Discussion:Payroll - when to deduct
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Discussion Forum Index --> Tax Questions --> Payroll - when to deduct
| 16 February 2009 | |
| in 20 years i have never had this happen b4.
the company did a payroll run for Jan 2, all the direct deposits are dated Jan 2, however Paychex took the money out of the companies account on Dec 31st. in order to reconcile the bank account, they had to enter it as of Dec 31st. my first instinct was prepaid expense, but they are cash basis. any thoughts? | |
| 16 February 2009 | |
| I had the same situation where my client's account was debited December 31 and, in this case, vendors were paid January 2. The payroll company used did NOT include that payment on the 1099-MISC since it was paid in January. I figured if the client paid it in December that it was entitled to the deduction.
So I called the payroll company, had them reverse out the run for January 2 and I manually entered the same information dated December 31 and revised the 1099s manually before they were mailed. However, in your case, if January 2 is a normal pay date, I think you have a prepaid expense. The December 31 debit is merely a result of an administrative accommodation to pay employees on a scheduled pay date. Besides, I think it's too late to make an adjustment in W-2s at this point without causing a riot and your 4th quarter payroll taxes would be delinquent. | |
| 16 February 2009 | |
| Prepaid expenses are associated with accrual basis. Normally cash basis expenses are deducted when paid unless specific rules dictate otherwise, as in fixed assets and intangibles. Cash basis TP should not show any A/R or Inventory, etc.
I think this is an exception however, it should be a prepaid. I'm just exhausting all sources before i tell my client what he thought was a deduction, is not, and he will now pay tax on this amount. Thanks Beach. | |
| 16 February 2009 | |
| I agree about A/R, but inventory?? So, if a cash basis TP buys $1M worth of inventory on 12/31/08, he wouldn't have inventory on the books at year end? | |
| 16 February 2009 | |
| The expense is deductible when paid, i.e. in 2009, not in 2008. Paychex is your client's payroll agent. Your client has $xx of dollars held by an agent. (Theoretical question: If the PR service bureau declared bankruptcy on 1/1 and your client's employees were not paid, would your client still be liable? Answer is, of course they would. The client would have a claim against service bureau, but the client's employees would have a claim directly against the employer). | |
| February 17, 2009 | |
| Agree with JDugan. And no reason you can't have prepaid in a cash basis, that's exactly the point! Same with customer deposits and such on the other side. | |
Southparkcpa (talk|edits) said: | 17 February 2009 |
| Agreed, JD and JR are correct, also look at Paychex date on the payroll it will be 1/2/09 on all checks.
In my office, we pay on the 15th and last day. I ALWAYS tell paychex, date the payroll 12/31. I have been through this one too many times. | |
| February 17, 2009 | |
| There was a discussion just like this recently. I agree with JDugan -- funds are most likely held in a trust account. | |
