Tax treatement of expense reimbursements for meals

FB · Joined: 13 Oct 2007 Posts: 6

I am an independant contractor. One of my clients reimburses me for 100%
of travel expenses at actual, based on a detailed travel expense report
that breaks out transportation, lodging, meals, etc. The client included
the amount of the reimbursement on my 1099-Misc as part of my total
compensation. Am I allowed to deduct the full amount from my business
income or am I affected by 50% deduction limit? I'm using Turbotax and it
does not appear to have any way to address this question.
Thanks.

Archived from group: misc>taxes

Paul Thomas, CPA · Joined: 25 Aug 2007 Posts: 3094

"FB" wrote
>I am an independant contractor. One of my clients reimburses me for 100%
> of travel expenses at actual, based on a detailed travel expense report
> that breaks out transportation, lodging, meals, etc. The client included
> the amount of the reimbursement on my 1099-Misc as part of my total
> compensation. Am I allowed to deduct the full amount from my business
> income or am I affected by 50% deduction limit? I'm using Turbotax and it
> does not appear to have any way to address this question.

If you itemized the meals on your bill to your clients, and meet the
substantiation and accountability rules for M&E, then you get 100% of that
deduction. They are the ones who should be limited to the 50% deduction.
See Regulation 1.274-5T(h)
Also Code Section 274(d)

You'll of course, have some M&E that you didn't throw on the client bill
that would qualify as a business deduction at the 50% limits.

--
Paul A. Thomas, CPA
Athens, Georgia

FB · Joined: 13 Oct 2007 Posts: 6

"Paul Thomas, CPA" wrote in$rc2.52325@bignews1.bellsouth.net:

>
> "FB" wrote
>>I am an independant contractor. One of my clients reimburses me for
>>100%
>> of travel expenses at actual, based on a detailed travel expense
>> report that breaks out transportation, lodging, meals, etc. The
>> client included the amount of the reimbursement on my 1099-Misc as
>> part of my total compensation. Am I allowed to deduct the full amount
>> from my business income or am I affected by 50% deduction limit? I'm
>> using Turbotax and it does not appear to have any way to address this
>> question.
>
>
>
> If you itemized the meals on your bill to your clients, and meet the
> substantiation and accountability rules for M&E, then you get 100% of
> that deduction. They are the ones who should be limited to the 50%
> deduction. See Regulation 1.274-5T(h)
> Also Code Section 274(d)
>
>
> You'll of course, have some M&E that you didn't throw on the client
> bill that would qualify as a business deduction at the 50% limits.
>
>
>
>
>
>
>

Thanks for the response, and for providing the regulatory citation. I
cross-posted this to the taxes.moderated group and got a contradictory
answer. The citation makes it clear that you are correct.

mcmarya · Joined: 07 Feb 2008 Posts: 3

I am also an independent contractor reimbursed by my client at 100% of
expenses when receipts are submitted. At the client's request, I
stayed at local hotels in order to be on site for assignment so most
of my "travel" expenses are from within my tax home. My 1099 includes
all the reimbursement amounts and they are more than my fees for work
performed for 2007 (there was a mixup on my actual fees and most were
paid in 2008). I am concerned about being able to deduct these
expenses on my schedule C at 100%. Even if I could do so
legitimately, I am concerned about being audited.

There seems to be disagreement among tax professionals about whether
or not the reimbursements should have been included on my 1099 and
whether the 50% rule applies to the meals for which I was reimbursed.

Arthur Kamlet · Joined: 25 Aug 2007 Posts: 2053

In article ,
mcmarya wrote:
>I am also an independent contractor reimbursed by my client at 100% of
>expenses when receipts are submitted. At the client's request, I
>stayed at local hotels in order to be on site for assignment so most
>of my "travel" expenses are from within my tax home. My 1099 includes
>all the reimbursement amounts and they are more than my fees for work
>performed for 2007 (there was a mixup on my actual fees and most were
>paid in 2008). I am concerned about being able to deduct these
>expenses on my schedule C at 100%. Even if I could do so
>legitimately, I am concerned about being audited.
>
>There seems to be disagreement among tax professionals about whether
>or not the reimbursements should have been included on my 1099 and
>whether the 50% rule applies to the meals for which I was reimbursed.

You deduct the costs you actually paid for in 2007 on your 2007 sch C.

You will have to decide if these are 50% meals or 100% by following
the rules for meal deductions.

Since the 2008 funds were not paid until 2008, if you are a cash
basis taxpayer they go on your 2008 Sch C.

Nothing at all complicated here.

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

mcmarya · Joined: 07 Feb 2008 Posts: 3

Thanks, I guess some of the info I provided confused the issue. 2008
income was obviously not included in the 1099 and will be reported in
2008.

Following the rules for meal deductions found on page 11 of Pub. 463,
I can deduct 100% of the meal expenses since I was reimbursed by my
client under an accountable plan. However, as the original poster
mentioned, tax preparation software may ignore the rules and wants to
only deduct 50% of the amount entered on line 24b. I assume that line
24b is the correct place to enter the meals I can deduct at 100% and
the local hotels go on line 24a? Technically, the expenses I need to
deduct (local hotels and meals) do not fall under the definition of
"travel" expenses so is there a problem deducting them as such? Yes,
I know these are stupid questions, but the regular tax publications
are not much help when it comes to specifics.

Charlie K · Joined: 25 Aug 2007 Posts: 4

On Feb 22, 10:45 am, mcmarya wrote:
> Thanks, I guess some of the info I provided confused the issue. 2008
> income was obviously not included in the 1099 and will be reported in
> 2008.
>
> Following the rules for meal deductions found on page 11 of Pub. 463,
> I can deduct 100% of the meal expenses since I was reimbursed by my
> client under an accountable plan. However, as the original poster
> mentioned, tax preparation software may ignore the rules and wants to
> only deduct 50% of the amount entered on line 24b. I assume that line
> 24b is the correct place to enter the meals I can deduct at 100% and
> the local hotels go on line 24a? Technically, the expenses I need to
> deduct (local hotels and meals) do not fall under the definition of
> "travel" expenses so is there a problem deducting them as such? Yes,
> I know these are stupid questions, but the regular tax publications
> are not much help when it comes to specifics.

First of all they are not deductible costs because you are not away
from your tax home. It doesn't matter if it's an accountable plan or
not because they aren't valid reimburable travel expenses. My opinion
is you have to pay taxes on the entire amount.

mcmarya · Joined: 07 Feb 2008 Posts: 3

Fortunately, the client has agreed to issue a new 1099 without the
expenses so this is not an issue for 2007. In 2008 I expect to have
the hotel costs paid directly, but unless the client agrees to exclude
the reimbursed expenses from my 1099 again, I still have the issue of
meals. I have posted this question in another location and have
gotten conflicting advice on what can and cannot be deducted and to
what extent, just as I have in this newsgroup (see response from
Arthur Kamlet). If not even the experts know how to treat these
expenses, what am I supposed to do.

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