Question

Mona works for Leonardo Corporation as a sales representative. Leonardo gives her a travel allowance of $350 per month. During the current year, she spends the following amounts on valid travel expenses: Transportation $ 2,700 Meals 1,500 Lodging 1,800 How should Mona treat the $350 per month travel allowance and the travel costs she incurs if: a. Leonardo’s reimbursement plan is an accountable plan? b. Leonardo's reimbursement plan is a nonaccountable plan?

Answer 1

Answer:

a. Leonardo’s reimbursement plan is an accountable plan?

$1,800 total deductible

b. Leonardo's reimbursement plan is a nonaccountable plan?

$5,250 total deductible

Explanation:

An accountable plan that follows IRS guidelines does not consider the $350 monthly allowance as part of Mona's gross income. So she can  deduct = total expenses - ($350 x 12) = $6,000 - $4,200 = $1,800

A nonaccountable plan is a reimbursement plan that doesn’t meet one or more of the rules of accountable plans. This type of plan includes the allowance as income. So Mona is allowed to deduct the following expenses form her gross income = transportation and lodging costs + 50% of meals. = $2,700 + $1,800 + (50% x $1,500) = $5,250