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Posted by Victor Roberts on January 16, 2007, 7:56 pm
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> The amounts we are talking about are what accountants have
> told me in the past are laughingly "immaterial". However I
> still would like to do it the proper way. The nature of my
> (very small part time business) is genealogy research. The
> expenses I speak of are necessary to provide the service to
> the client. For instance, I must drive the the City
> Archives, park at a meter, look at microfilm for two hours(
> that part is straight service), and hopefuly find a birth,
> marriage or death certificate to copy from the film. I
> can't walk to the C.A.-- inconvenient and impossible for me
> to lug research materials with me even it were not
> inconvenient because I have a chronic pain disability.
>
> I work in about 2 hr intervals , and parking runs about $2.
> Copying a document can be $1.50- up, depending on how many
> pages. Sounds like nothing, but it adds up over the course
> of an extended family project. There are also somewhat
> larger copying costs for documents like newer marriages and
> wills-- can be $20, $2 per page, or other variations.
> Documents are the core of my business so all expenses in
> getting them are agreed to be the client's responsibility.
>
> However, I also copy what I get for the client for myself; I
> treat that as just the cost of doing business.
>
> It would be nice if I were organized enough to get the
> billing out perfectly timed so that client payments would
> wash these reimbursible expenses in the same year but that
> never happens. So, experts, what should a small potatoes
> business person like myself do? I imagine the IRS would say
> "cash basis"===> write it off this year and take income next
> year, but I also imagine if I talked to two different
> agents, I'd get two different opinions. The bottom line is
> the totals are so little that the IRS would probably not
> care a bit how I did it, but I'm trying to grow the business
> and make everything very professional, neat, clean,
> perfectly organized and accounted for. Can we "fight" about
> it some more<g>?? I do appreciate you guys chiming in on
> this on my behalf.
I own a single-employee C Corporation. I am also the single
employee. I am not a tax pro, but my accountant is. I
operate the Corporation on Cash Basis. I often spend money
on the behalf of my clients in one tax year and do not get
reimbursed until the next. The amounts can be rather large
as these expenses include T&L, and one year included T&L for
a trip to Japan that was incurred late one year and
reimbursed the next.
Al expenses incurred during a year, including reimbursable
expenses, are considered to be expenses for the year in
which the expenses were paid.
I use QuickBooks and all Reimbursed Expenses, whether they
are reimbursed in the year they were incurred or the
following year, are considered by QB to be "income." The
reason why QB treats these reimbursed expenses as income is
that I set up the accounts that hold the reimbursed expenses
as type "income" under the advice of my accountant.
When my accountant takes my QB file and prepares our
corporate tax return he lists Reimbursed Expenses as Other
Income on line 10 of my Form 1120 (with an attached
explanatory statement) and lists Expenses such as legal
fees, travel, etc that do not have specific lines on Form
1120 on Line 26 as Other Deductions, again with an
explanatory statement that lists the expenses by category.
It really doesn't matter if my Reimbursed Expenses for one
year exceed my Expenses for that same year though this has
never happened. One reason why not is that the Expense
category includes both reimbursable and non-reimbursable
expenses. For example, for 2005 my reimbursed T&L was
greater than my T&L (due to that trip to Japan in late 2004)
but my total Expenses were still greater than my Reimbursed
Expenses.
As far as I can determine, this is all normal for cash basis
taxpayers.
--
Vic Roberts
Replace xxx with vdr in e-mail address.
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