Question

Sally is a corporate sales representative for Computer City. Sally receives a monthly travel allowance from Computer City to cover her travel costs (transportation, food, lodging, entertainment, etc.). If Sally is not required to account to Computer City for the use of the travel advance

I. Sally will not have to show any aspect of the travel reimbursement or expenses incurred if she spends all of the reimbursement on valid travel expenses.
II. Sally will only have gross income to the extent her travel allowance exceeds her actual costs.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.

Answer 1

In dealing with a corporate travel allowance, an employee will have gross income only to the extent that the travel allowance exceeds actual business-related travel costs. If the allowance is correctly expended, no gross income needs to be reported for that portion. Statement II is correct, making option b the right choice.

Step-by-step explanation:

The question asked involves understanding the tax implications of a travel allowance provided to an employee. Addressing the question, Sally will need to consider gross income and actual travel expenses to determine her tax situation. Let's evaluate the given statements.

For statement I, if Sally uses the travel allowance exclusively for valid business travel expenses, she typically does not need to include the travel allowance as gross income, provided that the expenses are ordinary and necessary and that the travel is indeed for business purposes. However, she might still need to account for it for tax purposes depending on her company's accountable plan policies or tax laws.

For statement II, if the travel allowance exceeds the actual amount spent on business travel, the excess amount would indeed be considered gross income and may need to be reported as such on Sally's tax return.

Therefore, the correct answer would be b. Only statement II is correct. Sally will only have gross income to the extent her travel allowance exceeds her actual costs.