Deductibility...

[Arlin Hall]

Hi David,
In the "Dealer" scenario, you are actually receiving the $65.  Which is what
you taxes would be based on.  The dicount of $10 was given in arriving at
the $65 figure.  So on your books, (and on the invoice) you could show:

+75.00  Tuning Fee
-10.00  Dealer Discount.
------
$65.00  Net amount due.  (and net amount of taxable income)

In the referral fee scenario, you indeed receive $75.00.  But you also write
a $10.00 check as a referral fee, which is a tax deductible expense.
Granted, that won't be shown on the customer's invoice because the referral
fee is paid out to someone else.  But on your financial statements and tax
return Schedule C the net effect is the same.

+75.00  Tuning Fee
-10.00  Referral fee paid out to someone else.
------
$65.00  Net amount kept by you, and reported on your taxes, as far as this
tuning is concerned.

In both scenarios, you end up with $65.00 net taxable.  Not $55 or $75 as
you stated in your response.  (I see in a later post you did change the $75
to $65).

Arlin Hall, CPA

-----Original Message-----
From: David Love [mailto:davidlovepianos@earthlink.net]
Sent: Friday, January 30, 2004 7:59 PM
To: Pianotech
Subject: RE: Deductibility of referral fees, etc.


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