Sunday, July 11, 2010
Tax Savvy Indie Saves $850 Because Of Reimbursed Expenses On Her 1099
So many of you continue to have questions about reimbursed expenses and I've written so much about them that I thought you'd like to see a really positive response from a California indie. Here 'tis:
I live in Oakland, CA and I worked for about three years as a freelancer for various online outlets (I'm now a regular employee). I just wanted to thank you for your very helpful posts about 1099s and reimbursable expenses!
In 2008 I was missing the 1099 from one of my clients, so I filed my return with an estimate of my income based on my pay stubs. Just now I got a notice from the IRS because the 1099 info they received had about $2k more income than I had reported. I went back to my files (thank goodness I kept very good ones!) and realized that the discrepancy was exactly accounted for by my expense reports that had been reimbursed.
At first I was mad at my client and was going to demand that they revise the 1099 to exclude the reimbursed expenses. But luckily I first read your posts explaining that the client is allowed to do that and it's MY burden to separate out how much is income versus reimbursed expenses. So I'm going to file an amended return reporting the larger amount of income from the 1099 and deducting the expenses on Schedule C. Even though some of the expenses are meals/entertainment, I'm going to include 100% of the amounts in order to properly offset the income amount from my 1099 -- as you said, the client is the one who paid the expenses, so they are the ones responsible for making sure only 50% is deducted (the instructions for Schedule C explicitly say this on page C-7!).
Since I guess the mistake is my fault, I will probably still owe some money in interest, but at least I won't have to pay the $850 the IRS was saying I owed! I know all I did just now was regurgitate the info that you already know well and have explained in past posts... but I just wanted to drop you a note, hoping that you might get some satisfaction from knowing that you helped another person understand their tax situation!
My only fear now is that filing an amended return will flag me for scrutiny and I may get audited because of other unrelated deductions I took... fingers crossed for no more letters from the IRS!