I am an accountant for a cash basis company, and I have determined that advancing salary to its employees will result in significant savings on the company's tax returns for 2017. The employees have signed a written contract in the past, and they are paid a certain amount of money every month in accordance with its terms. Can they be paid in advance for future months as I am suggesting? Should they have to sign any kind of statement signifying their agreement to this arrangement? Is anything done differently for employment taxes in relation to salary advances? Any insights would be greatly appreciated.
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Nothing done differently as their pay is check date irregardless of when earned.Originally posted by Tax Sleuth View Post
Are these significant savings going to be significant taxes in 2018? Prepaying expenses only works 1 year as the following year, you either
a. prepay expense = save taxes
b. have less expenses following year = more taxes (did you really save anything)
c. have to prepay again = same taxes as the "significantly savings year"
Also, I can see the IRS not allowing said expenses because forget cash/accrual basis... they are paying for an expense that hasn't even happened yet.
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Also you have think about the employees... you are suggesting to inflate their salary for 1 year and decrease the salary the next? I can see that leading to problems as well.Originally posted by spanel View Post
ChrisComment
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Fish Smell
This thing has a fish smell to it. There are advances allowed for such things as travel or expense reimbursement advances but there is a limit to it, and I believe the limit is 90 days or business cycle for the expense.
The IRS will for sure not allow these advances to be deductible expenses to the company if they are for future salaries if the money is not reported on employees' W-2s. This would be true even if the company is on a cash basis.
I imagine once this company is told the advances are not deductible in such a case, this entire brilliant idea would be scrapped. You didn't state this in your post, but I believe the genius behind this scheme wants to deduct future expenses but not pass through to the employees.
Wouldn't be the first time employees were jerked around for some brilliant idea foisted upon them by a company.Comment
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Don't do it
I was once asked by one of my clients to do payroll advance, not to save on taxes, but help one employee and when I researched what was involved, especially state min. wage rules regarding deductions etc. I recommended against it. Do you really want to do all the extra bookkeeping, legal agreements etc. for a small employer?Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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There are two kinds of payments that can be made to an employee in excess of their earned wage: a loan, and an advance.
I believe an advance would be for no more than a typical pay period, essentially you are paying the employee for work already done, but in advance of the next scheduled paydate. A loan is something else, and the unpaid balance of a loan cannot usually be deducted if employee leaves the job before paid back.
If you are proposing to not pay employees in the future for work they do on the theory that you have already paid them in the past, that is going to run afoul of numerous labor laws in your state (or at least, most states, I don't know about all of them). Hopefully the employees affected would quickly launch well-deserved multiple lawsuits against the employer for failure to timely page wages earned."You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe HowardComment
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