This is my son's situation, but I've offered to see what I can dig up. He worked as an independent contractor for about two months, early in 2006. The entire job consisted of methodically driving up and down streets, checking the strength of wireless signals. The company provided him a GPS-like device for recording this information. The company issued a 1099 for the hours he worked, but he had to pay all of his own vehicle expenses. Where/how can mileage be deducted on his income tax return? What IRS publication covers this? Most of his 2006 income came from a "traditional" job for which he received a W-2. Can this mileage be taken by filing any kind of return other than the standard 1040? I haven't had any luck so far researching this on my own, so I will be appreciative of some help. Thanks!
He's considered self-employer. Use Schedule C to deduct his "business" miles and other expenses. You'll need to use the "long" 1040 form for that schedule.
-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net
I'm sorry for the delay in responding; this post didn't show up on the board for a while, and I didn't think it was going go. I'm glad I decided to come back and check. To summarize/clarify: He files Form 1040 and attaches Schedule C-EZ to report both the 1099 income and the mileage expense. Plus, he has to complete Schedule SE for the self-employment tax. Right?
I'm not sure he is in-fact an independent contractor, since they supplied the tools of the trade and presumably, he had to file reports, they told him when and where to do his job, and they can fire him/or he can quit without contractural damages. He is probably a misclassified worker, who should have been given a W-2. Having received the 1099MISC, however, you have to deal with it. Do the math. If he files the Sch C and the resulting Sch SE, he'll pay income tax and both halves of the Self Employment Soc Sec Tax. This Soc Sec Tax will net out at about 12%, but he'll be able take the mileage as a business expense BEFORE computing income tax and BEFORE computing Soc Sec Tax. Therefore, the mileage will lower his income and Soc Sec taxable income and tax. If he files as a misclassified worker, he'll report the income on Line 7, Form 1040 and pay his income tax and he'll file Form 4137 which will result in only paying his half of the Soc Sec Tax, or 7.65%. However, the mileage deduction becomes and Itemized Deduction, which he will probably loose. Therefore, the mileage deduction will neither lower his income nor his Soc Sec Taxable income or tax, but the Soc Sec Tax will be at a much lower rate. Do the math. This "Misclassified Worker" filing method is provided under Rev. Proc. 85-16 and under Sec 530 of the 1976 Tax Act (not Sec
530 of the IRC). You have to look for this one if you are a researcher, as it is not widely known except by tax lawyers and a few accountants/CPA's, although its been the law since
1976 (30+ years). The IRS has been trying to ignore this as well. Although I don't recommend this, he can file an SS-8 to have the IRS make a determination of his worker status. This will take time and put the IRS on notice of the dispute. The company may get in trouble, which I would not wish on anyone-no matter how mad you are. Instead, do the math. If he is a misclassified worker, his mileage becomes an itemized deduction, subject to the 2% floor...which he will probably won't be able to utilize. If you get a better deal using Sch C and SE and deducting the mileage as a business expense, do that. Get TurboTax and do it both ways. Remember, he must have a contemporaneous, written mileage log showing the time, date, place and business purpose of each trip. If you don't have the WRITTEN LOG -- OR-- if its not contemporaneous, well, he needs to reconstruct it before doing his taxes-which is still questionable and well ..... he might be safer not taking the mileage, and just file as a misclassified worker. The mileage log reqirements are strict and if the log is not completed at least weekly, the IRS can disallow the total deduction. Good Luck! Next time, have him turn in his mileage weekly or monthly and get a reimbursement at the federal rate. He could take a pay reduction for the reimbursement, and if he receives a
1099MISC, the Box 7, Non- employee Income will be lower, and he file as a misclassified worker on the lower amount --- thereby getting that mileage deduction before gross. Mileage received at the federal rate does not need to be reported as income and the mileage deduction does not need to claimed as a tax deduction...a nice place to be, if you have to be a misclassified worker.
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