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Author: BillyBarueFool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121180  
Subject: Interesting situation Date: 10/18/1999 5:52 PM
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Hi Fools -

I'm in an interesting situation. Last spring, I was in a situation where my expenses for a long term out of town assignment became taxable.

In theory - my employer added the expenses to my taxable income, withheld the higer taxes from my check, and then 'grossed me up' so that (again - in theory) I would not see any difference.

The problem - I'm afraid that this additional taxable income will push me into the next higher tax bracket as the expenses for 3+ months were in the 20K range. If this does push me into the next bracket, 'supposedly' my ex-employer will compensate me for the difference (oh what fun trying to get that money from them will be).

My wife and I normally file a joint return. My question is this - how can I determine if this will push me over the limit? I've got my pay stubs (and my wifes). I can project what my total YE income will be.
Now how do I determine my tax bracket? What can I subtract from the total income in order to find my bracket (please let there be a lot of stuff)?

And what are the cutoffs for brackets this year?

Thanks in advance,

BillyBF
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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19795 of 121180
Subject: Re: Interesting situation Date: 10/18/1999 6:57 PM
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First of all, can you itemize you deductions? If you can, you can fill out Form 2106 Employee Business Expenses which are deductible as part of Schedule A Miscellaneous Expenses, which are subject to the 2% floor. At just the $20k in out of town expenses, it looks like you can. Did you claim actual expenses or a per diem? You should figure out which is to your best advantage as you might be able to pick up additional expenses using per diem. This should lower your taxable bracket down to roughly (plus or minus) what it was before the expenses.

1999 brackets for MFJ are $43050 = 15%, 104,050 = 28%, 158,550 = 31%, 283,150 = 36%, >283,150 = 39.6%


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Author: BillyBarueFool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19817 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 11:44 AM
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I always submitted actual expenses.

I was under the impression that since the expenses were reimbursed, that I could not deduct them.

This falls under the strange rule where if you are receiveing expense reimbursements for a project that lasts over a year, that once you know you'll go over the 1 year limit, from that day forward, all reimbursements are considered income.

Now I know that my 401K contributions aren't considered in the limits, so I can subtract those...what about my other deductions? Interest payments on a mortgate, etc...?

Thanks!

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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19823 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 1:02 PM
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I suggest you get a copy of Form 2106 and instructions and read it. It deliniates the expenses you can take. All of the expenses flows through to Schedule A, Itemized Deductions under Miscellaneous deductions, which is subject to the 2% floor. Your mortgage interest is still deductible under Schedule A as your primary residence. The 1 year rule must be your employer's since IRS divides reimbursement plans into accountable or nonaccountable only. Among other things, you get to claim 50% of meals, then vehicle mileage, airfare, cabs, rental cars, lodging, incidentals, parking fees, tolls, bus, train, etc.

Assuming you usually itemize, you can still do so. You just get to add the total of Form 2106 under the Misc. deductions.

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Author: BillyBarueFool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19830 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 3:32 PM
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I suggest you get a copy of Form 2106 and instructions and read it. It deliniates the expenses you can take. All of the expenses flows through to Schedule A, Itemized Deductions under Miscellaneous deductions, which is subject to the 2% floor. Your mortgage interest is still deductible under Schedule A as your primary residence. The 1 year rule must be your employer's since IRS divides reimbursement plans into accountable or nonaccountable only.

RooCat - thanks for the replies...I took a look at 2106. Since all of the expenses were reimbursed, this isn't going to help me.

The 1 year rule is an IRS rule that is fairly open to interpretation. (I previously worked for the consulting division of a large Tax and Audit firm - so I hope they know what they're doing)

The end result is that my pay stub (and W2) will include the expenses as part of my compensation. I was 'grossed up' for the additional tax liability at the time. However, the grossup didn't include the difference for popping me into the next bracket.

I was considering filing as Married, separate, but another tread here informed me that this would prevent my contributions to a Roth IRA (already done).

Looks like I'll just have to hope I have enough deductions to squeeze me into the lower bracket...or start fighting with my prior employer to compensate me for the difference....

Any other ideas are welcome! Thanks!

BillyBF

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Author: BubblesUp One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19834 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 4:52 PM
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>>Billy wrote: I took a look at 2106. Since all of the expenses were reimbursed, this isn't going to help me.
The end result is that my pay stub (and W2) will include the expenses as part of my compensation. I was 'grossed up' for the additional tax liability at the time.

