Car usage as independent contractor - reimbursement v. tax deductions

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Portly Porter
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Car usage as independent contractor - reimbursement v. tax deductions

Post by Portly Porter » Tue Mar 29, 2016 10:06 am

Hi all-

I'm currently an independent contractor for a non-profit, and I'm required to use my car for the job. When I got involved with the organization in the fall I requested that I be reimbursed for mileage according to the IRS's standard business mileage rate (50+ cents/mile). I was told that I would be reimbursed at the standard rate for charitable organizations instead, which is 14 cents/mile. That didn't seem right to me. I assumed that the lower rate should apply to freely-given donations to charitable organizations, not work performed for a non-profit as an independent contractor. However, the organization is relatively small, I have social connections to some of my colleagues, and I work remotely, so I was disinclined to put up a fight, and have since accepted reimbursements at the rate of 14 cents/mile.

In the past few weeks I've driven ~350 miles for work, and I'm regretting my decision not to argue for the larger of the two rates. I'm wondering how to proceed, and have a few questions.
  • * First, am I right to assume that I could correctly claim the business rate for the purpose of reimbursements?
    * Second, what is the legal relationship between the IRS's mileage rates and the ways in which organizations (like the non-profit I'm contracting for) should behave? Put differently, do the IRS's mileage rates merely serve as guideposts, rather than laws, for organizations that reimburse contractors (or employees) who use their personal cars for business purposes?
    * Third, if I'm concerned about coming off as demanding or argumentative with my colleagues and superiors, might it be worthwhile to forgo any reimbursements and instead claim deductions on Schedule C (Form 1040) of my 2016 return? (I assume you can't get reimbursed and claim a tax deduction.) Would I end up seeing as much money back through a deduction as I would through a reimbursement?
    ** If so, do I require written evidence of my mileage, as line 8b of Schedule C asks?
Thanks so much for your advice.

vtjon
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by vtjon » Tue Mar 29, 2016 10:10 am

I would record the mileage reimbursement from the org as Reimbursed Expenses (which is actually an income category) and deduct the actual mileage at the IRS in your mileage expense account. The net affect will be that you're deducting the difference as a business expense which would be logical.

drawpoker
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by drawpoker » Tue Mar 29, 2016 10:36 am

Frankly, if you are billing this org for your services as an indep. contractor, I am surprised that they offered you any mileage reimbursement at all.
As you already stated, as an I.C. (self-employed) worker, you should be deducting your auto expenses on your Schedule C, either by taking the standard business rate or by using the actual method.
Make certain you can -pass the IRS litmus test for indep. contractors versus bona fides, tho.
By offering to reimburse you partially for your mileage the org is dancing dangerously close to blurring that line.
Do you also perform the same work for other companies or non-profits besides this one? That is important to establish you as a true I.C. Also, do you set your own hours and schedule to perform the work, and not have to follow their instructions? That is also very critical to the litmus test.
Just being paid at the end of the year on a 1099 instead of a W-2 does NOT legally establish status as a I.C.

Portly Porter
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Portly Porter » Tue Mar 29, 2016 10:40 am

That seems sensible- thanks! I have questions about the mechanics of how I'd do that.

- On Schedule C-EZ (which I used for my 2015 taxes) the only line for recording income is Line 1, "Gross Receipts." There doesn't appear to be a separate line for reimbursed expenses.
- On Schedule C I don't see the word "reimbursed" printed anywhere. Would I use either of the two following lines to record reimbursed expenses:
** Line 2, "Returns and allowances," or
** Line 6, "Other income, including federal and state gasoline or fuel tax credit or refund (see instructions)"?[*]

drawpoker
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by drawpoker » Tue Mar 29, 2016 10:43 am

No, no, no.
Forget about taking the 14 cents from this org and figuring out how to "report" it. It can only lead to trouble and invite the IRS to investigate your status. They could conceivably rule you are a part-time employee of this org, not an I.C.
Start keeping a contemporaneous record of your business mileage and deduct on Schedule C (Not EZ Form C)
Last edited by drawpoker on Tue Mar 29, 2016 10:45 am, edited 1 time in total.

Portly Porter
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Portly Porter » Tue Mar 29, 2016 10:45 am

drawpoker wrote:Frankly, if you are billing this org for your services as an indep. contractor, I am surprised that they offered you any mileage reimbursement at all.
As you already stated, as an I.C. (self-employed) worker, you should be deducting your auto expenses on your Schedule C, either by taking the standard business rate or by using the actual method.
Make certain you can -pass the IRS litmus test for indep. contractors versus bona fides, tho.
By offering to reimburse you partially for your mileage the org is dancing dangerously close to blurring that line.
Do you also perform the same work for other companies or non-profits besides this one? That is important to establish you as a true I.C. Also, do you set your own hours and schedule to perform the work, and not have to follow their instructions? That is also very critical to the litmus test.
Just being paid at the end of the year on a 1099 instead of a W-2 does NOT legally establish status as a I.C.
Ah. I wasn't aware of these concerns. In response to each of your questions: I am paid on a 1099 and not a W-2. I set the majority of my own hours- I work remotely when I want to, with the exception of meetings, calls, and in-person events (approx once per month) whose scheduling are beyond my control. I'm not sure what exactly you mean by "same work." I don't carry out the same types of tasks for other non-profits, but I do volunteer for others, and occassionaly the volunteering for these other groups requires some driving.

