Question

Victor is a sales representative for Valley Winery. Victor receives a monthly travel allowance from Valley to cover his travel costs (transportation, food, lodging, entertainment, etc.). If Victor is required to account to Valley for the use of the travel advance and to return any excess travel advance

I. To the extent Victor is reimbursed for less than his costs, part of his expenses are deducted for AGI and part are deducted from AGI.
II. Victor must include the travel allowance in his gross income. His actual costs are deductible from AGI, subject to all applicable limits on such deductions.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.

Answer 1

Victor can deduct some of his travel expenses as business expenses on his tax return but must include the travel allowance in his gross income.

Step-by-step explanation:

The correct answer is a. Only statement I is correct.

Statement I is correct because if Victor is reimbursed for less than his costs, part of his expenses are deducted for AGI (Adjusted Gross Income) and part are deducted from AGI. This means that Victor can deduct some of his travel expenses, such as transportation, food, lodging, and entertainment, as business expenses on his tax return, but the deduction is subject to certain limits.

Statement II is incorrect because Victor must include the travel allowance in his gross income. This means that the travel allowance is considered taxable income for Victor, even though he may use it to cover his travel expenses. However, he can deduct his actual costs from AGI, subject to the applicable limits on deductions.