1099-NEC Questions for Freelancer: How to Handle Different Reporting Methods & Reimbursed Expenses

The way you handle this depends on your accounting method, which is crucial for self-employment income reporting. For your first question about timing differences: If you're using the cash method (which most small consultants do), you report income when you actually receive it, not when you earn it. So that December work that was paid in January 2025 should technically be 2025 income, regardless of what the client put on the 1099-NEC. You can file using your actual cash receipts, but be prepared to explain the discrepancy if questioned by the IRS since your reported amount won't match the 1099. For the reimbursed expenses: These are considered "pass-through" expenses if properly documented. You should record both the reimbursement as income (which happened automatically when included on your 1099-NEC) and then deduct those exact same expenses on Schedule C. You should categorize them appropriately (office supplies, shipping, materials, etc.) rather than lumping them together. This is not causing you to pay more taxes as long as you're deducting everything properly - it's a wash. Keep excellent records of these reimbursements so you can prove they match your deductions if ever questioned.

I went through something similar last tax season and found a service called taxr.ai that was super helpful for sorting through these 1099 issues. I was confused about how to handle expenses that were reimbursed but showing up as income on my 1099-NEC. I uploaded my 1099 forms and invoices to https://taxr.ai and their system analyzed everything and showed me exactly how to categorize each expense on Schedule C to offset the "income" that was actually reimbursements. They also helped clarify which tax year certain payments belonged in based on my accounting method. What I liked most was that they explained the cash vs. accrual method in simple terms and helped me understand which method I was using and how to stay consistent with it. Definitely made self-employment taxes way less confusing.

Just wanted to follow up about taxr.ai since I was skeptical at first but decided to give it a try. It actually caught something I'd been doing wrong for years with my reimbursed expenses. I was reporting all reimbursements as income (because they were on my 1099) but wasn't properly categorizing and deducting those same expenses. The tool showed me exactly how to match everything up correctly on Schedule C so I wasn't paying extra taxes on pass-through expenses. It also explained why my accounting method matters and helped me file an adjustment for last year where I had reported some income in the wrong tax year. Ended up getting a refund I didn't know I was eligible for. Definitely recommend for anyone dealing with 1099 work.

For anyone like me who's struggling with IRS questions about 1099-NEC reporting, I spent THREE DAYS trying to get through to the IRS to ask about this exact reimbursement issue. Could not get a human on the line no matter what. Finally used this service called Claimyr at https://claimyr.com that got me a callback from the IRS in about 45 minutes. They have a demo video of how it works: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that reimbursed expenses should be fully deductible as long as they're ordinary and necessary business expenses. She also said the timing difference between when Client B issued the 1099 and when I received payment is something they see often, and the important thing is to be consistent with your chosen accounting method (cash vs accrual).

Well I'm eating my words. After seeing the discussion here I decided to try Claimyr this morning because I've been trying to get an answer about a 1099-NEC issue for weeks. I got a call back from the IRS in about 35 minutes. The agent was super helpful and explained that if my client incorrectly included expenses on my 1099-NEC that were reimbursements for actual business costs, I need to report the full 1099 amount as income but then deduct those same expenses on my Schedule C. They also confirmed that I should report income based on when I received it (cash method), not when I invoiced for it. So that December work paid in January absolutely goes on next year's taxes. Never thought I'd say this about dealing with the IRS, but this was actually painless. Guess I was wrong!

Just wanted to add - I'm a bookkeeper who works with several freelancers, and the reimbursed expense issue is super common. Here's what I tell my clients: Keep a separate spreadsheet or account in your bookkeeping system specifically for "reimbursed expenses" and track everything meticulously. When you file, you'll include the full 1099-NEC amount as income on Schedule C, then deduct those reimbursed expenses in their appropriate categories (office supplies, materials, shipping, etc.). As for the timing difference, it really depends on your accounting method. Cash basis = report when you receive payment. Accrual basis = report when you earn the money (invoice date). Most freelancers use cash basis because it's simpler and often more advantageous for tax planning.

Has anyone figured out if there's a better way to handle client reimbursements that DOESN'T result in them showing up on your 1099? I'm in the same boat and it creates so much extra work at tax time.

Another approach that's worked well for me is setting up an "accountable plan" arrangement with clients. This requires the client to agree in writing that you'll only be reimbursed for actual business expenses with proper receipts, and you have to return any excess advances. Under an accountable plan, reimbursements aren't considered income to you and shouldn't appear on your 1099-NEC at all. The key requirements are: (1) expenses must have a business connection, (2) you must substantiate expenses with receipts within 60 days, and (3) you must return any excess reimbursement within 120 days. This eliminates the whole "report as income then deduct" dance entirely. I've found most professional clients are willing to set this up once you explain it reduces paperwork for both parties. Just make sure to document the arrangement properly - a simple email agreement outlining the accountable plan rules is usually sufficient. For existing clients where this isn't feasible, the advice others have given about meticulous record-keeping is spot on. But for new client relationships, definitely consider proposing an accountable plan structure from the start.