Jerry 71 asked:
The small business here is operating at a loss. The expenses exceed the income and the business is being propped up by loans from the owner’s savings. There are deductions for business expenses, but the business runs into the alternative minimum tax and not all of the tax deductible expenses can be deducted. Refunds (partial refunds) are frequently given to customers because they pay a deposit. The entire deposit is deposited when paid and is considered income. Though the partial refunds are “tax deductible” I am concerned because of the low income and high expenses making it impossible to get the full deduction for expenses. Any suggestions for making the best of this situation? Essentially, we sometimes pay tax on money that ends up being refunded to the customer. Thanks.
Jerrod Narron
The small business here is operating at a loss. The expenses exceed the income and the business is being propped up by loans from the owner’s savings. There are deductions for business expenses, but the business runs into the alternative minimum tax and not all of the tax deductible expenses can be deducted. Refunds (partial refunds) are frequently given to customers because they pay a deposit. The entire deposit is deposited when paid and is considered income. Though the partial refunds are “tax deductible” I am concerned because of the low income and high expenses making it impossible to get the full deduction for expenses. Any suggestions for making the best of this situation? Essentially, we sometimes pay tax on money that ends up being refunded to the customer. Thanks.
Jerrod Narron
For advice in that regard.
well, i know a guy who was audited for tax evasion, but ultimately was given a break.
He sells insurance as a broker and his broker fee is not fully earned until the whole insured period has passed. in some cases his clients cancel their policy before the say 12 months are up.
here is what he does and it was accepted by the auditor.
he puts all of his funds into his business account and transfers them out one month at a time into his personal account. anything transferred has been fully earned and thus taxable income.
if a customer cancels a 12 month policy say 6 months into the policy he will refund half of his broker fee (don’t ask me why on this one…my agent only refunds unused months, but not any part of the broker fee).
he says those funds in his Business account are not his until he earns them so they cant be taxed as income. He holds them there and if a client cancels they can get their money back. it was never his.
well, he argued this case when he got audited and the auditor agreed!!!
this may be a way of accounting that can help you not get caught by the AMT net.
You need to see a CPA or an Enrolled Agent, and have that person go over your tax situation with you. Something isn’t right.
An amended return to show the money that was refunded you need booming economy to show the money that was refunded you need booming economy to.