Discussion:Accounting for Reimbursable Expenses

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Discussion Forum Index --> Basic Tax Questions --> Accounting for Reimbursable Expenses


Discussion Forum Index --> Tax Questions --> Accounting for Reimbursable Expenses

Taxinca (talk|edits) said:

17 January 2011
My client is a self employed consultant filing 1120S. He bills out an hourly rate and is reimbursed for travel, meals, lodging etc by his clients.

My question is how to show the reimbursements and expenses on the 1120S.

Should the reimbursements be included in income with the expenses deducted separately? Or should the reimbursements and expenses be netted as it's not really income to him? Would the expenses be shown as travel, etc, or is it Cost of Goods Sold? I am assuming the meals are deductible at 100% by my client and 50% by the people paying him. One final question: should everything be reported purely on a cash basis as some of the reimbursements come in the following year or should the be matched up?


I have looked and can't find any guidance on this. Thanks for any help.

Umk395 (talk|edits) said:

17 January 2011
I like the reimb exps included as income -- easier to reconcile in the event of an audit (vs bank deposits).

If he's on cash basis, then report the reimb exps on cash basis.

Be sure to acocunt for the 50% disallowance for M&E when you are reimbursed.

JR1 (talk|edits) said:

January 17, 2011
I much prefer the other way, as credits against expenses. And my reasons? Audit parameters are based on gross revenues, so the higher revenue you report, the greater chance of audit. Furthermore, audit parameters are built on percentages of deductions/expenses against income. A client who incurs 20-30k in travel expenses, which are reimbursed! is asking for a visit to report that much travel against income. Netted out, there may be only a few thousand of actual travel costs. And when you compare year to year, what's more real, a revenue line which includes things totally beyond control, or the net true billings/collections?

Umk395 (talk|edits) said:

17 January 2011
Yeah - I could go that way as well JR.

Taxinca (talk|edits) said:

17 January 2011
My impression is the meals are 100% deductible by my client. His clients would only get the 50%. I've never seen anything about this from the IRS though.

I like the idea of netting the income and expenses. Some of them look odd because they are negative numbers. This happens because the cash basis reimbursements don't coincide with the expenses exactly.

Harry Boscoe (talk|edits) said:

17 January 2011
Maybe a tougher question is whether it's correct (or incorrect) for his client to include the reimbursements on Form 1099.

Taxinca (talk|edits) said:

17 January 2011
My 1120S client doesn't get faced with the 1099 issue. But I have a Sch C client who does. He's been getting the meals and everything lumped together on the 1099. For him, I've been showing it as income just to match up.

It seems like the IRS should have some guidance for something so common but I haven't been able to find anything on it.

Umk395 (talk|edits) said:

17 January 2011
Because the IRS compares the gross income on your tax return with the income information they receive via FORMS 1099, by including reimbursements in your total income you may avoid a later explanation to the IRS.

JR1 (talk|edits) said:

January 17, 2011
We've got the 1099 debate on another thread where we all disagree vigorously. But clearly if there is a 1099 match issue, you'd have to record the high number in revenue...

HeartBreak (talk|edits) said:

17 January 2011
I have never been able to put a strong case together for an "accountable plan" for an ind contractor. All the accountable plan rules apply to employer/employee relationships. Since the money in this case goes from customer to S Corp to taxpayer, should be no problem doing an accountable plan at the taxpayer level (as an employee) and reporting the full 1099 at the S Corp level, then taking the appropriate deduction.

Taxinca (talk|edits) said:

17 January 2011
The S Corp is getting the meal/travel reimbursements but no 1099. As an individual, my client only gets a W-2 from the S Corp. As an individual, he doesn't get anything for travel, meals, etc.

The 1120S is where I had the question of how to report.

Tax Writer (talk|edits) said:

18 January 2011
I much prefer the other way, as credits against expenses.

I agree with JR1, with allowances made for the 1099 matching issue, of course. There is no 50% disallowance for meals under an accountable plan-- since the owner is an employee of the corp, I assume that the regular accountable plan rules apply here.

Taxinca (talk|edits) said:

18 January 2011
Thanks Taxwriter but it's not the individual being reimbursed. The S Corp invoices and receives reimbursement for the T&E. All the individual gets is a W-2 from his corp. I don't think the accountable plan rules are relevant here.

Captcook (talk|edits) said:

18 January 2011
The other consideration is in regard to state tax. Here in WA we have a gross receipts tax, which creates a situation where I wouldn't want reimbursements to be gross revenue unless required. However, for state purposes, the invoice also has to clearly list all reimbursed expenses. Just a thought.

Tax Writer (talk|edits) said:

18 January 2011
Thanks Taxwriter but it's not the individual being reimbursed. The S Corp invoices and receives reimbursement for the T&E. All the individual gets is a W-2 from his corp. I don't think the accountable plan rules are relevant here.

Perhaps the issue is the recordkeeping requirements? I'm not sure how the invoicing is occuring, but let's say the S Corp bills out a $10,000 monthly invoice for services, $1,000 of which is for mileage, travel and meals. The net invoice would be $11,000.

The S Corp receives the $11,000 as a payment to satisfy the invoice amount. Now the employee-owner fills out a reimbusement form, properly itemizing his employee expenses. The S Corp issues him an employee reimbursement check for the $1,000. Why would this not be an acceptable method of reimbursement? Aren't the checks being issued to the S Corp? Oh, and in this case, if all the reimbursements are lumped together with the other vendor payments, it makes sence to relaize the income as gross income and book it back out as employee reimbursements under an accountable plan. Right?

Taxinca (talk|edits) said:

18 January 2011
The employee travels and charges the hotel, meals, airline, etc, on the S Corp credit card. The S Corp pays the bill and the client is billed for the cost. The employee/shareholder never gets any of the money and never accounts to the S for anything.

Tax Writer (talk|edits) said:

18 January 2011
The employee/shareholder never gets any of the money and never accounts to the S for anything.

If this is how the employee-shareholder is handling his expenses, then the M&E would be subject to the 50% reduction at the S Corp level, and non-taxable the employee as an employee-related business expense. The income from the invoiced amounts would all be recognized as ordinary income to the S Corp.

Taxinca (talk|edits) said:

19 January 2011
It seems to me under Notice 87-23, my client's SCorp may deduct 100% so long as meals are separately stated on its invoices.

The SCorp's clients who reimburse the cost of the meals would be subject to the 50% reduction. There would be no impact on SCorp shareholder's 1040.

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