Non-monetary compensation on 1099

[rtsietsema]

I have several clients who are involved in Direct Sales and received 1099's which included non-monetary compensation in box 7. A separate sheet lists the FMV of the compensation. Some things like the company paying the fees for attending a conference are included. (Basically the client earned the trip). Question... Can my client deduct the expense of the conference fee, even though it was paid for by the company? Otherwise they end up paying taxes on the FMV income even though they never received the money?

[Roland Slugg]

Yes, to the extent that the same expense would have been a legitimate tax deduction for the self-employed person. Not all costs/expenses for conferences are ... those on cruise ships, for example.

[Koss]

Disagree

My reading of the original post is that the taxpayer did not pay for the conference at all. The company paid for it. I don't understand how the taxpayer could possibly have a tax deduction for an expense that he did not actually pay.

The original post complains that the taxpayer will have to pay tax on the FMV of the conference even though "he never received the money." Yes, that's correct. He did not receive the money, but he received the value of the conference as a form of nonemployee compensation. The original post says that the taxpayer "earned the trip."

BMK

[Gary2]

My reading of the original post is that the taxpayer did not pay for the conference at all. The company paid for it. I don't understand how the taxpayer could possibly have a tax deduction for an expense that he did not actually pay.

The original post complains that the taxpayer will have to pay tax on the FMV of the conference even though "he never received the money." Yes, that's correct. He did not receive the money, but he received the value of the conference as a form of nonemployee compensation. The original post says that the taxpayer "earned the trip."

I understand what you're saying, and it makes sense, but I still can't reconcile it. If the company pays him $1,000 and he uses it to pay for a conference fee, he has $1000 of income and a $1000 expense, for a net 0, while the company has a $1,000 deduction. But if the company pays for the conference directly on his behalf, he has $1,000 non-cash income, and 0 expense, for a net $1,000, while the company still has a $1,000 deduction.

Isn't this supposed to be a zero sum game?

If, instead of a conference, say it was a computer that is put to 100% business use. What's the basis of the computer?

[Roland Slugg]

The original post complains ...

Complains? Good grief, it was a simple statement of fact. This is a no-brainer. Since the taxpayer was issued a 1099-MISC for the value of the conference which we must assume, of course, will be included in gross income, then naturally the cost of the conference can be deducted as long as it satisfies the "ordinary and necessary" requirement, yada, yada, yada. Yeah, he's deducting an expense he didn't actually write a check for, but he's also reporting income, in an equal amount, that he didn't actually receive. He indirectly received the income and he indirectly paid for the conference. Same result as if the sponsor had paid him in cash and he, in turn, wrote a check for the cost of the convention. Now if the taxpayer does not pick up the income reported on that 1099-MISC form, then, of course he can't take an "offsetting" deduction. He reports both ... or neither.

For anyone having difficulty seeing this, just make a simple journal entry. Here's the credit side: Income. Where does the debit go?

[Koss]

Confused

Maybe my thinking on this issue has been clouded...

If the guy had been "awarded" a trip that was not business-related, then I think it would definitely be taxable income, and there would not be an offsetting expense.

This sort of thing is not that unusual. Hit a sales target, and you might get a cruise, or a trip to Disney World.

I guess I was not accounting for the fact that this was a business trip.

BMK

[oceanlovin'ea]

interesting finding

This discussion prompted me to look at my mother's 1099-misc from her direct sales company. The 1099 just has a total on it so I went online and printed out their statement. Sure enough the amount on the 1099 is made up of her commissions and the cost they affixed to the trip to National convention she qualified for. The cost of the convention and the hotel were provided for her/me. We paid our own airfare. (That was my Hawaii trip last year. And yes I am on her business with her since she is 92 and it will be mine when she can't manage it any more)(Thanks, TaxEA, for the tips. We did enjoy our trip)

So I will need to make an entry to expense the cost of the trip since she has it included in income.

Linda, EA