Employee using business card for personal expenses

[Proud_parent007]

Jurisdiction

New Jersey

One of my employees has been using corporate card for personal expenses. It is quiet evident recently and I cancelled his card and he is terminated. When i looked at previous years statements there are some highly questionable transactions.

I have already claimed them as expenses in previous years tax return. If there is an audit, can I use this as an excuse? I had an email communication with the employee to certify that all expenses are business expenses, which he did.

 

[adjusterjack]

If there is an audit, can I use this as an excuse?

It's probably an expense anyway if you cannot recover the money. Might have to be amended to show a casualty loss instead of an expense. But if the expenses are just "questionable" and you can't prove that they weren't legit, you might just let sleeping dogs lie.

For 2019 talk to your tax pro for advice on how to report it.

 

[Tax Counsel]

I have already claimed them as expenses in previous years tax return.

Then you'll need to amend your returns. You ended up paying him for personal expenses that he was not entitled to take. You have two possible choices that I see. One is report him to the police for embezzlement/fraud and amend your returns to show a fraud/theft loss. You could then seek reimbursement from the employee for these amounts as restitution in the criminal case and/or sue him for it. To the extent you recover anything, you'd report that as taxable income in the year received to offset the previous deductions you took.

The other is to treat the extra that he was paid as additional employee compensation (i.e. wages), pay the related employer FICA taxes (which would generate an income tax deduction in the year paid), and issue corrected W-2s to the employee. You'd amend the previous income tax returns in that case to show the amounts as employee compensation.

I suggest you see a tax attorney or other tax professional to advise you on the tax issues, and a civil litigation attorney if you want to go the route of suing him to get the money back.