Code of Federal Regulations. If you have a
computer, you can email Bob Parrish CPA and request a copy of the
tables. Click on "Domestic per diem rates." Use of the
standard meal allowance is explained in chapter
1.
Days you depart and return. For
the days you depart for and return from a business trip, you can
claim 3/4 of the standard meal allowance amount. For more
information, see Travel for days you depart and return under
Standard Meal Allowance in chapter
1.
Limits that apply to employee deductions:
If you are an employee, deduct your work-related expenses
discussed in this publication as a miscellaneous itemized
deduction on Schedule A (Form 1040). Generally, the amount of
miscellaneous itemized deductions you can deduct is limited to the
amount that is more than 2% of your adjusted gross income. It may
be further limited if your adjusted gross income is more than
$128,950 ($64,475 if you are married filing separately). How to
report your expenses is covered in chapter
6.
Bob Parrish CPA PC
For the firm
Bob Parrish, CPA
{Last
date letter read} 9/12/2001
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