This overlaps somewhat with an earlier thread, but I wanted to ask the specific question I'm interested in.
Taxpayer is a technical consultant operating as a sole proprietor. Taxpayer does the vast majority of her work at home (teleconferences, writing, programming, research, etc.), but does not see clients at home. She sometimes goes on-site to the clients' place of business. These trips are (so far) short (tens of miles each way) and are not overnight. Taxpayer does NOT have a home office and does not take any home office deductions, because there's no place in the home that does (or can!) satisfy the exclusive use test.
So, when the taxpayer travels from home, to a client's place of business, and back home, can that travel be deducted, because it is travel away from and back to the tax home, or is it considered non-deductible commuting?
That's where I tend to disagree. Some here seem to think that if your home doesn't qualify for the home office deduction, you really have no home office at all.
I don't think that's correct. You can still have a home office, even if it doesn't qualify for the deduction. Among other things the code specifically provides that you get the home office deduction for space used to store inventory even if it doesn't otherwise qualify for the deduction.
To me that means if you primarily work from home, communicate from clients there and keep your business files there, even if the space you use is not used solely and exclusively, you can still deduct mileage expenses when going to the site of a client or for other business purposes.
I would let that deduction go on the return if - these places of work do not rise to the level of a regular place of work.
"She sometimes goes on-site", is grossly different from "she goes in every Tuesday morning", or some other regular work schedule to the same location(s).
I remember a judge in a court case - many gray hairs ago - saying "My son works at Burger King, McDonalds and Wendy's, he's not self-employed in the fast food business." (or something like that) when chastising someone for taking a deduction for commuting.
I see a deduction there, home office issues aside.
Same for driving to the bank, the post office, the office supply store, or the accountants office.
Publication 587 suggests that even part of a room may qualify
Exclusive Use
To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes.
Example.
You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Your family also uses the den for recreation. The den is not used exclusively in your profession, so you cannot claim a deduction for the business use of the den.
I am only a sole-proprietor consultant, not a tax expert -- but if I travel longer distances from my home workplace to a client's location at the client's request, I certainly include the air fare, local taxis, etc, as reimbursable (and ergo non-taxable) expense items in the invoice I eventually send. (Sometimes have to hassle a bit with their bookkeepers to have this part of their payment NOT be included in the year-end 1099-MISC they send me.)
I haven't and probably wouldn't bother with doing this just for mileage expenses when the journey is only a few tens of miles auto trip -- but seems as if I, and the OP, could do so . . . ???
No question about that. The issue was whether, if that non-qualifying home office is the person's primary place of work, travel expenses can be taken when the attorney visits clients. I believe the answer is yes.
I agree -- but in this latter case, do I not actually have to report the full payment as income, then deduct the reimbursed expenses as deductible business expenses on the appropriate lines? -- which opens up all the potential complexities and hassles of what are and are not allowable deductions.
Certainly simpler (and less bookkeeping for me) to have the (legitimately) reimbursed expenses never show up as income.
Though it doesn't read that way, I believe what is being suggested here, as you probably inferred, is that you subtract all your expenses on Schedule C *before* you count the payment as NET income. The full 1099 amount needs to be reported as gross income else you'll surely be questioned in a year or two when IRS matches the 1099 with the return.
A great article to read that helps you to understand the background of the "principle place of business" and "home office" delima is found at
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This article titled"Deductions for Home Office and Auto Expenses" by Gary D. Borek alsosites several tax court cases Then after that reading apply Revenue Ruling 99-7 found at
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Here is my take.....Your client would probably qualify for a home office under the "administrative or management activities" standard brought about in the Taxpayer Relief Act of 1997 when congress amended &280A (softening the "Soliman decision") However your client is not using the area regularly and exclusivly and therefore is denied the deduction. Hense your delima.....will the position that the taxpayer does not have a qualified home office preclude her from claiming transportation expenes from the home to her places of work.
