Tax Year Prior to 2020: Should reimbursed expenses be included in box 7 of a 1099-MISC?

[ThomasM125]

In response to the @Faragone issue, since the expense reimbursement was reported on a form 1099-MISC, the correct way to deduct the expenses would be to treat the reimbursement as self-employment income, which would allow you to deduct the expenses. If the reimbursement was more that the expenses, it will be treated as self-employment income, subject to self-employment tax in addition to income tax.

If your employer has an accountability plan, however, and you complied with it by providing receipts for your expenses, they should have not reported the reimbursement, which would have saved you the expense of having to use TurboTax self-employed software to account for it.  

[Briandsome]

The answer to the general question is NO. Reimbursed expenses should not be included in box 7 of a 1099; however, as many have said, a) it depends on the accounting of the business issuing the 1099, and b) depends on an accountable plan. I saw one question thats concerning which is "meal reimbursements being included in 1099". This is a really nasty reimbursement for someone thats uninformed to attempt to handle because M&E are deductible at a 50% rate. If you get $20k as a reimbursement that means you'll get a $10k deduction thereby overpaying of SE tax for the amount not deducted.

Someone offered putting 100% of the MEAL EXPENSES into the MISCELLANEOUS EXPENSES category; good idea. I advice this as well but, be aware that you WILL get an audit letter from the IRS and possibly from the state tax department in the state you live. Be prepared to provide documentation in the form of daily expense totals, description of activity and with whom, a reason why the MEAL EXPENSE is fully deductible by you. Recent changes to the tax code have excluded businesses from deducting meals they provide their employees for the convenience of the business. For example: Giving employees for discounts at the building cafe used to be deductible and now they are a non-deductible business expense. Due to COVID-19 the IRS is looking to change these rules temporarily or permanently. 

BEWARE: The IRS maintains stats on all business by the business code you identify as your trade/business. Separate each 1099 into its own schedule C, if you can, so that you have a greater likelihood of success in winning an audit.  The IRS computers are specialized to detect anomalies in income and expense deductions for schedule C filers. 

[J9999]

Although deducting expenses on Schedule C that shouldn't have been included on the 1099 form in the first place results in the same net income and the same federal tax on that income, a problem arises when doing business in more than one state. Many states determine the percentage of state income tax owed to the non-resident state by taking the percentage of business GROSS REVENUE (not income) earned in that state. If the 1099 for the work done in the non-resident state includes expenses, that would increase the percentage of revenue earned in that state, and the tax liability due to that state would increase.

Right?

[AmyC]

@J9999 A state will use gross income to calculate percentages. Gross income includes the net of the business, not the gross, usually. You could have a business loss included in your gross income. Please contact the Department of Revenue  for the specifics of your state. 

If this does affect you, contact the issuer again.

[Edited 2/3/2021 |5:45pm PST]

[J9999]

@AmyC

Not my state, unfortunately. New Jersey's Form NJ-NR-A, Business Allocation Schedule, Section 3, lines 2a-2c specifically refer to "Total Receipts from All Sales, Services and Other Business Transactions" in New Jersey and everywhere. The instructions emphasize that "receipts" means gross revenue, not net income. The Business Allocation Percentage, which is subsequently applied to the tax due, is the ratio of the Total Receipts in N.J. to Total Receipts everywhere.

[AmyC]

The first paragraph of the form NJ- NR A says:

If business activities are carried on both inside and outside New Jersey, business income may be allocated to determine the amount of income from New Jersey sources.

You are correct about the actual line wording. I feel like that could be a gray area. I don't have the time to look for a lawsuit. Curious little caveat. This only applies to non-residents. That also feels biased.

@J9999 

[J9999]

@AmyC 

Thanks. I don't want a lawsuit, either! 🙂

Take a look also at New York IT-203-A, Business Allocation Schedule. Very similar form, same thing. Line 6 specifically says "Gross income percentage," and the instructions specifically call for "total gross sales made or charges for services performed." They clearly don't want net income, but gross receipts.

[Angie G1]

how can or what can i report for  federal incoming

[SharonD007]

Please clarify.  Are you asking what type of income can you report on your federal tax return?