Reimbursement or Schedule C Income/Deduction

[peggysioux]

Taxpayer has a small business and is also a W-2 employee in similar type work. Through his self-employment business, he has access to better rates for some material than his employer. He purchases material through his self-employment business and "sells" same product to W-2 employer at same rate of purchase. Would that be considered a reimbursement and not be considered as income/deduction for his self-employment business being there is no mark-up or should it be considered income/deductions that basically wash each other out on Schedule C?

[Burke]

When my self-employed client is reimbursed for travel, for instance, I show a negative figure with explanation on Page 2 under "Other Expenses" for that amount. So it appears both as an expense and an adjustment to expenses. I do not show it as an income item on purpose as that raises gross income for local tax purposes.

[peggysioux]

When my self-employed client is reimbursed for travel, for instance, I show a negative figure with explanation on Page 2 under "Other Expenses" for that amount. So it appears both as an expense and an adjustment to expenses. I do not show it as an income item on purpose as that raises gross income for local tax purposes.

Thanks Burke....

[ATSMAN]

When my self-employed client is reimbursed for travel, for instance, I show a negative figure with explanation on Page 2 under "Other Expenses" for that amount. So it appears both as an expense and an adjustment to expenses. I do not show it as an income item on purpose as that raises gross income for local tax purposes.

I have 2 self employed IT consultants and both receive 1099-Misc for their consulting fees, BUT any travel associated with the project/work is separately reimbursed upon presentation of bills by the company (one of them is Google). These reimbursements are not included in the 1099-Misc amount and we do not deduct any of those reimbursements as expense.

[peggysioux]

I have 2 self employed IT consultants and both receive 1099-Misc for their consulting fees, BUT any travel associated with the project/work is separately reimbursed upon presentation of bills by the company (one of them is Google). These reimbursements are not included in the 1099-Misc amount and we do not deduct any of those reimbursements as expense.

I was unsure how to handle being the reimbursement is not for travel expenses and I could only find info on how to handle if it pertained to travel, meals, and entertainment.

Peggy Sioux

[Rapid Robert]

Through his self-employment business, he has access to better rates for some material than his employer. He purchases material through his self-employment business and "sells" same product to W-2 employer at same rate of purchase.

You don't give any details on why he "has access to better rates". But if the vendor cares enough to have different rates for different types of clients (rather than just an individual client discount based on a specific relationship), I suspect he would be violating his agreement with the vendor by deliberately assisting in circumvention of those vendor policies.

This is not an expense reimbursement, this is selling materials at cost. It should go into his Schedule C as cost of goods sold, thereby not increasing his gross profit or gross income, so that concern is a non-issue. Hopefully a 1099-K will be issued (not a 1099-MISC, since no service provided).

What about sales tax? Is he failing to report that correctly?

[taxea]

I don't understand why he is even buying the product if he is just selling it back to his employer at cost. I would say it is income/expense on his part.

[ATSMAN]

I don't understand why he is even buying the product if he is just selling it back to his employer at cost. I would say it is income/expense on his part.

If I was an employer and one of my employees got a better rate for parts/supplies from a supplier than I could get, I would have to rethink my operations? Am i competitive? What is stopping me from getting those lower rates?

I think it raises a lot more questions than answers.

This reminds me of a reverse situation when I was 24 years old and my employer would order those perforated dot matrix printer paper in bulk. I would beg him to sell me a case for his cost because back then retail price was so expensive. I think I may still have half a case in my attic after all these years!

[Burke]

I have 2 self employed IT consultants and both receive 1099-Misc for their consulting fees, BUT any travel associated with the project/work is separately reimbursed upon presentation of bills by the company (one of them is Google). These reimbursements are not included in the 1099-Misc amount and we do not deduct any of those reimbursements as expense.

No, travel reimbursement is not usually included in the 1099 income. But my client pays the expense out of his company for all his travel; therefore, when he is reimbursed for any part of it, an adjustment to that expense account is necessary.

[Burke]

Also, I'm not quite sure playing games with gross income to lessen non-federal taxes is completely kosher. Nothing like that in states I routinely work with.
FE

It's not playing games. Reimbursement of actual expenses incurred is not income. It is a reduction in the expense deduction for a self-employed person. Unfortunately, VA is one of those states whose localities charge a tax on gross business income, even if the business ultimately incurs a net loss.

[spanel]

When my self-employed client is reimbursed for travel, for instance, I show a negative figure with explanation on Page 2 under "Other Expenses" for that amount. So it appears both as an expense and an adjustment to expenses. I do not show it as an income item on purpose as that raises gross income for local tax purposes.

I've been thinking about this for a few days and I'm not sure I agree with this (I don't have to deal with local taxes however).


I pay a contractor to put a new roof on... they are going to quote me say $5000. It would be highly unusual in this area for them to quote me $4700 labor/materials & $300 travel costs.

Even in that scenario, I dont agree that I am reimbursing anyone for travel costs as they just put a number on paper. I dont know there true travel costs.

In both cases, I would put $5000 in total income and list the travel expenses (mileage or depr/actual costs) where they belong. Sounds like you guys are trying to make travel a part of COGS

or somehow shield this additional income by crediting expense accounts to "hide" this income.

Chris

[Burke]

I pay a contractor to put a new roof on... they are going to quote me say $5000. It would be highly unusual in this area for them to quote me $4700 labor/materials & $300 travel costs.
Even in that scenario, I dont agree that I am reimbursing anyone for travel costs as they just put a number on paper. I dont know there true travel costs.
In both cases, I would put $5000 in total income and list the travel expenses (mileage or depr/actual costs) where they belong.
Chris

In that scenario, I would too. But my answer dealt with travel costs like airfare, hotels, rental car, etc paid by the TP up front then reimbursed separately from the job payment by his client maybe a couple of months later when an expense voucher was sent in. And I agree with Rapid Robert on the purchase/sale of the materials by OP's client. It would go into COGS, whether he made a profit or not on them.

[spanel]

In that scenario, I would too. But my answer dealt with travel costs like airfare, hotels, rental car, etc paid by the TP up front then reimbursed separately from the job payment by his client maybe a couple of months later when an expense voucher was sent in. And I agree with Rapid Robert on the purchase/sale of the materials by OP's client. It would go into COGS, whether he made a profit or not on them.

I would have a hard time with that. We are not talking about an employer/employee relationship. We are talking about a employer/vendor relationship and as such any travel related items should either be baked into the final cost of the project (not separably stated) or perhaps listed as a separate line item in the invoice. To me it would be very unusual for a business to issue two separate checks, one for the project, 1 for the "travel" and issue a 1099 only for the project.

Chris