Splitting Expenses

[rfk]

A complicated question,

Two individuals, one a RE broker (mortgage business, CA) and one an ind contractor. They have an agreement to split expenses as sole props; they are not supposed partners. They just want to split the expenses.

The complication arises because how are they to going convince an auditor that they are sole props when they are splitting expenses? An example, if the main person, the RE mortgage broker, buys a printer on his business CC account, he wants to now have the ind contractor pay for 1/2 of it. I don't think that income comes into play as far as services, it is just the expenses that they are sharing together that the RE M. Broker is collecting from the other person. But is this situation going to fly in the end?

Do any of you see any holes in this?

RFK

[taxmandan]

Expenses

A complicated question,

Do any of you see any holes in this?

RFK

If they are splitting expenses and profits from their venture they have a partnership whether they call it that or not. One of them needs to be the principle investor and send a 1099 to the other one for services rendered if they expect to be considered sole props and each pay their own expenses of doing business. But if they share the profits it's a partnership.

[Black Bart]

A complicated question,

But is this situation going to fly in the end?

Do any of you see any holes in this?

RFK

It's kinda like -- "What's best--Ford or Chevrolet?" It depends on who you ask.

To get it to fly like an eagle, you'll have to ask Brad (he's around on the board).

To make it look like a piece of Swiss cheese, you'll have to ask Paul (ditto).

[Armando Beaujolais]

Page 20-2 of TheTaxBook, Deluxe Edition, states"

"Sharing expenses. A joint undertaking merely to share expenses is not a partnership."

[taxmandan]

Expenses

Page 20-2 of TheTaxBook, Deluxe Edition, states"

"Sharing expenses. A joint undertaking merely to share expenses is not a partnership."

Certainly, so only one of them is making any money from the joint undertaking? Guess I was reading too much into the question. Gotta remember not to assume.

[Bees Knees]

Certainly, so only one of them is making any money from the joint undertaking? Guess I was reading too much into the question. Gotta remember not to assume.

Sharing expenses and sharing income are two different things. Sharing income would be them pooling their revenues and depositing them into the same account, and then each takes a cut for profits and the rest is used to pay bills.

I assume the original poster is not describing the above. The original poster said they are sharing expenses. That means they take funds from their separate accounts to pay common bills. One could make a profit, the other a loss, or both could make a profit, or neither could make a profit. Profit isn't determined by the joint venture. It is determined by the success of each individual business. That is why they are not a partnership, because profit is not determined at the partnership level.

[Gretel]

Sharing Expenses

Would it be too complicated to send a monthly bill to the other person? That way each one would have a complete set of receipts.

[Lion]

Splitting Expenses

Just have both keep paper trails of expenses. That probably entails copying receipts so each party has one if they both paid on it. Mark on the receipt the amount that person actually paid toward that bill, date, check number, etc.

You have a realtor or whatever and an independent contractor who probably are both on the road alot and really wouldn't take on the expenses of an office alone. But, together they can rent an office, buy a computer they can share for invoicing their clients, etc., and other office essentials such as a fax or answering service or.... They can each pay half on a bill. Or, one can pay and be reimbursed half by the other. Just remind them to deduct only the part each actually paid after reimbursements on their own tax returns. And, to depreciate only the half each bought. Otherwise, an audit of one might turn into an audit of the other, also.