Discussion:A fun employee loan Q
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Sjpaccounting (talk|edits) said: | 4 February 2008 |
| I am going through a client's balance sheet and notice a high balance in employee advances. When I research it more, the reason it is high is because my client bought their son, who is also an employee of the company, a truck after he totaled the company truck. I asked her if it was a company truck or if it they decided to buy the truck for their son through the company. She says that it is her son's truck and they have been taking off 3 hours each paycheck for him to pay off the loan. Here lies the question, obviously they are avoiding payroll taxes, but doing it this way will never get rid of the loan on the books. What should I do?? Help would be greatly appreciated from all of you wonderful, knowledgeable people! Anyone tired yet?
Sasha | |
| February 4, 2008 | |
| First entries were: Db. Advance, Cr. loan
Cr. cash (presumably until loan is paid off) Off the books - reduce son's paycheck
| |
Sjpaccounting (talk|edits) said: | 4 February 2008 |
| The first entry was:
Db: Emp Adv Cr. Cash (they paid cash for the truck) I think I have made some confusion- the son is paying for the truck by basically lessening his paycheck by 3 hours each paycheck and then they are just reducing the amount of the loan based on the hourly wage x 3, so no cash is ever exchanged, just less money given to the son on his paycheck. It is a freakin mess and I can't stand it! She sent me the amount she has that is owed to her from her son and it is more then she even paid for the truck, drives me crazy!!(ok vent over) This happened before I came into the picture, naturally. | |
| February 5, 2008 | |
| Okay, so there's only an advance on the books now. Basically what should happen is gross wages need to be reported along with the related payroll taxes. The reduction of the advance account is = net pay. Have you explained to the client that they are accounting for the truck reimbursement incorrectly? | |
Sjpaccounting (talk|edits) said: | 5 February 2008 |
| Yes I have. | |
| February 5, 2008 | |
| I think this type of question is faced by most practitioners at one time or another. Since you recently started your business, this is probably the first time this has come up for you. Before I go on, what was the client's response? | |
| February 5, 2008 | |
| Don't forget to charge the son interest on his "loan" from the company. It will have to be paid back with after tax dollars as Natalie said. If the son is using the truck for business purposes, he can submit expense reports each month and get reimbursed by the company for his business usage. Instead of reimbursing him, you can just credit his A/R account to get rid of the amount he owes to the company faster. | |
Sjpaccounting (talk|edits) said: | 5 February 2008 |
| She wants to know how it will affect her personal taxes if she takes it as a distribution (s corp). | |
| February 5, 2008 | |
| If the son is not a shareholder, and she takes it as a distribution, than the way that it will affect her is that she will have more flow-thru income from the S Corp. If she takes it as a distribution, is she willing to gift the truck to her son? | |
| February 5, 2008 | |
| BEG, I think what you are saying is that if she takes it as a distribution, she will not have the salary and related payroll taxes as a deduction. Am I correct? | |
| February 5, 2008 | |
| Actually I'm trying to point out is if SHE takes it (the a/r reduction) as a distribution, then effectively she is buying her son a car. | |
