1099Misc for car allowance etc

[Gretel]

Never ending story on questions around this issue.

Only shareholder of small S-Corp approached me with the following scenario:

State hired him as employee and in addition to travel per diem he also gets a substantial allowance paid for use of truck, cell phone and laptop. The main inexpedience being the truck. Truck is titled in owners name and when his corporation was hired as sub he submitted expense reports and got mileage reimbursement.

He wants to use his corporation for 1099 income. This income now is equipment rental income instead of contractor income.

1. Truck needs to be titled in corp name since corp can lease only what it owns.
2. Only actual expenses can be taken by corp.
3. Only minimal salary to owner required if any at all since little to no time is required in this "leasing biz" hence saving SE.

Even though this sound logical it doesn't seem right. What am I missing?

Alternate scenario: Vehicle stays in individual's name, 1099 and all expenses are reported on Sch. C. Can SMR be taken? Normal you don't drive the equipment you lease to others so I am a little confused on this issue.

Any thoughts are appreciated.

[gkaiseril]

If this a reimbursement through a non-accountable expense plan, then the 1099-Misc amount is reported as wages and the expenses are Schedule A miscellaneous subject to 2%.

[Gretel]

If this a reimbursement through a non-accountable expense plan, then the 1099-Misc amount is reported as wages and the expenses are Schedule A miscellaneous subject to 2%.

I totally agree with you but this does not answer my question. I am not the one issuing the 1099 and I don't think anyone can make the State do it the correct way. I have to deal with what is going to happen in reality not what it says in the books.

[AJsTax]

Imo

the S-corp is not involved at all because there is no longer a contract with the state and the owner is now an employee. The expenses must now go on a 2106 carried to the Sch A and the 1099 income that should have been on the W-2 is now added to box 7 wages of the 1040 as the prior poster stated. That is the correct and logical way to handle it.

[Gretel]

the S-corp is not involved at all because there is no longer a contract with the state and the owner is now an employee. The expenses must now go on a 2106 carried to the Sch A and the 1099 income that should have been on the W-2 is now added to box 7 wages of the 1040 as the prior poster stated. That is the correct and logical way to handle it.

The State is willing to make a contract with the Corporation for the rental of the equipment and issue the 1099 in the corporations name. I don't see anything wrong with the corporation owning and renting equipment.

Any other ideas?

[Burke]

The State is willing to make a contract with the Corporation for the rental of the equipment and issue the 1099 in the corporations name. I don't see anything wrong with the corporation owning and renting equipment.Any other ideas?

If there is a contract between the corp and the state, I don't see a problem with it either. As for last year, they apparently already issued 1099 to individual SSN (?), so what is the problem with and in-and-out on Sche C? In OP you state, "state hired him as employee..." but then you said "when his corp was hired as sub..." so I am confused.

[Gretel]

If there is a contract between the corp and the state, I don't see a problem with it either. As for last year, they apparently already issued 1099 to individual SSN (?), so what is the problem with and in-and-out on Sche C? In OP you state, "state hired him as employee..." but then you said "when his corp was hired as sub..." so I am confused.

I can see the confusion.

The first statement was as to the current situation. The contracts are in the making and my client asked me for advise, which is great. He says that the State has no problem have two different contracts with him, one with him as employee and one with his corporation for the equipment rental. He will double check on this.

My second statement was in regards to previous situation, meaning that his corporation was hired for construction work and has an accountable plan for travel reimbursement. Has really nothing to do with my question and I am sorry for creating more confusion in this already confusing situation.

[BHoffman]

Gretel - pretty sure he can report the personal property rental income on line 21 of form 1040, no SE tax, if this is just a one-job deal.

[Gretel]

Thanks everyone. Maybe I should put up the options of reporting for a vote if contract and 1099 is not run through corporation. I also should mention that the gas for the truck is included in the 1099-Misc. Daily reimbursement is $150.

1. Add income on line 7 and report expenses on Form 2106 (after reporting 1099Misc on Sch.C and zero out to match IRS records)

2. Report income on L. 21 and expenses on L. 36 as PPR. This assumes he won't have this job for years.