Question

1. Robert, a new client of yours, is a self-employed caterer in Santa Fe, New Mexico. Robert drives his personal van when delivering catered meals to customers. You have asked him to provide the amount of business miles driven using his vehicle. You are planning on using the standard mileage method to calculate Robert’s deduction for transportation costs. Robert has responded by saying, “Well, I don’t really keep track of my miles. I guess I drove around 3,000 miles last year for the business.” Please let us know how you would respond to Robert.
2. Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles area. Although typically seat-fillers are not compensated, Nancy is so good at the job that many of the events are willing to pay for her services. As a result, her level of seat-filling activity now rises to the level of a business, not just a hobby. In 2018, Nancy is hoping to take a trip to the National Award Show Association (NASA) Annual Conference being held in Koror, Palau, a small island country in the Pacific. Although the conference is specifically focused on the presentation of award shows, a large number of the producers of these shows attend each year. Nancy wanted to attend so she could understand the challenges an award show producer faces and thus better perform her seat-filler job. The conference is held in a remote location each year as award show producers generally prefer a high level of secrecy around the inner-workings of the shows, and the scuba-diving and weather are also pretty good. The costs to attend the conference are $1,200 for conference registration, $2,300 for air travel, $2,400 for lodging. All the meals are included in the cost of the registration and are valued at $400. Please prepare a letter to Nancy that describes the issues that Nancy will face in trying to deduct the cost of this trip. Use IRS Publication 463 (available at www.irs.gov (Links to an external site.)) to assist you.

Answer 1

Answer:-

Robert, a new client of yours, is a self-employed caterer in Santa Fe, New Mexico. Robert drives his personal van when delivering catered meals to customers.

There are two methods to use for standard transportation cost deduction.

1) Actual expense method

2) Standard Mileage method

Here since we don’t have actual expenses in hand and Robert is knowing how many miles he drove for the business purpose we can use the standard mileage method. Let the standard mile rate is 50 cents per mile and it is given he drove 3000 miles so deduction amount is 3000*0.5=$1500

Dear Nancy,

Sub.: Regarding-Tax implications of your travel costs to Palau

As per the information provided by you, the costs that you would be incurring on your trip to Palau for attending the NASA Annual Conference include -

Conference registration fees $2,300 which includes $400 worth value of meals)

Air travel expenses $2,400

Since you are in the activity of seat-filling for award shows which is now your business and attending the conference is necessary for you to better perform your seat-filling job, the cost of the trip would be eligible to be treated as a business expense and would be tax deductible subject to limits on the meals provided.

The deductible amounts would be as follows:

Conference registration fees $1,900 fully deductible as a business expense

Meal value $ 400 Since the meals are a part of the conference fees, it forms part of the business expense. However, it would be deductible only to the extent of $200 i.e. 50% of the actual expense

Air travel expenses $2,400 fully deductible as a business expense

Any expense for personal entertainment, travel, or leisure would not be an allowable expense. Further, you need to maintain the bills or receipts as supporting documents evidencing the travel and the attendance to the conference.

So, The toal deductions - 1200+2300+2400-400+200 = 5700

We have the best fees for you

Thanking you.