Read Strohmaier v. Commissioner 113 T.C. No. 5 (August 3,
1999)...court held against the taxpayer...stating that the petitioner's most important function was not performed in the home....and therefore transportation was denied Same thing in Cole v. Commissioner, T.C. Memo 1999-207 (June 23,
1999) However: the opposite was found in Gosling v. Commission, T.C. Memo. 1999-148 (May 3, 1999).
This is why the area is still so confusing....Most these cases are trying to get the home office deduction.....using the "primary place of business" OR the "administrative or management activities standards. Your client, (and mine) are NOT trying to deduct home office expenses, but rather transportation costs from their home to places of work. I believe the taxpayer has to prove his home is the "primary place of business" to be able to deduct the mileage. In other words the "administrative or management activites standards" do not pertain the the transportation costs issue like they do the home office issue. In each case I have read, my client and yours (in my opinion) would fail the "primary place of business" test in order to deduct the mileage from their homes to places of work....Seems counter intuitive I know, but that is how I read the cases.
Recent cases site the need for "primary place of business" as a requrirement for travel expense deductions....and refer back to the above mentioned cases see
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One way to help your client is to have them establish a home office....make a small corner to be used regularly and exclusivley for administrative and management activities.....There is no "minimum space" requirement....A corner desk might take up a 5 x 5 space....Code Section 280A as amended specifcally states that a home office qualifies as a principle place of business if there is no other fixed location for the trade or business, and the area is used to conduct management and administrative activities.....Hense the mileage from home to work would be deductible.
I am wide open to other opinions that have researched this issue and have case sitings. I am still very interested in getting the deduction for my client if I can reasonably use a case for authority.
Yes, and I think we all understand that. The OP wants to reduce the gross to equal the net, presumably to create a layer of protection between the OP and the IRS. I doubt that would work; if an audit shows OP was paid more than reported on the 1099-MISC, documentation of expenses will be necessary, right? So demanding a 1099-MISC that shows net income rather than gross income gains the OP nada.
I'll consider any opinions, advice and counsel I can get on this.
When I was full-time (salaried) faculty member and occasionally traveled to scientific conferences, I initially paid for all travel expenses out of my own funds, then on return submitted itemized travel expense report to university, got reimbursed by them for my actual expenses (with the money usually coming from some sponsored research contract). None of these travel expense transactions ever showed up on any payroll slips,
1099-whatevers or any other compensation-related documents from university to me or (I assume) to the IRS, or were entered in any way into my tax returns.
In occasional consulting since retirement, things usually work the same way, except I submit to client an invoice showing both a "Consulting Services" amount and a separately itemized "Reimbursable Expenses" amount. Client most often pays total amount in one check (sometimes with two separate lines showing on the detachable portion of the check), but their year-end 1099-MISC most often shows only the total "Consulting Services" amount for the year, without any mention of the "Reimbursed Expenses" amount; and that's all that goes on my tax return.
Any major problems with this approach? (My returns are professionally prepared; and the "Reimbursable/Reimbursed Expense" items are all carefully entered and balanced, income and outgo, in my personal records, so I'd have no trouble justifying them in detail if required.)
That's because your employer had an "accountable reimbursement plan". With a plan like that in place, reimbursed employee expenses that meet the rules are, by law, not reported to anyone.
If they did not have an accountable plan, they would have had to include the reimbursement in your W-2, and you'd have to show your expenses as employee expenses on Sched A (which would likely mean you wouldn't actually get to deduct most of them).
So the fact that your employer (and you) didn't report reimbursements does not mean such treatment analogized to your sole propietorship, because the lack of reporting is due to them having an accountable plan.
OK, thanks much, learn new things every day (even if not all of them are things one wanted to learn).
It's likely that the majority of my consulting clients also have "accountable reimbursement plans", since they're fairly large firms.
If so, would your statement above saying that "reimbursed employee expenses that meet the rules are by law not reported to anyone" maybe apply to "reimbursed CONSULTANT expenses that meet the rules" as well?
[Let me say, mine are all brief, generally one-shot consulting engagements; I'm definitely not a employee of any of these clients.]
In any case, I'll check this out w/my tax preparer.
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