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I completed some work for an organization. I was paid as an independent contractor and expect to be issued a 1099. For one part of the work, I was required to travel a significant distance (by car). For this expense they offered to reimburse me, at the IRS mileage rate plus tolls. All this is perfectly normal and reasonable. But I have taxation questions.

First I wondered whether this is considered taxable income to me. I looked it up and several questions on SE (like this one) seem to indicate that a travel reimbursement is not taxable income and it will not be reported on the 1099 issued to me.

Here's the question: when I file my taxes and specifically my self-employment taxes, do my out-of-pocket expenses for the trip (gas, tolls, etc.) count as a deductible expense? Can I/should I include this mileage in the miles I drive for business? I'm making up numbers here, but let's say I travel 200 miles and pay $20 in tolls and $30 in gas for this trip.

  • 200 miles at $.655 is $131, plus the $20 in tolls, means that the organization will pay me $151 for travel. This is not taxable income as far as I understand.
  • The gas probably shouldn't count as a taxable expense because it is reimbursed and included in the mileage.
  • If I were to include the 200 miles as business miles on my taxes, wouldn't that unfairly lower my taxable income since I was paid for those miles?
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  • "taxable expense" -- do you mean "deductible expense"? You're taxed for money you receive, and you deduct money you pay.
    – Barmar
    Apr 25, 2023 at 13:53
  • yes @Barmar I meant deductible expense
    – nuggethead
    Apr 25, 2023 at 14:56
  • Please first consider keshlam's Answer, below, then put exactly the same Question to your current and several other financial advisors… Apr 29, 2023 at 21:07

4 Answers 4

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First I wondered whether this is considered taxable income to me.

The linked question refers to the IRS Pub. 463, specifically you should look at this section. It says this:

If you received a reimbursement or an allowance for travel, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you don’t account to your client for these expenses, you must include any reimbursements or allowances in income.

So what it says (and a lot of details follow) is that if you're reimbursed per receipts for expenses incurred on behalf of your client then it is not taxable income.

If you were reimbursed for the expenses as non-taxable reimbursement then you cannot claim this as an expense - you didn't pay it, your client did.

If your client agrees to add the additional amounts you spent because of your work to your total payment, but not per receipts and not because you incurred it on their behalf - then it is your compensation, is taxable, and the expense is deductible.

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  • The IRS says "you should provide an adequate accounting of these expenses to your client". Are you sure that means "providing receipts"? as opposed to "providing the number of miles driven"? Apr 26, 2023 at 17:17
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    @MartinBonnersupportsMonica depending what's being reimbursed. For mileage - the IRS requires contemporary driver log. Not just miles driven, but from where to where, when and why.
    – littleadv
    Apr 26, 2023 at 18:10
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If you don't report the money you received because it was a reimbursement for an expense, then you are essentially deducting the expense from the reimbursement to get no net taxable income. You can't deduct the same expense twice, so if you omit the reimbursement on the basis that it was for an expense, you can't deduct it again as an expense. You can't report the money as an expense unless you also report the money you received as reimbursement as income.

Suppose you're a truck driver, and someone asks you to deliver a load, and they tell you they'll pay you $100 plus they'll reimburse your gas expenses. You deliver the load, you submit a receipt for $80 of gas, and they send you a check for $180. You can declare $180 of income and $80 of expense, for a net income of $100, or you can report $100 of income and omit the $80 on the basis that it was a reimbursement. Either way, you have a net income of $100. You can't leave the $80 off your gross income and also include the gas as an expense. You made $100, not $20.

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    But what if you were paid per mile, and part of that is beyond gas but wear & tear on the vehicle, do you still deduct that? Apr 25, 2023 at 23:15
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    @user2813274 It's the same regardless of what the expense was. If you weren't reimbursed for it, or you were reimbursed for it, and you included the reimbursement as income, then you can deduct it. If you were reimbursed for it, and didn't include the reimbursement as income, then you can't deduct it. Apr 26, 2023 at 13:14
  • "Per mile" is usually taken to include the wear) depreciation on the vehicle. If you can show that your costs exceed that, you should report them separately as income and expense and write off your net costs. If you think it went the other way, you might not want to ask this question and assume the reimbursement was correct.
    – keshlam
    Apr 29, 2023 at 14:40
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Expenses that are reimbursed might be deductable for the company reimbursing those costs. But the reimbursement means there's no net cost to you, hence nothing to deduct.

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  • Yes. +1 I would guess in the case of partial reimbursement the government might be tempted to look more closely as to why the company did not reimburse the entire claimed amount. Apr 25, 2023 at 18:05
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If you have given an accounting of your travel expenses to your client, and they reimbursed you exactly what your expenses were, then you would not include this reimbursement in your business revenue (gross receipts) at the top of your Schedule C, and you would not deduct your reimbursed travel expenses (including mileage) on the Schedule C.

Your gas expenses are not deductible expenses, nor are any maintenance costs for your vehicle, as both of these are included in the mileage expense.

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  • Presumably if only part of your business mileage is reimbursed by a client, you can still deduct the proportion of your gas and maintenance costs that represent business mileage that has not been reimbursed?
    – Mike Scott
    Apr 25, 2023 at 19:07
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    @MikeScott You could, but it’s usually easier and better to take the mileage expense, if it is a vehicle that you use for both business and personal use.
    – Ben Miller
    Apr 25, 2023 at 19:31

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