Brain freeze

[Gretel]

I have a brain freeze on a very simple scenario. Please help.

Parents have business and son has separate business and does some work for parents business. They pay $3,000 expenses for him in lieu of payment.

Parents: Report $3,000 along with other payment to son on 1099 and deduct full amount as contract labor. So far so good.

Son: Has income of $3,000+ and does not get a deduction for $3,000 since he did not pay them??

Here is my problem. Had the parents paid him $3,000 and he then turned around and paid the expenses his income is $3,000 less. Somehow this doesn't make sense. Where am I wrong?

[solomon]

Would this be analogous to a rental scenario. Parents are tenants of the son's rental. Parents pay a vendor directly for some repairs to the rental. Son reports this amount as income and then deducts the same amount as an expense - turns out to be a wash. Just a thought.

[fliszt]

Try this

A business pays B’s business expenses of $3000.
A business sends 1099-MISC to B

B includes 1099MISC $3000 as income (but has no money in pocket because it’s been sent to supplier.)
B’s expenses are paid by A therefore B’s NET is $0 (he “used” the 1099 to pay expenses directly)
A business deducts 1099MISC.

The other way
A business sends 1099 MISC to B

B business includes 1099 MISC as income
B pays his own expenses ($3000).
Net income $0.

[Gretel]

Larry and Solomon, thank you both. You helped greatly to enable me to move on and free my head a little bit.