Deductibility

[David Love]

I do see where you are coming from now.    I read the initial inquiry as
whether or not one could write the discount off of one's gross income
(monies actually received).  Your method is a different accounting method
than the one I use, but I think we agree that the bottom line is a wash. 
>From a practical standpoint, most technicians keep track of income by
keeping a record of checks received and deposited with taxable portions
separated out when applicable.  The returns and allowances portion of my
return is generally blank as I just don't give refunds on tunings or
repairs.  Though I see the advantage of a more complete financial picture
if one is prone to giving discounts, I wanted to make the point that
individuals should not make the mistake of thinking they could write up
each sale as a 10% discount and think that they would save 10% on their
taxes.  

David Love
davidlovepianos@earthlink.net


> [Original Message]
> From: Arlin Hall <ahall12@austin.rr.com>
> To: <pianotech@ptg.org>
> Date: 1/30/2004 9:49:07 PM
> Subject: Deductibility
>
> 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
>
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