Question

Kim works for a clothing manufacturer as a dress designer. She travels to New York City to attend five days of fashion shows and then spends three days sightseeing. Her expenses are as follows;Airfare $1,500Lodging (8 nights) $1,920Meals (8 days) $1,440Airport transportation $120Assume that lodging/meals are the same amount for the business and personal portion of the trip (e.g., $180 per day for meals).A) Presuming no reimbursement, how much can kim deduct as to the trip?B) Would the tax treatment of Kim's deduction differ if she was an independent contractor (rather than an employee)? Explain.

Answer 1

Answer and Explanation:

a. The computation of the amount deducted as if there is no reimbursement is

= Airfare charges + lodging for 5 days + meals for 5 days at 50% limit + full airport transportation

= $1,500 + $1,920 × 5 days ÷ 8 days + $1,440 × 5 days ÷ 8 days × 50% + $120

= $1,500 + $1,200 + $450 + $120

= $3,270

The unreimbursement travel expenses for an employee is 2% of adjusted gross income

b. The tax treatment in case of the independent contractor

= Airfare charges + lodging for 5 days + meals for 5 days at 50% limit + full airport transportation

= $1,500 + $1,920 × 5 days ÷ 8 days + $1,440 × 5 days ÷ 8 days × 50% + $120

= $1,500 + $1,200 + $450 + $120

= $3,270

It would remain the same in case of the independent contractor also.