This is the final tax answer provided by members of the Maryland Association of Certified Public Accountants for this filing season.
I am an independent consultant. I got a 1099 from a client who included in Box 7 (nonemployee compensation) not only the amount paid to me for services rendered ut also several thousand dollars in travel expenses that they reimbursed me for. Do I have to inclued this amount as wages/salary and pay tax on it? In the future, would I be better off at tax time by not seeking reimbursement and just listing these as business expenses?
As noted in the instructions for Form-1088 MISC regarding Box 7, example 6, reimbursed travel expenses paid to an independent contractor did not "account to the payer," this requires a listing of the amounts and types of expenses.)
If the independent contractor does "account to the payer," the reimbursed expenses should not be included on Form 1099. If your 1099 is wrong, you can ask the payer to correct the 1099, but this doesn't happen often in practice.
One of the issues here is which party ends up with nondeductible expenses ( for example, only half of meal and entertainment expenses are deductible.)
If you properly accounted to the payer, who then incorrectly included the expense reimbursementon your Form 1099, include the full amount of the 1099 as income and fully deduct your expenses, noting them, for example, as "reimbursed meal and entertainment expenses."
If you haven't properly accounted to the payer, then you are the party who can't fully deduct expenses that are subject to limitations.
You would normally be better off by providing the payer with an adequate accounting and receiving a full reimbursement than claiming unreimburseed expenses. In that case you won't lose the tax benefit of meal, entertainment and other expenses.
Remember, too, that this income is not "wages/salary" since you are an idependent contractor.
Craig S. Duncan, CPA, Young, Brophy & Co., P.C.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.