Audry, age 38 and single, earned a salary of $59,000. She had interest income of $1,600 and had a $2,000 long-term capital loss from the sale of a stock investment. Audry incurred the following employment-related expenses during the year:

Transportation $5,500
Meals 2,800
Lodging 4,200
Entertaining clients 2,200
Professional dues and subscriptions 300

Under an accountable plan, Audry receives reimbursements of $4,500 from her employer. Calculate her AGI and itemized employee business expenses. Her AGI is $58600 and her itemized deductions are $6828


Can someone please tell me if my answer is correct? Thanks!

AGI for where? Tax laws differ from province to province, state to state.

For example, in Ontario, Canada, you can only claim 50% of Meals and Entertainment

It does not give that information. Everything I have given is all of the information that I have for the problem.

I'll assume the homework assignment wants you to know when to add and when to subtract since there is no other info provided.

So with that in mind I would think that your answers are not correct. So you can gain a benefit from this, list how you came about those numbers. i.e. what did you add up or subtract to come up with the AGI and itemized deductions. Also list what the homework assignment means by AGI. My understanding of what an AGI is yields a different answer than yours. We might be able to help understand where you went wrong with your calculation if we have that info.

Casey

P.S. I know the answer but I'm not listing it here for your benefit. I'm going to assume from your question that you're truly interested in knowing why and not just having an answer without knowing how to come up with that answer.

Here is how I came up with my answer. I tried using Taxcut 2005 to prepare my answer for this problem. AGI is income including wages, interest, capital gains, etc. but does not include standard deduction or any itemized deductions. Any help you can give me would be greatly appreciated. Thank you so very much!

59,000 income
1,600 interest income
-2000 capital loss
58,600 AGI

For the itemized deductions I figured since she was reimbursed $4,500 I took the transportation costs and reduced them to $1000 and then took the lodging and added 4,200 and then took 50% of the meals for $1400. For entertaining clients I added $1,100 and then for the dues I added $300 to get a total of 8,000 for itemized deductions. After that I took 2% of the AGI ($58,600) to come up with $1,172.
$8000
(1172)
$6,828 for the itemized deductions.

Always glad to help someone that really wants to learn :)

Ok, Your AGI calculations are correct.

Your other calculations up until the 2% step look correct. Now, take a look at what the 2% figure and see what it is supposed to mean. i.e. the number that 2% of AGI yields is supposed to mean what? Is that a number you can't exceed? Is it a number you must meet as a minimum?

Casey

Miscellaneous itemized deductions are subject to a 2% limit which means you can deduct the amount left after you subtract 2% of your AGI from the total.

You're CORRECT. What threw me off was the 2% "limit" vs. 2% "floor" as I'm used to it being called. I then made assumptions which were wrong but your calculations are correct.

Casey

P.S. (Added later)... I think your answer is correct based on what you've given/stated. Your milage may vary depending on the true intent of the teacher/problem :)

Ok great. Thank you so very much for all of your help. :)

You're welcome and thanks for reminding me to get my own taxes done ;)

You would base it on the tax laws from where you are currently taking this class.

All my tax problems are done according to Ontario taxes as that is where I go to school.

It was also my understanding that a capital loss (2,000) should only be used to deduct from a capital gain, not to deduct from overall AGI. But, that might just be in Ontario (Canada?)

In the US (Federal Taxes) capital gains/loss fall into short and long term and they're done the same way in all 50 states. Each state may do something different on the state return but they don't trump the federal system. They're also additive independently in any one particular year to yield a net loss or gain for each short and long term. Short term constitutes a purchase/sale dates for less than 1 year. Long term is for purchase/sale dates of more than 1 year apart. If you have a capital loss then the most you can deduct is $3,000 (if memory serves me right). Whatever is left after that is carried over as either a long term or short term capital gains loss.

Casey