Deductibility

[Arlin Hall]

David,

You still don't see where I am coming from.  (And, by the way, I am a CPA).

Business allow discounts all the time.  Whether its a quantity discount, or
a frequent customer discount, or a discount or allowance to satisfy a
complaining customer, or whatever.  And they record those discounts to know
how much it is accumulating to.

The IRS fully recognizes this and allows for it on Schedule C Part 1 Line 2,
"Returns and Allowances" (Allowances = Discounts).  Just like any other item
of income or expense you need proper documentation - receipts and invoices,
for example.  Your invoice shows a charge of $75, a discount of $10 and a
net of $65.  And, it just so happens that you also have a check from the
dealer for $65.  No Fraud, No Over or Under reporting of income.  Just more
complete records.

You certainly would want to know how many $10 checks you had written to
people for referrals.  Why wouldn't you want to know how much in discounts
from your regular prices you had allowed?

In both of my examples the starting place was $75 from a regular price list.
Not ficticious funny money that was then donated or written off.  The $10
discount was never intended to come off the $65 price actually paid.  I
agree that that would be tax fraud.  It would be taken from the $75 regular
price.  As shown in my last post, 75 - 10 = 65.  On my financial statements,
it would include the gross revenue of $75 less the discount of $10 with net
revenue of $65.  It would be important to me as a businessman to know how
much in discounts (and referrals) had been given in a year.  And of course,
the income reported to the IRS would reflect that amount actually received.

Arlin Hall

-------------------

David Love worte:

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