List of Expenses

[AuditorTurnedGood]

All,
I have had several new clients as for a list of items they can deduct on their tax return. Mostly, this stems from people who either havn't ever owned a business, or who have owned businesses, but can no longer afford a full time bookkeeper and accountant to do all the heavy lifting.

Does anyone know of a good, concise resourse to hand to a client like this? Thanks.

ATG

[ChEAr$]

Short

and to the point.

Deductible expenses, I tell new clients, are what are "ordinary and necessary" to the
successful operation of a business. Then I discuss what types of expenses he might
encounter in his line of work. Sometimes I'll give him formats of my Easy 31 bookkeeping system to duplicate and use on a monthly basis. Or even design a custom spreadsheet
for tracking expenses.

Actually I've been thinking about this lately, and we need to be more proactive in educating clients about the business purpose of any expenditure, even to the extent of counseling them NOT to spend money sometimes and to measure potential rewards versus expenditures.

naturally if we're also in the monthly accounting business for these clients, it's easy to
keep on top of things and continually communicate what is or not allowed as deductions.

[Lion]

Schedule C

Use Schedule C &/or any other related forms they will be filing to give them a list of categories to track. Remind them to break out Meals & Entertainment separate from lodging and to give you detailed info re Capital Purchases: date, amount, description. Explain what a Capital Purchase is to your client. Explain what Usual & Necessary mean. Explain Qualified Home Office. Explain about mileage logs in particular and record keeping in general. Use all the things your clients have done wrong over the years to put together a list to get new clients started out right.

[Burke]

You don't say what type of business form this is, but if it is anything other than a Sche C sole proprietorship, it is mandatory they track basis. This includes capital put into the business by the owner(s), money or assets taken out of the business by the owner(s), and all loans -- whether personal or from financial insitutions.

PS: If you have Quickbooks, when you set up a new company, it asks what kind of business it is, and they will automatically set up a list of accounts (including expense accounts) normally used in that type of business. You could print that out. Also, in most tax software, for the "Other Deductions" line on a partnership or corporate return, a list of commonly used expenses is shown.

[JG EA]

I tell all clients who ask about expenses not to spend money just for tax reasons. If it makes sense for their business then it makes sense. If not it doesn’t it doesn’t. Then I give them actual examples.

For instance for a Sch C client:

1. If they buy an expense item for $1000 and are in the 15% bracket they can save approximately $291 Federal. Which means they will have spent $709 from their money. That’s fine if they need it for the business, but not so good if they don’t.
2. If they buy an asset I explain depreciation and expensing etc.
3. I explain Ordinary and Necessary.
4. I give them the IRS chart on recordkeeping for gifts (explain gifts limit), meals, etc.

This only takes a few minutes but educates the client, helps them to see there is more to what I do than fill out forms, and helps them not to expect a huge tax break.

[AuditorTurnedGood]

thanks for all the thoughts

The business is a real estate consultancy organized as a single member LLC in this case. I e-mailed her and told her the basics of usual and nessecary expenses, and pointed out the auto and meals/ent rules. At the end of all that, I told her to save all her reciepts and I would deal with them at year end. We'll see how it goes. Thanks again all!

ATG

[erchess]

Question

I believe that a single member LLC can file as a Sole Proprietorship, a C Corp, or an S Corp. How will you decide which she should file as? I personally would not know where to begin unless she wanted to accumulate money in the business with concrete and realistic plans for the business to spend the money and of course avoid paying individual income tax on those monies. We all know that in this case she wants to be a C Corp. I can't think of another scenario in which she would want to be a C Corp nor of any rational reason for choosing between Sch C and S Corp. It does seem clear that if there is no clear reason to embrace C Corp then the double taxation would be a reason to reject it.

[Lion]

Fringe Benefits

I've had clients benefit by a C when they had expensive family medical insurance; deductible to a C but not added to W-2. And, high income couples who had a higher personal income tax rate than the corporate rate, so did not want income passed through by an S. But, most of my businesses are not great about record keeping and should be Schedule C. In fact, I prefer Schedule C and even C-Corp for those with sloppy administrative skills. With Schedule C everything's on Form 1040 anyway; and with a C-Corp you balance it and find out what's off balance (did they take money out or put it in?). With partnerships and S-Corps, my small biz clients seem to move monies back and forth without keeping track, leaving me with a mess to clean up between the biz return and their Form 1040.

[ChEAr$]

I just wish proprietors with no employees would consult me first before going off and
paying some lawyer $800 to form an LLC, especially when a good insurance policy can
accomplish same results. Yes I know, not one size fits all.

But they are then saddled with having to send that $100 annually to Alabama department of
revenue.

[Lion]

Inc.

I had one who just wanted the Inc. after his name!

[erchess]

A Thought

I had one who just wanted the Inc. after his name!

It would have been cheaper to change his name by filing himself with the clerk of court.

[ChEAr$]

I had one who just wanted the Inc. after his name!

And why not Ltd? Sounds so much more ... sophisticated.

[S T]

Ltd

I like "Ltd"
And what does a business have to do "legally" to use "Ltd" in their name?

Sandy

[joanmcq]

Well, Ltd, is 'limited' and it's what British corps put after their names, like we do 'Inc.'

Doesn't mean a darn thing over here, unless you want to seem international.

[MariaR08]

I just wish proprietors with no employees would consult me first before going off and
paying some lawyer $800 to form an LLC, especially when a good insurance policy can
accomplish same results. Yes I know, not one size fits all.

But they are then saddled with having to send that $100 annually to Alabama department of
revenue.

That's nothing, for California an LLC pays a minimum tax of $900 annually!