Deductibility of referral fees, etc.

[David Love]

It's not quite the same thing.  However you book it, your income is based
on money actually received and you would be deducting $10.00 from $65.00
worth of income paying taxes then on $55.00.  In the referral fee scenario,
you receive $75.00 and you pay out $10.00 with a taxable remainder of
$75.00.  Of course, you could always deposit the money in an offshore bank.
Or just pretend you did, like those great guys over at Enron.     

David Love
davidlovepianos@earthlink.net


> [Original Message]
> From: Arlin Hall <ahall12@austin.rr.com>
> To: <pianotech@ptg.org>
> Date: 1/30/2004 5:45:58 PM
> Subject: Deductibility of referral fees, etc.
>
> Someone asked:
>
> "are discounts to Piano Dealers deductible? conceivably they might be
> considered referal fees because they allow access to the piano service
> market. "
>
> They certainly have the net effect of referral fees.  Say for example, if
> your normal price is $75.  You pay a referral fee to someone of $10 for
the
> tuning.  You book both the $75 revenue for the tuning, and the expense of
> the $10 referral fee, for a net of $65 income for that transaction.  Say
you
> negotiate $65 fee with a piano dealer.  You could either just book the $65
> straight, or book the normal $75, then show a discount of $10, still
showing
> the same net of $65.  The discount would be treated as a reduction of
> revenue on your Schedule C, just like an expense. I could make a strong
> argument that on your invoice to the piano dealer you would want to show
the
> whole price of $75, and the discount of $10, totalling down to the net of
> $65.  That way every time he sees your invoice he has a reminder that you
> are cutting him a deal.  (Hopefully in exchange for continued steady
> business and additional referrals).
>
> Arlin
>
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