1099-NEC not consistent with P&L

[DaveLaQ]

I've just noticed that, while my 2021 1099-NEC from a customer shows all the money they paid me for the year, my P&L for the year shows as income from them only the amounts that were not expenses that I'd billed them for. And those expenses do not show under as expenses on the P&L—they're cancelled out because they were reimbursed, I presume.

The problem is that TurboTax is asking for the amount of the 1099-NEC and counting that as income, but then when I go to show my expenses to deduct against that amount, my P&L will not jibe with what I want to show, and I therefore have no simple documentation in case of audit. Plus it's just a PITA that I can't just work from my P&L and not have to catch these kinds of problems.

I'd be interested in a solution to this headache. Ideally, I could configure the P&L to show those expenses OR the full amount of the income. Or am I missing something?

Thanks.

[Hal_Al]

@DaveLaQ  said "The problem is that TurboTax is asking for the amount of the 1099-NEC and counting that as income"

That's because the IRS also is looking for the full amount of the 1099-NEC to show on your schedule C. 

You have already identified the solution: you must show all the income received (including the reimbursement for expenses). Then, you deduct your expenses, including the ones you were reimbursed for. 

Your customer has submitted the 1099-NEC correctly; they are required to include the reimbursed expenses on the 1099-NEC.

[Critter-3 · Accepted solution]

The error is in your bookkeeping method ... total funds received into the bank account should be listed as income and the expenses are a separate item.  Your P&L should reflect the same thing as the IRS Sch C.  

[VolvoGirl]

What program are you using to track your business?  Like Quicken or QuickBooks?  You might try asking in their forum how to enter it so it comes out right.  

[DaveLaQ]

Thanks, everyone.

Sorry. Forgot to mention I'm using Quickbooks Desktop. Yes, I apparently am doing it wrong. But I don't know how.

When the client expenses get charged to my credit card account, I enter those transactions for the account, assigning them to be invoiced under the client/job. Then those expenses show up on the invoices I send each month so that I can be reimbursed for them by the client.

I've submitted the question on the Quickbooks forum, but it's still pending moderator's approval. 😛 If anyone here has a simple answer on what I'm doing wrong in QB (and how to do it right), I'd appreciate it.

[Critter-3]

You bill the client on an invoice for labor and expenses  so any payment of that invoice should be entered in the checkbook and assigned to that invoice.   This way the income is captured properly and the expenses are noted in the correct category. 

[DaveLaQ]

Hmph. That's how I'm doing it.  🤔

I wonder why QB is pulling those reimbursed expenses out of the income and leaving them out of the expenses reporting on the P&L.

I'm assigning them to the relevant job as an expense and not as an item (there are tabs for both in the credit card transaction entry window). That shouldn't be a problem, should it?

[Critter-3]

Ask in the QB forum ... I never use the invoice section of that program.