Andy is single with no dependents and has business income from his work as a CPA of $80,000 in 2017. He has transportation expenses (from visiting clients) of $4,600 and meals and entertainment expenses (with clients) of $5,200. In addition, he paid $10,000 in home mortgage interest and $2,800 in property taxes.
a. Assume that Andy is self employed. Compute his taxable income (remember to take into account the effect of SE tax). (Self-employment income x 92.35% x 15.3% = SE Tax)
b. Assume Andy is an employee of Ernst & Young, and he is reimbursed $9,800 from Ernst & Young for these expenses. In order to be reimbursed, Andy had to turn in an expense reimbursement form along with his receipts. Compute Andy’s taxable income. How much can Ernst and Young deduct for these reimbursed expenses?
c. Assume Andy is an employee of Ernst & Young, but he is NOT reimbursed for the expenses. Compute Andy’s taxable income.