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Q: Tax deductible business expenses for contract employees ( No Answer,   2 Comments )
Subject: Tax deductible business expenses for contract employees
Category: Business and Money > Accounting
Asked by: highbz-ga
List Price: $25.00
Posted: 05 Oct 2006 12:50 PDT
Expires: 04 Nov 2006 11:50 PST
Question ID: 771075
I have an opportunity to work a contract programming job for a client
company in another state; working through an agency.  As the company
is located in the East and I my residence is in the Midwest there
would be considerable expense involved in flying to and from work
location (weekly), maintaining a second residence near workplace
(extended-stay hotel or apartment) and possibly renting an automobile
to commute from second residence to workplace.  My question is what
part of the
abovementioned expenses would be tax deductible and would these
deductions be available under a W2 and/or 1099 contract arraignment.

Request for Question Clarification by keystroke-ga on 05 Oct 2006 13:36 PDT
Hello highbz, 

Are you trying to find out whether these expenses are deductible to
you or to your employer?

There is no answer at this time.

Subject: Re: Tax deductible business expenses for contract employees
From: abezon-ga on 06 Oct 2006 13:25 PDT
Negotiate to have your housing expenses paid by the company as a part
of your income. either way, you can deduct your housing costs. Same
for a rental car.

If you want to take travel expenses, you may only deduct the amount it
would have cost you to stay out east instead of going home. (Hotel
room, food) Thus, if it costs you $500 to fly home & would only cost
$300 for hotel & food, you may only deduct $300.

Depending on where you are located, you can deduct actual meal
expenses or $39-64 per day.

Would you be able to alternate weeks at work & home? Or work 10 days
on 4 days off?

Consult a tax pro before finalizing negotiations. S/he can also give
you guidance on what receipts/records to save for next year.
Subject: Re: Tax deductible business expenses for contract employees
From: shinsei-ga on 16 Oct 2006 18:22 PDT
Assuming you're working on a contract basis; that is, you will receive
a 1099-MISC and NOT a W-2, you have two options, both of which are

1. Negotiate with the prospective employer to get reimbursed for your
housing and transportation expenses. This obviously doesn't allow you
to take deductions, but it does mean that your flight(s), car rental
and hotel would be covered. Your meals may not be reimbursed, but
ultimately, you need to feed yourself regardless of whether or not
you're working for the company.

In theory, your prospective employer should be happy to do this so
long as their expense policies are based on an accountable plan (ie:
you need to submit expense reports with receipts, etc.). The reasoning
behind this being that if they reimburse you for reasonable business
expenses, the reimbursement may be deductable on their business taxes.
At worst, they've budgeted for expenses if they're looking to hire an
out-of-state contract employee for any significant length of time.

The benefit to reimbursements is, of course, that it somewhat
simplifies your taxes at year end, and while you will be expected to
cover your own costs out of pocket, the employer will reimburse you
for reasonable expenses such as transportation and housing.

2. Pay for all of it out of pocket and negotiate a higher rate of pay
to cover the expenses. This allows you to take deductions for most of
your expenses, so long as you're staying at a hotel and *not* a second

A second residence would almost certainly not be considered a business
expense for tax purposes and shouldn't be taken as a deduction.
However, if you stay at a hotel/extended-stay, it would almost
certainly be considered a temporary residence for business purposes,
wholly separate from your primary residence.

There are two important things to remember if you're looking to
itemize at year-end. The first is that while you could theoretically
deduct meal expenses, I would strongly advise consulting with a CPA
versed in tax regulations prior to doing so, as the arguement could be
made that your meals are not a business expense.

The second is that if you're renting a car, you cannot deduct milage
as a business expense. The reasoning behind this is that mileage can
only be taken as a deduction to offset the expected costs of
maintenance and fuel for your personal vehicle.

Now, if you were going in as an employee (W-2), your employer is
required to reimburse you for reasonable expenses. If you are going as
a temporary employee who will receive a W-2, you'll want to be more
cautious about saving your receipts, as many companies scrutinize
their employees' expense reports more closely than those of
contractors. As above, if you are being directly reimbursed for your
expenses, you cannot deduct them at tax time.

Regardless of whether you'll be a contractor or an employee, keeping
good, clean/clear records of your business expenses is an excellent
habit to get into and will make the accounting staff reviewing and/or
entering your expenses happier, which in turn will often see your
expense check in your hand a couple days sooner. Further to that, if
you're planning on taking itemized deductions at tax time, you need to
be prepared for the highly unlikely, but not unheard of possibility
that you will be subject to an IRS audit. If you are audited and
cannot fully document your business expenses, you may end up with a
tax assessment that nearly equals the amount of the additional income,
when penalties and fines are added.

Ultimately, if the company is willing (and they should be),
reimbursement of your reasonable expenses is the better way to go; it
will cause you fewer headaches at tax time (if you're doing weekly, or
even semi-weekly expense reports, that's a very large stack of paper
to wrangle) and get the money back into your bank account faster.

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