a professional consulting business sells professional tools and equipment and pr

Question

a professional consulting business sells professional tools and equipment and provides associated services, such as repair and maintenance, to its customer maintain their own tools and equipment for performing the repairs and maintenance work. The company will reimburse a technician for amounts spent to purchase tools and equipment eligible for a 179 deduction up to a set amount each year Any costs for tools and equipment that exceed the set amount will not be reimbursed.

John is a technician for the company. During the current year, he purchased equipment that qualifies for the 179 deduction. John paid $50,000 for the equipment and was reimbursed the set amount of $40,000. Identify the relevant tax issues for John with respect to 179 and the computation of his taxable income.

Explanation / Answer

In this given Problem John is is a technician for the company. During the current year , he purchased equipment that qualifies for the § 179 deduction and was reimbursed the set amount of $40,000.

Generally, expense reimbursements made under an accountable plan are excluded from an employee’s wages, not subject to payroll tax withholding, and not reported on Form W-2.
However, expense reimbursements to employees are taxable as wages, subject to payroll tax withholding and unemployment taxes and reported on Form W-2.

When an employee does not account to the company for his or her business and personal use of a company provided equipment in accordance with the accountable plan rules, the fringe benefit value of and company paid operating expenses of the employee’s personal use of the vehicle will be considered a taxable fringe benefit to the employee. The company will deduct the employee’s taxable fringe benefits as salaries and wages on its tax return and report the benefits as taxable compensation on the employee’s Form W-2.

As per 179 deduction: The total amount you can elect to deduct under section 179 for most property placed in service in tax years beginning in 2015 generally cannot be more than $500,000. If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. You do not have to claim the full $500,000.

here, as per the above definition John can claim $50,000 as depreciation as per 179deduction.

computation of his taxable income:

Income includes the reimbursed portion i.e, reported as the benefits, taxable compensation on the employee’s Form W-2. = $40,000

and Depreciation can be claimed under 179deduction is $50,000.

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