Matt is a sales representative for a local company.He entertains customers as part of his job.During the current year he spends $3,000 on business entertainment.The company provides him an expense allowance of $2,000 under a nonaccountable plan.How will Matt treat the $2,000 partial reimbursement and the $3,000 entertainment expense?
A)He will deduct the $1,000 net expense as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
B)He will deduct $500 of the net expense as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
C)He will recognize $2,000 of income and deduct $3,000 as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
D)He will recognize $2,000 of income and deduct $1,500 as a miscellaneous itemized deduction,subject to the 2% of AGI floor.

Question

Quizplus · Accepted Answer

D)Under a nonaccountable plan,the employee must include reimbursements in income.The qualifying expenditure can be deducted as an itemized deduction,but entertainment expense is reduced by 50% and then the 2% of AGI floor will apply to his total miscellaneous deductions.

Matt Is a Sales Representative for a Local Company