Deductibility...

[David Love]

Just to clarify.   In one scenario you receive $75.00, write a referral fee
check for $10.00.  When it comes time to pay your taxes you declare $75.00
worth of income and have a deduction of $10.00.  

In the other scenario, you write an invoice for $75.00.  You receive $65.00
because you gave a discount.  When it comes time to pay your taxes you
declare $65.00 worth of income (because that's what you received, no matter
what the invoice says) and deduct $10.00 for a discount given?  

If that's what you meant, it doesn't work that way.  

If it is to your advantage for some reason to write the invoice as $75.00
with a $10.00 discount given then that's fine.  But when it comes time to
do your taxes, you should only declare the money your received as the
discount will not be accepted.  If you are audited and the discount is
thrown out, you will then have to explain that you did not, in fact receive
$75.00, but only $65.00.  That would put you in the rare position of
someone who declares more income than they actually received.  You run the
risk of the IRS not believing you.

David Love
davidlovepianos@earthlink.net


> [Original Message]
> From: Arlin Hall <ahall12@austin.rr.com>
> To: <Pianotech@ptg.org>
> Date: 1/30/2004 6:32:16 PM
> Subject: Deductibility...
>
> Hi David,
> In the "Dealer" scenario, you are actually receiving the $65.  Which is
what
> you taxes would be based on.  The discount 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
>
>
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