More on Reimbursements

Hi June,

I found your article on how to deal with Expense Reimbursements Included on Form 1099 ...and found your insights very helpful.

I have just started doing indie consulting (live in Bay Area, CA) and I need to bill for both services and expenses, and your article was the best one I could find!

Regarding this issue - just to clarify, do I need to ask up front that my client exclude expense reimbursements from my 1099, or will I be "okay" if they do put expense reimbursements on my 1099? I obviously don't want to get taxed on the expense reimbursement portion of what they pay me!

Thanks so much for your help!

Regards,
Chris


Dear Chris,

Good to know that the column from my website was helpful.

As long as you keep a record of payments for fees versus payments for reimbursements you will not be taxed for reimbursements.

If expenses are included on your 1099 then you will include them as part of your gross income and then you will simply deduct the expenses for which you were reimbursed.

If the expenses are not included on your 1099 then you will not include them as income and neither will you deduct them as an expense.

Example:
$4000 stated as income on the 1099 means $3000 fees + $1000 reimbursement for fees.

On your tax return when you subtract the $1000 worth of expenses for which you were reimbursed you end up with $3000 income. That is the same as if you had received a 1099 stating $3000 income.

You must have accurate records. For some states you may have to separately state gross income and reimbursed expenses income.

Be sure to read my posts on reimbursed expenses which go into more detail and explanation.

-- June