Portly Porter
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Portly Porter » Tue Mar 29, 2016 10:48 am

drawpoker wrote:No, no, no.
Forget about taking the 14 cents from this org and figuring out how to "report" it. It can only lead to trouble and invite the IRS to investigate your status. They could conceivably rule you are a part-time employee of this org, not an I.C.
Start keeping a contemporaneous record of your business mileage and deduct on Schedule C (Not EZ Form C)
Sounds prudent. ¡I don't want IRS troubles!

drawpoker
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by drawpoker » Tue Mar 29, 2016 10:55 am

Hmmmmm. If you don't receive 1099's from other companies, only this one, there is the chance that the org is claiming you as an I.C. in order to save on withholding taxes, social security, unemployment, workman comp, and all the other expenses involved with bona fide employees.
The details you are disclosing now about being "required" to attend meetings and other company-sponsored events doesn't sound good.
"Volunteering" at other charity or non-profit orgs doesn't have a thing to do with self-employed folks filing their Schedule C and Schedule E, and the IRS (or your state labor Dept which also gets involved in these things) wouldn't give a fig.
Speaking as a former I.C. for many years, I have some familiarity with the issues here.
My advice would be to chuck that 14 cents a mile "reimbursement" as soon as possible. I.C. workers are not "reimbursed" for anything, if they want more money for what they do, it is included in the work contract they arrange with the employer.
You DO have a written contract with this org specifying the exact nature of the work to be performed, and the length of time the contract runs? (Length of time is another thing the IRS looks at closely, open-ended contracts with no specified ending date are particularly frowned upon and raise suspicions)

Portly Porter
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Portly Porter » Tue Mar 29, 2016 1:40 pm

Yes- I do have a written contract, which ends in roughly 6 weeks. Given this timeline, it seems like it's sufficient for me to discontinue getting reimbursed at the rate set by the org, as you suggest, and then just finish out the contract.

Thanks for your help.

arizonaslim
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by arizonaslim » Tue Mar 29, 2016 2:11 pm

I concur with @drawpoker. There's a whole lotta misclassification going on these days.

In some cases, it's unintentional. In others, it's deliberate.

The IRS is not amused by either scenario.

Portly Porter
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Portly Porter » Tue Mar 29, 2016 2:14 pm

Here's a little wrinkle in the plot. What about tolls? Does the standard formula for calculating mileage account for them, or is there a separate line on Schedule C for this purpose?

RudyS
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by RudyS » Tue Mar 29, 2016 3:14 pm

Standard mileage does NOT include tolls or parking. This is all defined in the Schedule C instructions.

Spirit Rider
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Spirit Rider » Tue Mar 29, 2016 4:45 pm

I also, think there is an awful lot excessive handwringing in the employee/contractor classification going on.

None of the items described by the OP are definite indications of employee status. It is routine for corporations to pay for contract services where actual mileage, airfare, meals, lodging. etc... are reimbursed. Also, conference calls, in person meetings, attending company events, on-site integrations, etc.. are routine responsibilities of contractors.

I recently worked at a Fortune 500 working with many companies/individuals for contract services. It was standard in our professional services contracts to pay hourly, reimburse for travel expenses, and require their presence for certain things. What we did not was exercise control over the time, location and methods of their services, only the end results. We had a third party do employee/contractor compliance and they were on the hook for any IRS actions. They didn't approve anyone who was even marginal, but they never had a problem with any of the things mentioned in this thread.

billy269
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by billy269 » Sun Jul 22, 2018 9:45 pm

I just had this come up myself travelling to a team meeting last week. I was figuring I wouldn't even ask about mileage reimbursement to avoid questioning of my IC status, but then I saw the last post from Spirit Rider. Not sure if I should ask the college I contract for if they do reimbursements or just write it off. I want to stay as an IC and don't want the IRS to question it. Thanks for any new advice!

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vitaflo
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by vitaflo » Sun Jul 22, 2018 10:31 pm

billy269 wrote:
Sun Jul 22, 2018 9:45 pm
I just had this come up myself travelling to a team meeting last week. I was figuring I wouldn't even ask about mileage reimbursement to avoid questioning of my IC status, but then I saw the last post from Spirit Rider. Not sure if I should ask the college I contract for if they do reimbursements or just write it off. I want to stay as an IC and don't want the IRS to question it. Thanks for any new advice!
IMO, just write it off. The IRS standard mileage rate is 54.5 cents per mile. If you can get more than that it might be worth it but to be honest having to deal with reimbursements from a client is a pain. The IRS deduction is pretty generous already.

Also a side tangent, the value of the deduction increases as the fuel economy of your vehicle does. EV's are the perfect commuter car for Indie Contractors.

Katietsu
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by Katietsu » Mon Jul 23, 2018 10:15 am

I would keep the 14 cents a mile. And I would take the deduction on the Sch C for what will be a 40.5 cent,mile net.

pshonore
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Re: Car usage as independent contractor - reimbursement v. tax deductions

Post by pshonore » Mon Jul 23, 2018 10:51 am

Katietsu wrote:
Mon Jul 23, 2018 10:15 am
I would keep the 14 cents a mile. And I would take the deduction on the Sch C for what will be a 40.5 cent,mile net.
Agree; the 14 cents goes into gross income. The 54 cents is a valid expense provided you meet the requirements (not commuting, etc).

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