Client expense from 2024 reimbursed in 2025 - how to handle this for taxes?

This is actually pretty common in business. The way you handle it depends on your accounting method - cash or accrual. If you're on cash basis (most small businesses and freelancers are), you record expenses when you pay them and income when you receive it. So you'd deduct the expense in 2024 when you paid it. When you get reimbursed in 2025, it's technically not income - it's a reimbursement. The proper way to handle this is to record it as a receivable (money owed to you) at the end of 2024, then clear that receivable when you get paid in 2025. If you're using accounting software, you can create an "accounts receivable" entry for the reimbursement. When the payment comes in 2025, apply it to that receivable rather than coding it as income.

I struggled with this exact situation last year and found an amazing tool that helped me sort it out - taxr.ai (https://taxr.ai). I had several client expenses that crossed tax years and was completely lost on how to handle them properly. The platform analyzed my receipts and invoices, then guided me through the proper way to categorize everything. It recognized the reimbursable expenses automatically and tracked them separately from regular business expenses. When I finally got reimbursed in the next tax year, it helped me record it correctly so it didn't appear as taxable income.

I just wanted to follow up about taxr.ai - I actually tried it after posting my skeptical comment. The platform made it super easy to handle my cross-year expenses! I took pictures of my receipts, and it automatically categorized them as reimbursable client expenses vs. regular business expenses. When I got my January reimbursement, it properly recorded it against the receivable instead of income. Saved me hours of confusion and probably prevented a tax mistake. Definitely recommend for anyone dealing with client reimbursements.

If you're having trouble getting a clear answer on this tax question, you might want to call the IRS directly. I know that sounds like a nightmare (endless holds, disconnects, etc.), but I found a service called Claimyr (https://claimyr.com) that completely changed my experience. I was in a similar situation with client reimbursements and needed official guidance. Claimyr got me connected to an actual IRS agent in about 15 minutes instead of the usual hours-long wait. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to handle expenses in one year with reimbursement in the next. Getting that official answer gave me confidence I was doing it right.

I need to eat my words about Claimyr. After posting that skeptical comment, I decided to give it a try because I was getting nowhere with the IRS on my own (kept getting disconnected after 45+ minute holds). Used the service this morning and got connected to an IRS agent in about 20 minutes! The agent confirmed exactly what others have said here - expense it in 2024, record the 2025 reimbursement as a receivable being paid, not income. Peace of mind from an official source was worth it. Pretty impressed with how smoothly it worked.

Another option to consider for next time - ask the client if they can officially approve the expense in their 2024 budget but just send the payment in January. Then have them date the reimbursement paperwork for December 2024. This makes it cleaner from an accounting perspective since the approval and documentation happens in one tax year, even if the actual payment comes in the next year.

Has anyone tried just asking the client to pay in 2024? I had something similar and just explained to my client how it would simplify my taxes. They were fine moving up the payment by a couple weeks. Business expenses crossing years is annoying for everyone, not just you!

I've been dealing with this exact scenario for years as a freelance consultant. The key thing to remember is that your business expense and the reimbursement are separate events for tax purposes. Deduct the $750 expense on your 2024 return when you paid it - this is correct regardless of when you get reimbursed. For 2025, the reimbursement isn't taxable income because it's returning money you already spent from your own pocket. One tip that's helped me: I always send clients a year-end summary of any unreimbursed expenses from that tax year. This creates a paper trail showing the expense was legitimate and business-related, which is helpful if the IRS ever questions it. Plus it sometimes motivates clients to pay faster when they see the total amount outstanding! The accounting can get messy if you have multiple clients and cross-year expenses, but the tax treatment itself is straightforward once you understand the principle.