Can a contractor expense all his mileage if the client reimburses the contractor for gas and gives the contractor a certain dollar amount per day?

[qbteachmt]

You've combined things that do not Combine.

Your client has Business miles, some of which have nothing to do with Customer jobs, such as picking up shop supplies. They track and report all Business Mileage per the allowance method, then.

When customers pay us, that is Revenue. It doesn't matter if I justify it as Mileage or Hours or whatever. It's just part of Gross Revenue.

The "certain dollar amount per day" is also part of Gross Revenue.

[TaxGuyBill]

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@qbteachmt wrote:

When customers pay us, that is Revenue. It doesn't matter if I justify it as Mileage or Hours or whatever. It's just part of Gross Revenue.

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Not true.  "Reimburse" implies an Accountable Plan.  If that is the case, the contractor should NOT report it as income (and in turn, does not report the expense).

I suspect that would disqualify the Standard Mileage Rate, so Actual Expenses would need to be used.

[Terry53029]

TaxGuyBill I agree with @qbteachmt. The original poster said a client reimbursed him. I have seen employers have an accountability plan for employees, but this is an independent contractor, and the very definition of independent contractor would not provide for an accountability plan with a client. Just my thinking 🙂   

[Cindy]

Thank you all for the response. Sincerely, Cindy

[qbteachmt]

You cannot be "reimbursed for gas" and call that An Accountable Plan. There is no accounting for Gas vs Miles. Mileage is an Allowance. Gas is an operating expenses.

The contractor has operating costs. The person paying the contractor is paying for Goods and Services and justifying it by calling it Gas, has no meaningful application to this question.

[TaxGuyBill]

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@qbteachmt wrote:

You cannot be "reimbursed for gas" and call that An Accountable Plan. There is no accounting for Gas vs Miles. Mileage is an Allowance. Gas is an operating expenses.

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You certainly can.  Whether or not that actually fits this case is unknown, but it certainly is possible, and I've seen it before.  I think it is fairly common for contracts to pay a certain amount PLUS any "out of pocket expenses" (which could include gas).

If the Independent Contractor gives his receipts (or an itemized list based on the receipts) to his client for fuel expenses and that client reimburses those exact amounts based on the receipts, that is an Accountable Plan.

[qbteachmt]

Nothing prevents me from filling my tank on the way to your job site, giving you the receipt, and having gone camping and fishing the weekend before, which is why my tank was empty, and your job site is 15 miles from my shop. That's why Gas is not part of an Accountable plan, but a justification for "here, pay me based on something I am giving you" and part of generic gross revenue, not reimbursement. Reimbursement is, I show you the Tarp receipt, and I am here, nailing it to your roof.

[TaxGuyBill]

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It is just like any other vehicle reimbursement under an Accountable Plan:  You show the proof.

Are you saying an employer can not reimburse an employee's vehicle expenses using the Actual Expenses for the vehicle?  They certainly can.  They just need to show proof of expenses and the business percentage.  Many single-shareholder S-corporations do a similar thing with a Home Office where they reimburse actual expenses based on the business percentage of the home.  The same would apply to an Accountable Plan with an Independent Contractor.

[qbteachmt]

"Are you saying an employer can not reimburse an employee's vehicle expenses using the Actual Expenses for the vehicle?"

Why, yes, exactly 🙂

Just because I bring a Gas fillup receipt, you have no idea where I used that gas. You can, of course, throw Money at me, but that is not An accountable Plan. You don't know if I used that gas to go chop wood this weekend, and then filled up on the way to the job site just now, and I intend to go back into the woods tonight to get that wood, and then tomorrow, on the way to the shop, I intend to fill the tank again, and bring you another receipt.

I am not responding in regards to office space, which is a different concept. And a Contractor can certainly list "office space provision" on their charge to the customer, as just another justification item for why the customer should pay them more. The same is true for the comment here: "and gives the contractor a certain dollar amount per day"

Which seems like the Contractor is asking the Client to pay a Per Diem. This does not Preclude that contractor from entering for their own business tax expense the lodging and food and other travel as qualifies for their own tax return. It's just another way of expecting Revenue.

Example:

I am a Private Investigator. I will charge you $100 per day for "costs" + my Daily rate of $1,000 + "gas". That just means you have to pay me All of this for everything I turn in. It doesn't change that my own business expense tracking will be Miles, actually incurred business expenses per the IRS, etc. It just means all of that I told you is part of my Gross Revenue.

There is No Reimbursement in that paragraph. It's all Income to me. My expenses are my business and tax perspective.

Here's another common example I get:

You hire someone to do a project, they rent a scissorlift, and they buy supplies. They turn these receipts over to you as "reimbursement" along with their fee for services. You did not Rent the scissorlift; that is not your Equipment Rental Expense. That is part of the justification for the Grand Total you will pay the person that did the work, for Services. You are not Reimbursing them for your supplies. Those were Their supplies. They are showing you how much it cost, as part of the justification for the Grand Total you will pay that person.

It's all about perspective. You pay their Grand Total. On their taxes, they expense Equipment Rental and Supplies. They have a Net from this project.

If you had rented the scissorlift for "them" doing your project, and bought those supplies for your project, you would not include them on the 1099-NEC or their Payment.

[TaxGuyBill]

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@qbteachmt wrote:

"Are you saying an employer can not reimburse an employee's vehicle expenses using the Actual Expenses for the vehicle?"

Why, yes, exactly 🙂

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LOL.  So are you saying an contractor (or an employee before 2018) can't deduct Actual Vehicle Expenses on their tax return?  How does the IRS know the gas wasn't used to chop wood?

The same concept applies.  If would be deductible on the tax return, it qualifies under an Accountable Plan.

[qbteachmt]

This is not what I stated at all: "So are you saying an contractor (or an employee before 2018) can't deduct Actual Vehicle Expenses on their tax return?"

I stated, in response to the original question, that the contractor presenting a receipt for Fuel, to be included in the payment from the customer to the contractor, is Not a Reimbursement. It's further justification that increases the total this contractor expects to be paid. It's not An Accountable Plan process, because there is no way to prove the use applies.

Also, the "gives the contractor a certain dollar amount per day" is Not Anything other than More Gross revenue to that contractor.

And then the contractor is going to report on their taxes all expenses that they have, which includes any operating cost that qualifies. And that has nothing to do with customer payments, since that is part of operations.

[Terry53029]

This is a very much talked about subject on the internet, but a lot of controllers say they don't want to take any chance that the IRS will reclassify an independent contractor as an employee, so they 1099 every dollar they pay them and leave it up to the contractor to track and report mileage, and other expenses. As for the original poster's question if his client was given funds that were not on the 1099, then he should only report any differences in unreported funds, and actual expense IE: paid him 40 cents per mile for gas, then he should only claim 18 cents on his taxes. Anyone taking bets on what he will report. 🙂

[qbteachmt]

"Anyone taking bets on what he will report."

This goes right alongside what we see in the forum from lots of preparers, that the 1099-Misc NEC reported amount is all they intend to enter for business Income.

Come and get me, coppers.