Strategy Needed - 2018 Mileage

Technical topics regarding tax preparation.
#1
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Taxpros:

One of my clients is a full time employee for a company dealing in advertising sales. He is on the road all the time - all in state travel, via his personal vehicle - with no mileage reimbursement. In the past, he has logged as many as 20k miles in a calendar year (just for business) - and has always been an itemizer.

I am in search of some guidance or a strategy to ensure that he can somehow benefit from these business expenses, as there is no chance they will be reimbursed by his employer.

Any insight on common scenarios you may be dealing with and the strategies you are using, or any thoughts or direction would be greatly appreciated!

Thanks!
 

#2
makbo  
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CMConsultingCPA wrote:I am in search of some guidance or a strategy to ensure that he can somehow benefit from these business expenses, as there is no chance they will be reimbursed by his employer.

Hi, welcome to the forum. I will reply, somewhat tongue in cheek, that his best strategy is to find another job for the next eight years. Either that, or accept that with the other "simplifying changes" enacted by his representatives, such as higher standard deduction and lower tax rates overall, maybe he is still going to come out OK. Have you done a "2017 as if TCJA" comparison and analysis? How much is he really losing?

Don't forget the state -- unless the state has fully conformed to TCJA, he'll probably still get the state deduction for the mileage.
 

#3
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CMConsultingCPA wrote:..as there is no chance they will be reimbursed by his employer.


Find a reasonable level at which he will agree to lower his wage and employer will reimburse mileage. The only loser in that scenario is the government. EE is still incurring mileage, ER is still getting a deduction. Ideally, an adjustment to his commissions for mileage could be agreed upon. The economics are the same for EE/ER. It's just more efficient tax-wise.
~Captcook
 

#4
JR1  
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Exactly.
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#5
makbo  
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CaptCook wrote: employer will reimburse mileage.

CMConsultingCPA wrote:there is no chance they will be reimbursed by his employer.

I guess "no chance" means different things to different people. ;)

Is it the general feeling that even though Congress deliberately made trade-offs to support simplification and implement an overall tax cut, the trade-offs shouldn't apply to some taxpayers? We're still waiting to here how this taxpayer is harmed overall, instead of actually getting a tax cut, like so many others?
 

#6
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makbo wrote:I guess "no chance" means different things to different people.


I've already had this conversation three times this year with employers that told their outside sales guys they "wouldn't reimburse mileage under any circumstances". Yet, they changed their mind when the sales guy was willing to take a pay cut to get a mileage reimbursement and we explained the economics are exactly the same for the employer.

The economics are actually better for the employer because the mileage reimbursement doesn't carry a payroll tax liability.
~Captcook
 

#7
sjrcpa  
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But if employer will pay the same amount to employee - wages vs lower wages + reimbursement- I'd say there is a chance. It won't hurt to ask.
 

#8
makbo  
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Another caveat - it's too late to do anything about the first half of the year, right? An accountable plan requires timely accounting, such as monthly or quarterly, doesn't it? And they can't reimburse more than the IRS standard mileage rate, right? So mileage from January through June would most likely not be reimbursable at this point under an accountable plan. (Not to mention that employer might not want to go back and amend payroll filings).
 

#9
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Before I would advise someone to lower their pay in order to get mileage reimbursement, they would need to fully understand the impact to social security by doing it.
 

#10
makbo  
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Good point - not only social security, but income level for credit decisions, and possible unemployment comp if laid off. But all things considered, I suppose most people would still rather trade the lower taxable income for the same current net income in their pocket.
 

#11
EZTAX  
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Agree with others that you should look into an accountable plan.

Great point by Seaside!

Also let us not forget that we have been down this road (somewhat) before and the IRS does not think it is always kosher.

https://www.irs.gov/businesses/employee ... ment-plans
 

#12
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makbo wrote:

Don't forget the state -- unless the state has fully conformed to TCJA, he'll probably still get the state deduction for the mileage.


Where can we find a detail analysis of how State of California will confirm to the TCJA?
 

#13
makbo  
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BestQuestion wrote:
makbo wrote: Don't forget the state -- unless the state has fully conformed to TCJA, he'll probably still get the state deduction for the mileage.

Where can we find a detail analysis of how State of California will confirm to the TCJA?

There is no detail analysis, nor a need for one. CA conformity date is 1/1/2015, as I recall. Nothing passed by Congress since then automatically conforms for CA, unless state legislature makes it so. Of course, there will be the oddball exception, such as CA does actually conform to the rule about no more recharacterizations of Roth conversions.

If anything changes, I would expect CSEA and/or Spidell and/or CalCPA to be on top of it.
 

#14
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makbo wrote:
BestQuestion wrote:
makbo wrote: Don't forget the state -- unless the state has fully conformed to TCJA, he'll probably still get the state deduction for the mileage.

Where can we find a detail analysis of how State of California will confirm to the TCJA?

There is no detail analysis, nor a need for one. CA conformity date is 1/1/2015, as I recall. Nothing passed by Congress since then automatically conforms for CA, unless state legislature makes it so. Of course, there will be the oddball exception, such as CA does actually conform to the rule about no more recharacterizations of Roth conversions.

If anything changes, I would expect CSEA and/or Spidell and/or CalCPA to be on top of it.


So when we file the 2018 California tax return, all the rules will be the same as the 2017 ones unless there are further announcements? For example, even though unreimbursed employee expense is no longer deductible in the Federal tax return, it can still be itemized and deducted in the California tax return. Did I understand what you said correctly?
 

#15
makbo  
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BestQuestion wrote:So when we file the 2018 California tax return, all the rules will be the same as the 2017 ones unless there are further announcements? For example, even though unreimbursed employee expense is no longer deductible in the Federal tax return, it can still be itemized and deducted in the California tax return. Did I understand what you said correctly?

Yes.
 

#16
lucyko  
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No surprises here but Spidell just announced over the week-end that California will not conform to any of the federal changes for tax year 2018 .
 

#17
Jake  
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Here is my take in regard to Ohio. Ohio taxable income starts with federal AGI, no itemized deductions. So W-2 employees in Ohio with high employee business expenses have been screwed over for almost 50 years. In Ohio, municipal income taxes are common. But the city income tax returns did adjust for Form 2106. However at least in Columbus the city would deny the 2106 if the taxpayer did not actually itemize. And of course an outside sales person that rented instead of owning a home likely did not itemize. Made no sense but that is the way it was. A few years ago I pared my client list due to my old age. But I did send an email to former clients that were outside sales persons alerting them to this change and urging them to pressure their employer to set up an accountable plan for their employee business expenses.

A separate issue for self employeds with Ohio municipal income taxes. While the federal return allows an adjustment to income for 1/2 of the soc sec taxes as well as self employed health insurance, and that carries over to the Ohio return, that is not an adjustment to income for municipal income taxes that taxes based on the net Sch C profit.
 


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