I understand that if a 1099 vendor breaks out the per diem and mileage on the invoice, we can deduct the expenses from the 1099-MISC. Must we, though? Our financial system doesn't allow us to do that.

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No, you are not required to separate out and exclude expenses from the vendor’s 1099. You may, if they are separately accounted for, but you are not required to. You are fine reporting the total payment amount including expenses. The vendor can claim the expenses on its own taxes.

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