Reimbursement Question

[BrendanLeahy]

I brought on a producer to help with a music video last year. The artist paid us only half the payment at the beginning, so the producer chose to spend $1200 of his own money for the production and asked to be reimbursed after the final deposit was made.

The producer filled out a W-9 with me and received the reimbursement. Now, upon sending him a 1099-MISC, he's claiming I'm wrong - that reimbursements aren't payments, so he shouldn't be receiving any tax documents from me.

This seems to go against everything I've done in business so far - I would think that it's his responsibility to show the deductions on his end, otherwise it'll look strange that I have $1,200 loss of income, and he has received and not reported $1,200.

Am I missing something? Is he thinking of this whole reimbursement thing as if he were a full-time employee?

 

[Terry VerHaar]

Might be a good idea just to consult an accountant. :smiley:

 

[BrendanLeahy]

Might be a good idea just to consult an accountant. :smiley:

Hah I know! Just wanted to see if any of the small production company owners here had experience with this first before tossing out some $$ for accounting advice. Gotta save up for those new NAB treats, Terry!

 

[Gavin Greenwalt]

If it's a business expense it can be written off. If it's an independent contract payment it's a 1099.

It works out though because you don't pay taxes on gross only net. So if someone gives you $1,000 in 1099 MISC and you claim $1,000 in expenses on Section-C then you pay $0 in taxes.

 

[Terry VerHaar]

Hah I know! Just wanted to see if any of the small production company owners here had experience with this first before tossing out some $$ for accounting advice. Gotta save up for those new NAB treats, Terry!

Haha - didn't mean to sound like a smart ass. My only concern with an answer here (unless from an accountant) is: as long as there is room for disagreement among the parties, only an expert opinion will prevail. If you regularly use an accountant, maybe just a casual quick call to him/her will get you an answer without a bill.

(FWIW - I agree with your take on it.)

 

[Mathias Erichsen]

I do not know how things work in the US, but you probably used those $1200 he lend you on the production? If so you'll probably have those receipts to show for the loss of income.

I may be way off, so it's probably best to consult an accountant

 

[Peter Majtan]

The producer is right. If he lent you the 1200 during the shooting - he already "owned" that amount and has paid his taxes etc on that income to have it in the first place. You are effectively forcing him to tax that amount twice. The real question here is how was the money spent during the production and who has the receipts for that - I assume you do. What is also important is how was the money acquired from him in the first place. Basically - if he gave you the cash and you have spent it and you have the receipts - you need to return him the full amount without any tax obligation for him. If he spent it directly and he has the receipts then there are two options. Either he invoices you and keeps the receipts - in which case the tax obligation is his (he will pay no tax on the 1200 as he will have the receipts showing equal amount of expenses - therefore there is no income for him). The second option is that he hands you over the receipts and you hand over the 1200 without any tax obligation for him - effectively you give him cash and he gives you the receipts, but he doesn't need to acknowledge the money received from you - for that you have the receipts...

I have this happening frequently to me when my clients ask me to invoice them by adding the extra expenses to the invoice, but then they also ask me to hand over the receipts. That is BS. Here is a simple example:

The contract was for $10.000 USD plus the client was to reimburse me for any expenses (car gas, highway fees, parking, catering, etc).
Let's say that the extra expenses were $1.000 USD. There are two options:

A. I invoice the client $11.000 USD and provide a copy of the receipts as a proof of the amount spent - but I keep the actual receipts
B. I invoice the client $10.000 USD and hand over the original receipts (I usually keep copy for me for later reference if needed)

In both cases the client transfer $11.000 USD...

I hope this helps

:sifone: Peter

 

[BrendanLeahy]

The producer is right. If he lent you the 1200 during the shooting - he already "owned" that amount and has paid his taxes etc on that income to have it in the first place. You are effectively forcing him to tax that amount twice. The real question here is how was the money spent during the production and who has the receipts for that - I assume you do. What is also important is how was the money acquired from him in the first place. Basically - if he gave you the cash and you have spent it and you have the receipts - you need to return him the full amount without any tax obligation for him. If he spent it directly and he has the receipts then there are two options. Either he invoices you and keeps the receipts - in which case the tax obligation is his (he will pay no tax on the 1200 as he will have the receipts showing equal amount of expenses - therefore there is no income for him). The second option is that he hands you over the receipts and you hand over the 1200 without any tax obligation for him - effectively you give him cash and he gives you the receipts, but he doesn't need to acknowledge the money received from you - for that you have the receipts...

I have this happening frequently to me when my clients ask me to invoice them by adding the extra expenses to the invoice, but then they also ask me to hand over the receipts. That is BS. Here is a simple example:

The contract was for $10.000 USD plus the client was to reimburse me for any expenses (car gas, highway fees, parking, catering, etc).
Let's say that the extra expenses were $1.000 USD. There are two options:

A. I invoice the client $11.000 USD and provide a copy of the receipts as a proof of the amount spent - but I keep the actual receipts
B. I invoice the client $10.000 USD and hand over the original receipts (I usually keep copy for me for later reference if needed)

In both cases the client transfer $11.000 USD...

I hope this helps

:sifone: Peter

Hey Peter,

Yes, this helps definitely, although there's a bit of grey area here. He sent over copies of receipts wardrobe and crafties sent him, and then copies of personal checks he wrote them (from his own bank account, not the production's). I'd assume he'd want to show those on his taxes, as other people would be reporting they received income from him?

Brendan