High business miles for employee

Technical topics regarding tax preparation.
#1
chris  
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This isn't a 2106 item any longer...but it still hits the New York itemized deduction schedule.

I probably shouldn't be worried about this but these conditions make me a little nervous:

a. Employer gives employee $1000 car allowance per month. I realize that whatever they call it...it's comp/income and ends up in box 1 of the W-2. No accountable plan in place.

b. Employee racks up 40,000 miles for business on his car. This guy is 100% accurate. He keeps a written log book which he transcribes into Excel, and he has dates, times, places visited, purpose of visit, etc. My best client in terms of record keeping. No question about it, he put 40,000 miles on that car and zero of it was commuting - it was going from job to job after going to his employer's office.

So this generates around $17,000 of itemized deduction on the New York return (after 2% floor reduction). It just makes me nervous when driving your car basically gives you the income leverage of another part-time job...

I'm not missing anything, right? I expect this to flag at some point in the state, so I want to make sure he's on solid footing.
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#2
JAD  
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Sounds legit to me. I would move forward claiming the deduction and just make the client aware of the audit risk, with a tone that "this is not to scare you, just to make you aware so that you are not surprised." And suggest that he discuss with his employer the benefits of putting an accountable plan in place. Of course, doing so would save the employer money in the form of employment taxes, and it would obviously be better for the employee too
 

#3
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JAD wrote:"this is not to scare you, just to make you aware so that you are not surprised."


Love that....

and I agree - I have 2 clients, out of 800, who legitimately put this many miles on their cars because they are in outside sales, they log them properly, and I have no problem taking them (now for the state only).

In my opinion, it's the preparers that put employee business expenses on many of their returns are the ones that run into problems (even handcuffs).
 

#4
Jake  
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How/where can you put employee business expenses on a return in 2018?
 

#5
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...some states only - we are discussing. Sans federal.
 

#6
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NYS state is notorious for deny and audit. Meaning they will deny the deduction and send a letter stating if you would like to protest send in your documentation. Unlike fed that will give refund and then maybe audit 2 years later. If you’re documentation is as solid as you state, no Problem. It may take 6 months but client will get the deduction. I have not had a case where mileage was the issue, but I’ve had high medical get questioned on multiple occasions.
 

#7
Jake  
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ItDepends wrote:...some states only - we are discussing. Sans federal.


Now I understand. In Ohio we have city income tax - and employee business expenses on the 2106 is still recognized but that may also be gone as in the past the city stated that if the 2106 didn't count in the federal (e.g. client did not itemize) then the city did not allow that deduction from taxable city income. Only had one return where that mattered and it was such a small amount we di not argue. As for the state Ohio return, it starts with federal AGI so the 2106 never mattered.
 

#8
taxnoob  
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ItDepends wrote:
JAD wrote:"this is not to scare you, just to make you aware so that you are not surprised."



In my opinion, it's the preparers that put employee business expenses on many of their returns are the ones that run into problems (even handcuffs).



I had worked for a guy that used to do this - is now in jail for 46 months. He added a lot of employee business expenses and the difference of the refund, he pocketed.
 

#9
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taxnoob wrote:
ItDepends wrote:
JAD wrote:"this is not to scare you, just to make you aware so that you are not surprised."



In my opinion, it's the preparers that put employee business expenses on many of their returns are the ones that run into problems (even handcuffs).



I had worked for a guy that used to do this - is now in jail for 46 months. He added a lot of employee business expenses and the difference of the refund, he pocketed.


I'm confused. What's wrong with putting legitimate employee business expenses on there?

Are you saying he made up expenses to add to his client's returns?
 

#10
Jake  
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I have been doing this for over 30 years. The problem is that employees who are not under an accountable plan, and self employed and independent contractors, are often not the best record keepers. In my experience mileage is the biggest downfall and for outside sales persons it is a big number. The Cohen case gave a little wiggle room. From my experience it is not cheating, it is just failure to comply with strict record keeping mandates. The recent repeal of Form 2106 employee business expenses is a major blow to middle class taxpayers. Totally unfair. So much for the love of small business persons.
 

#11
makbo  
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Jake wrote: The recent repeal of Form 2106 employee business expenses is a major blow to middle class taxpayers. Totally unfair. So much for the love of small business persons.

Employees are not "small business persons". And it's not a "major blow", I'm sure only a very tiny percent of all individual taxpayers in the past benefited from deducting unreimbursed employee expenses on the federal return. At least states like CA that put their citizens first when it comes to taxes still allow it. :lol:
 

#12
Noobie  
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Jake wrote: The recent repeal of Form 2106 employee business expenses is a major blow to middle class taxpayers. Totally unfair. So much for the love of small business persons.


And the doubling of the standard deduction wasn't enough to make 99% of people whole?
 


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