W-2 wages and using a Sch C for car expense.

[taxxman02]

A new client this year worked for a major news organization delivering their news papers using his personal car. He was paid under a non accountable plan for reimbursement and this amount was reported in box 14 of the W-2. In reviewing his 2019 & 2020, 2021 is missing tax returns I found the previous tax preparer used the figure in box 14 and it became the yearly income on a Sch C, then taking car expense's to wipe out the income. He averages about 28,000 miles a year so the deduction is large and actually gave him a Sch C lose reducing this income. I never saw this before and I am asking if this is a proper way to reduce the income since we can't write it off on Sch A anymore. Thanks in advance.

[sjrcpa]

No it is not proper.

[taxes96786 · Accepted solution]

It is only proper if the want the IRS to come after you and your client for tax fraud

[sjrcpa]

 I do not think this rises to the level of fraud.

[BobKamman]

Is the amount in Box 14 also included in the amount in Box 1? So you are saying he has been reporting the income twice and still paying less tax because he claims the standard mileage rate on a Schedule C?  I would question whether they still have a non-accountable plan.  He might have been absent the day they told everyone it was changed to conform to the new law on employee expenses.  

[qbteachmt]

"I never saw this before and I am asking if this is a proper way to reduce the income since we can't write it off on Sch A anymore"

You mean, Form 2106? Not Sched A. The State might accept Form 2106, though.

"I never saw this before and I am asking if this is a proper way to reduce the income since we can't write it off on Sch A anymore"

Was it reported as taxable or nontaxable, in Box 14?

[taxxman02]

Thank you all for answering, I never felt comfortable with what they did in the past, my client retired in Jan 2023, so this is the only year I have to deal with this. I notified my client explaining he is going to owe this year because we will not be using this strategy this year.

[TaxGuyBill]

It's not right, but it seems like the prior preparer may have been treating your client as a Statutory Employee.

Out of curiosity, is the Statutory Employee box checked in Box 13 of the W-2?

[taxxman02]

TaxGuyBill

 Thanks for taking the time to respond but no, box 13 is blank.

[qbteachmt]

It doesn't make sense that they pay out, but don't have an accountable plan, especially if they are paying less than or up to the standard mileage rate. Some employers can't be bothered, or no one ever asked.