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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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I am un sure how a car allowance works. I have been offered

Customer Question

Hi. I am un sure how a car allowance works.
I have been offered base of $110,000 with a car allowance of $18,000.
The car allowance will be paid to me monthly on top of my base and without tax
How will this affect me at tax time?
What can I do to minimise the tax payable on this allowance?
Submitted: 5 months ago.
Category: Tax
Expert:  Lev replied 5 months ago.
In general - the car allowance paid monthly on top of your base wages - will be treated as WAGES and taxed as such.However - IF your employer will establish an accountable reimbursement plan - and you report back how your car allowance is used - your employer may treat all or part of that car allowance as reimbursement for business expenses - and as such NOT to include into your wages.Questions?
Expert:  Lev replied 5 months ago.
An accountable reimbursement plan generally means - these expenses are otherwise deductible and you provide a timely report to your employer how the money were used.
Expert:  Lev replied 5 months ago.
..In order to qualify as an accountable plan, your reimbursement or allowance arrangement must require that your employees meet all three of the following rules:1. There must be a business connection to the expenditure. This means that the expense must be a deductible business expense incurred in connection with services performed as an employee. If not reimbursed by the employer, the expense would be deductible by the employee on his/her 1040 income tax return.2. There must be adequate accounting by the recipient within a reasonable period of time. This means that your employees must verify the date, time, place, amount and the business purpose of the expenses. Receipts are required unless the reimbursement is made under a per Diem Plan.3. Excess reimbursements or advances must be returned within a reasonable period of time. Reasonable depends upon facts and circumstances..So - when reimbursements are made BEFORE expenses are paid - the person is required to report all expenses and provide all receipts . When not provided - the excess should be returned.That up to your employer to decide whether to have an accountable reimbursement plan OR to include reimbursements into your wages.If they do include into your wages - you may deduct car expenses on your tax return.Does that answer your question?

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