I received a 1099-NEC including reimbursed expenses

[patty_morgan]

I received a 1099-MISC for reimbursed expenses

I received a 1099-NEC which includes both my contract fee, and  an amount for products I purchased for their use.  This is a pass-thru expense, not for my use, I did get reimbursed but how do I write off the original cost of the products so I don't pay tax on the reimbursement as if it's legitimate 1099 income?  This makes it look like I was being paid more money per year than I actually was, and I am also out of pocket for the cost of the products I purchased.  Were they correct to include the reimbursement as 1099 income? and if they were, how can I write of the cost of the purchase so I get a 100% tax credit?

[Vanessa A]

Yes, they were correct to issue the 1099 reimbursement. They have to account for where their money went just like you do.  You would enter this on your Schedule C as income and then enter the cost of supplies you purchased with that money as expenses.  

When you enter your 1099-NEC, you will create the schedule C.  As you walk through you will be able to enter additional income for the business. After you include the reimbursements, and deduct the product costs as supplies or expenses, you will effectively wash out the 1099 misc income.

[patty_morgan]

Thank you for responding! However, when I include the cost of the supplies in my schedule C, my Federal Tax Due only goes down by 24%, not the full amount of my product cost?

[Vanessa A]

That's because your tax due is a percent of your adjusted gross income.  Your supplies are lowering your business income which lowers your AGI dollar for dollar but it does not lower your tax due dollar for dollar.

If you look at line 15 which is your taxable income, then look at line 16 which is your tax due for a better visual understanding of how it works. 

You can preview your 1040 by clicking Tools>>Tax Tools>>View Tax Summary>>Preview My 1040

[IrisTina]

The statement saying this will be a wash is incorrect when reimbursed expenses include food and lodging. When entering those expenses on TT, it only allows for half deduction, which means the company is saying they paid me more than they did when my lodging and food expenses were while on the road for them.

[MaryK4]

Yes, any reimbursement above the deductible amount is included as income.  

[IrisTina]

In my case, it should not be included as income. The company I did contract work for agreed to pay me X amount per day, plus all expenses. Since these were travel jobs, nearly all of my expenses are food and lodging, only 50% reimbursable by the IRS. In prior years, they issued me a 1099 for only the agreed upon amount of pay. Just a week ago, after they mailed my 1099, they told me they were including the reimbursements in that total. 

[ee-ea]

Deduct your epenses when you do your Schedule C as self employed.

[IrisTina]

I know can deduct my expenses. In previous years, travel expensed were not 100% deductible. I just found a change in the TT tax notes, which sound like it will help my situation: "Generally, you can deduct 50% of the cost of meals. For tax years 2021 and 2022 only, you can deduct the full cost of business-related food and beverages purchased from a restaurant."

[gbp21]

Where do you enter those costs of supplies? The turboTax interface asks questions, you don't really see where the line item is, or how it is worded. Do you need to add a cost of supplies category? The one that exists is inventory, and that does not apply to this situation. It is so common, as an independent contractor, so I wonder why the situation os not addressed in the help section.

[ThomasM125]

You would have to indicate that you had inventory to enter work supplies. You should enter $0 for beginning and ending inventory and then you will see where you can enter Materials and Supplies on the screen that says Let's get the costs of your goods:

@gbp21 

[gbp21]

Thank you. Right now I cannot even navigate to that section. Every time I try to "jump to the schedule C" area to input business expenses, it the screen shows entering my 1099 NEC income but does not show the expenses portion to enter for those expenses. I cannot even find the inventory page. And there is no navigation panel on my tax tools to directly go there.

[ThomasM125]

I'm not sure what version of TurboTax you are using, but you should see an option to go to your business or self employed income section. There you should see your business listed and have an opportunity to update your entries:

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