Reimbursed Self employed expenses

[MargaretMort]

The client has W-2 income but does consulting work on the side. The income goes on Sch. C, of course. He has expenses with these jobs, bills the client for the expenses, he is reimbursed 100%. I convinced myself that he truly has no expenses, lumped the reimbursements with the income and merrily went my way. Client came to pick up his return today and felt the reimbursements shouldn't be part of his SE income. On "mature" thought, I am inclined to agree with him but......

I need some guidance. He has two 1099s showing the reimbursements with the job costs so I would need to show the expenses to reduce the gross. I have no problem doing that, started out that way to begin with but talked myself out of it. This has been my year for too much 2nd thinking. BTW, the companies reimbursed him based on government standards.

Hope I am clearer than mud. As always, many, many thanks for all advice and help. MM

[grandmabee]

claim all the income then take the qualified expenses he paid on sch C

[mcb39]

I have been wasting time and brain power wrestling with that same question. I sure hope that is the right answer.

[Margaret CPA in OH]

I have a handful of W-2 folks with side businesses. Often they are reimbursed some expenses, say a plane fare to give a lecture. When the reimbursement is included in the 1099, it is absolutely proper to list the expense which generated. I wish the 1099 issuers would distinguish between reimbursed expenses and fees for service but it is the responsibility of the recipient to claim the expense. Feel good about this!

[OldJack]

1040 Sch-C: "1. Gross receipts or sales. Caution. See page C-4 and check the box if:"

Remember the above line reads "Gross". Its not nice to net anything or not report receipts on line 1.

The taxpayer should report all he receives on line 1 which includes reimbursements he bill the client. He then takes his expenses on the other lines of 1040 Sch-C. If the taxpayer bills the customer on a per diem basis it must be included on line 1 and then take is actual expenses in the expense section.

The only good thing about billing the client for travel meals is that the taxpayer then does not have to disallow 50% of the expense as the customer that was billed has to disallow the 50%.

I fail to understand the self-employment issue since the Sch-E and SE net profit should have been the same if you netted the reimbursements from income and didn't claim the expense.

[MargaretMort]

Many thanks for the replies. I certainly am glad that I am not the only one who is second guessing themselves. It makes perfect sense to me to show the total and claim the expenses, I just talked myself into not doing that.

As always, you all come through like the champs you are. Thank you once again.

Margaretmort

[kcjenkins]

Clearly, you are just over-tired, Margaretmort. Happens to all of us this time of year. Must be the spring rains, huh?