Billy,
Unless I've misinterpreted something in the above, I think you have missed an important distinction re Form 2106. If your employer is treating the "reimbursements" as taxable income to you, you CAN take the deductions on Form 2106. Re-read the instructions & the form if you have access to it. Note that on Line 7 (1998 Form) you show the reimbursements that the employer DID NOT include in Box 1 of your W2 (Box 1 is the taxable income box). Since your employer DID include the $ in Box 1, the reimbursements will not come into play on your 2106.
Hope this helps.
Regards, Gregg

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Author: BillyBarueFool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19846 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 7:05 PM
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Unless I've misinterpreted something in the above, I think you have missed an important distinction re Form 2106. If your employer is treating the "reimbursements" as taxable income to you, you CAN take the deductions on Form 2106. Re-read the instructions & the form if you have access to it. Note that on Line 7 (1998 Form) you show the reimbursements that the employer DID NOT include in Box 1 of your W2 (Box 1 is the taxable income box). Since your employer DID include the $ in Box 1, the reimbursements will not come into play on your 2106.
Hope this helps.
Regards, Gregg


Oh wow...there's a glimmer of hope...the only cloud on the horizon now is the clause that states:

Include any reimbursements reported under code 'L' in box 13 of your Form W-2.

Wait - this just in - the accounting center at my ex-employer just informed me that this will show up as income in box 1 - WOOHOO!!!!

*Happy Dance*

You guys have MADE MY DAY! Of course I'll run all of this past my tax dude, but you all are the best...if you guys were here I'd buy you all a beer or three for the $$ I get to keep...

Muchos Muchos Gracias!

BillyBF




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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19848 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 7:11 PM
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The other factor is the time element. Was the asignment temporary that kept getting extended or was it indefinite from the beginning? The 1 year and over rule is for single location for an indefinite period of time. In this case, travel related expenses are not deductible. However, the other business expenses are deductible. This would still help you somewhat. It all depends on the time nature of the assignment.

I have not looked up the Court cases and the only Rev. Rul. is 93-86. Code Sec. 162(a).

Tell us about the time element.

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Author: BillyBarueFool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19851 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 7:43 PM
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The other factor is the time element. Was the asignment temporary that kept getting extended or was it indefinite from the beginning? The 1 year and over rule is for single location for an indefinite period of time. In this case, travel related expenses are not deductible. However, the other business expenses are deductible. This would still help you somewhat. It all depends on the time nature of the assignment.

I have not looked up the Court cases and the only Rev. Rul. is 93-86. Code Sec. 162(a).


Doh. I just came across that text also.

I started on the project in late March 1998, with an expected completion date of January 1999. In mid-January - it was determined that I needed to stay through early April, just over the one year mark. Thus all the expenses from mid-January to early April fell into the taxable range.

The majority of those expenses were lodging, airfare, and car rental, only a small % was meals.

Looks like I'm back to square one - and need to figure out how to pry the $$ from their checkbook to cover the difference in liabability due to the change in tax brackets.

Apparently still looking for answers - BillyBF

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Author: BillyBarueFool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19852 of 121180
Subject: Re: Interesting situation Date: 10/19/1999 7:44 PM
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What about this - since there were only 2 weeks that were over the 1 year mark, are only those 2 weeks non-deductable?

Hmmm....

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Author: BubblesUp One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19865 of 121180
Subject: Re: Interesting situation Date: 10/20/1999 8:00 AM
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>>Billy wrote: What about this - since there were only 2 weeks that were over the 1 year mark, are only those 2 weeks non-deductable?

You may have an argument for some of it, based on the very inconclusive Revenue Ruling that applies (RevRul 93-86). The ruling poorly distinguishes between temporary employment and indefinite employment. Temporary=deductible, and is defined as "employment away from home is realistically expected to last one year or less and actually does lst for one year or less. Indefinite=nondeductible & is when employment is realistically expected to last more than one year, regardless of whether it actually does last for more. Third situation is when you start out realistically expecting to last less than one year but at a later date, situation changes & you realistically expect to last mroe than a year; in that case it is treated as temporary until the time that you realized that the one year period will be exceeded.
It would damn sure be easier if they just put in black & white that first year is deductible & after that it's not. But unfortunately our Congress is wholly incapable of doing things the simple way (note that the IRS isn't to blame - Congress is. But they win more votes by wording things to their contributors' liking and then blaming the IRS when things go wrong. This editorial is the opinion of the writer and not necessarily the opinion of the station or its' sponsors).
I think one of your earlier posts discussed your term of employment but I don't recall the details. Hope this helps.
Regards, Gregg

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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19868 of 121180
Subject: Re: Interesting situation Date: 10/20/1999 10:41 AM
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Actually, according to RevRul 93-86, Ltr Rul 9536012 (PLR) 6/7/95, ISP 145 and Analysis Sec 27.3, "If employment away from home in a single location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to exceed 1 year that employment will be treated as temporary (in absence of facts and circumstances indicating otherwise) until the date the realitic expectation changed. Thus, if the employment is away from home and temporary, it meets the business connection requirement."

Additionally, another of the "tests" you have met..."If it is found that the employee has a tax home (i.e., the employee has either a regular or principal place of business or, failing that, an abode in a real and substantial sense)..."

My opinion would be you can take the expenses up to the time you were informed you had to extend your stay.

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