Independent Trucker Expense

[Christian]

A Happy 4th of July to all of you. A young guy who evidently left college went to work for his mother's company as an independent truck driver. He lives with mom and delivers what ever goods she ships. He acquired a 2013 Mack tractor trailer and drives overnight to make these. I need to set up his return for 2022 and in collecting his info received a 1099-NEC for some $60,000 plus. All well and good. He yesterday advised that her company pays all fuel and insurance expenses for operation of the vehicle. This was not included as income on the 1099-NEC. I can only imagine what the Service will make of a truck driver with no fuel or expense deductions on his return. Any input on this is appreciated as I am of he opinion these amounts should be shown on his 1099-NEC and added to any amount paid to him personally. 

[Lee B]

I would just add the fuel and insurance expenses to the $ amount on the 1099 NEC for the total revenue,

then deduct the fuel and insurance as expenses. Actually this would be a better presentation since the IRS is looking for revenue to equal or exceed the 1099 NEC amount.

I wouldn't worry about correcting the 1099 NEC for 2022. However I would advise your client to have these expenses added to his 2023 1099 NEC.

 

[Lee B]

Don't know how it works in Virginia, but in my state an Employment Dept audit would have caught this and forced the mother's company to reclassify her son as an employee.

The penalties and interest for the amended quarterly and year end payroll reports would be substantial !

Over the years I have participated in at least 100 workers compensation audits. Most of these audits were a simple reconciliation of premium against payroll reports.

However between 10% and 15% of these audits were detailed enough that the auditor would have caught this.

Hope he is registered as a business and files his federal state highway/road taxes. From time to time he should pick up jobs from other companies!

[Gail in Virginia]

If mom gets audited by VEC, they will look at all 1099NEC payments and want an explanation of why they should not be considered an employee.  I think with these facts they would reclass him as an employee and accordingly want tax, interest and possibly penalties.  Not sure, however, since he acquired a truck - if he purchased the truck and it is in his name, that might help as far as being a contractor.  Especially if he is trying to get other clients.  Showing bills from him to her, or a contract, or business cards, might all help.  

[BulldogTom]

Putting the employee vs contractor conversation aside... even though I think it is the most important issue for the mom and son --

For the presentation of the financials to back up the tax return, I would have an expense account for the fuels and insurance costs and an offsetting expense account called reimbursed costs from customer to zero out the amounts.   This is what the taxpayer presented, this is what the accounting records should show.   

I think you open a can of worms when you mess with the 1099NEC and it does not match what was sent to the IRS.

Did mom also help pay for the truck?   Please say no.

Going forward, there are a lot of issues to work out.   Hopefully you can get them on the right track.

Tom
Longview, TX

[Lee B]

In my experience, as long as the reported revenue exceeds the $ amount reported on the 1099 NEC, it will not cause any problems.

[mcb39]

Personally, I would put the 1099 NEC money on the first line and put the reimbursement money on the line for other income.; just to prevent confusion.

[DANRVAN]

9 hours ago, BulldogTom said:

an expense account for the fuels and insurance costs and an offsetting expense account called reimbursed costs from customer to zero out the amounts.

But there was not any reimbursement or expense.  The arrangement and facts, right or wrong, appears that mom pays for fuel and insurance.

On 7/4/2023 at 9:50 AM, Christian said:

imagine what the Service will make of a truck driver with no fuel or expense deductions on his return.

But those are the facts and I would report it that way.  So what if you report $xx,xxx in fuel expenses paid by mom, how will you substantiate for IRS auditor regardless of the gross up of revenue?  It does not change the bottom line.

I agree with others that there is room for future improvement, but I would stick with the facts for reporting.

[Christian]

Thanks for the input. In my admittedly limited experience I have never known the Department of Taxation to question a 1099-Misc or now 1099-NEC. I will contact this guy and request mom to add up and furnish all of the truck's expenses paid by her and add those to the 1099-NEC amount and deduct them as costs to him. I may simply send this guy to the local CPA as basically I am backing away from work which could potentially involve IRS scrutiny. His parents are divorced and dad may very well have paid for the truck as I feel the parents are trying to get him going in life since he left college before finishing.

[Lee B]

On 7/5/2023 at 8:22 PM, DANRVAN said:

But there was not any reimbursement or expense.  The arrangement and facts, right or wrong, appears that mom pays for fuel and insurance.

But those are the facts and I would report it that way.  So what if you report $xx,xxx in fuel expenses paid by mom, how will you substantiate for IRS auditor regardless of the gross up of revenue?  It does not change the bottom line.

I agree with others that there is room for future improvement, but I would stick with the facts for reporting.

This is the correct approach. So often we take mental detours into alternate realities

[Corduroy Frog]

Aside from the abundant issues discussed, please remember that a truck driver is allowed a different percentage of meals than other taxpayers.  Historically most taxpayers have had to live with 50% deductibility.  I say "historically" because in the COVID years, there were different percentages.

Presuming no further contortions for 2023, Truck Drivers may be entitled to 80% for overnighters, as opposed to only 50% for the rest of us.

To re-iterate conversations above, Mom and Son should sit down to a "Come to Jesus" meeting with a knowledgeable advisor.  They are teetering on Humpty Dumpty's edge-of-the-wall.

[Christian]

I am myself am amazed her bookkeeper did not advise mom about adding these expenses to the son's 1099-NEC. I rather suspect she is deducting those expenses as a corporate expense. I advised the son that she may very well be checked on the reporting of his employment status but that is all I am going to do other than add the expenses to his reported 1099-NEC figure.