client included reimbursed mileage expense with income in box 7 of 1099 MISC

Yes, it can be correct. If a reimbursed expense is included in income, then take the [actual] expense as a deduction. If a reimbursed expense is excluded from income and is equal to the actual expense, there is no deduction for the expense. Inclusion is required if the reimbursement does not equal the expense amount.

I see a lot of this type of question - a contractor getting paid for work and getting some costs reimbursed - and it almost always raises the question of WHY did they put the reimbursements on my 1099-Misc. Its because you are NOT an employee, you are a contractor.

The concept of an accountable reimbursement plan revolves around the premise that the person being reimbursed is an employee. When you're a contractor ALL payments to you are reportable and includable in income. Its up to you as a business to account for your expenses.

Remember, as a contractor you're holding yourself out as a business. All monies paid to you is income, from which you get to deduct your expenses. It isn't tricky or complicated, in fact it is very straightforward - you report ALL income and you deduct all expenses.

Gene E. Utterback, EA, RFC, ABA

Where on Sch. C do I take the deduction? Thanks for your reply.

Line 9 "Car and Truck Expenses" and possibly Line 13 "Depreciation". However, you may use standard mileage, which is 50 cents a mile in

2010. Or you can uses depreciation plus actual expenses. Either way, you can add tolls, parking fees, car cleaning fees, repairs, insurance, auto loan interest, etc, and you have to recapture depreciation when you eventually sell or junk the car (but I haven't figured out how to recapture depreciation when using standard mileage). You have to allocate between business and personal use, and keep track of commuting, personal, and business miles. Maybe see a pro for the first year you do this.

According to IRS

You can generally figure the amount of your deductible car expense using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, before choosing a method, you may want to figure your deduction both ways to see which gives you a larger deduction. Please refer to Publication

463, Travel, Entertainment, Gift and Car Expenses, for the current standard mileage rate. If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes.

... ...

To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that is business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.

Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.

So what I wrote above "Either way, you can add tolls, parking fees, car cleaning fees, repairs, insurance, auto loan interest, etc" is not correct. Repairs, insurance are only deductible if using actual expenses. Tolls, parking fees are deductible in either method. I'm guessing auto interest is deductible in either method, and not sure about car cleaning fees.

Emphasis goes on the words "operate the car." Interest expense on a loan for a business vehicle goes on Line 16b of the Schedule C.

A car still operates fine if you don't wash it. So I guess you can claim in on line 9 of Schedule C (regardless of whether you do actual expenses or standard mileage).

Of course, to the original poster: All these expenses have to proportioned to the business use by mileage. So if you did 100 business miles, 900 personal/commuting miles, then business percentage is 10%, so only 10% of auto registration, 10% auto interest, 10% car wash deductible. As for tolls and parking fees, if you incurred it for business then it is all deducible.