Discussion:Penalty, my fault
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Discussion Forum Index --> Tax Questions --> Penalty, my fault
| 8 February 2008 | |
| I forgot to have the client make the CA gross receipts fee extension payment, due 1/15/07, on a 9/30/06 termination of the LLC. I'm paying the penalty. Does anyone know off the top if there any basis for claiming a tax deduction for this payment? It's not enough to be worth the research time. The laugh is on me. Thanks for any feedback. | |
Death&Taxes (talk|edits) said: | 8 February 2008 |
| Wouldn't it be a fee adjustment? | |
| 8 February 2008 | |
| As in treat it as a refund of what they paid to me? But then wouldn't that incorrectly reduce the client's tax deduction for my fees? | |
Nancyshoemake (talk|edits) said: | 8 February 2008 |
| Basically, wouldn't this be deductible just because of the fact it is an "ordinary expense in the course of business". I have had construction workers pay for expenses that exceeded the income earned. Ultimately, it is an expense because it is incurred in the course of business activities... | |
Death&Taxes (talk|edits) said: | 8 February 2008 |
| My use of 'fee adjustment' was poor; I simply meant I'd treat it on my 1120 like a refund or allowance. | |
| 8 February 2008 | |
| Wonder how H & R treats these? I think a payment to maintain your professional reputation is a legit expense. I just wouldn't like to put "Screw up expense" on my tax return. Maybe the client would be happy if you just gave them a credit on future work. | |
Death&Taxes (talk|edits) said: | 8 February 2008 |
| This past summer a client sent me a CP-2000 reflecting income not reported; I checked and saw it entered on a the worksheet, but where it went nowhere because I'd forgotten to link. I told him "Gary, you get a free return next year" in an email explaining it. He emailed back, "Hey Pilgrim, you've stolen enough horses for me, forget about it." Sometimes offering the credit does work better. | |
| February 8, 2008 | |
| There was a thread earlier this year/late last year where I asked the same question (had to do with payroll tax penalties where my office manager said they were done electronically, but never got around to doing them....) and everyones response was 'deductible - ordinary & necessary'. Can't remember which thread, and it was one of those entertaining ones that wandered all over the place, so a search didn't help me find it. | |
| 8 February 2008 | |
| Thanks for all the responses. Belle, I think I remember that discussion. And I wonder if "screw up expense" would at least make an IRS agent laugh. :) | |
PostingFromWork (talk|edits) said: | 8 February 2008 |
| You better believe that HRB deducts the P&I they pay for clients.
They also 1099-Misc them in Box 3. | |
| 9 February 2008 | |
| Am I understanding you? They make a mistake, pay an amount that really is their own liability since it is due to their own mistake, and then they report income for that payment to their client??? | |
Rgtaxservice (talk|edits) said: | 9 February 2008 |
| Tax penalties are not deductable. That would explain why HRB remits 1099s to skirt the issue.
D&T hit the nail on the head - Issue your client a refund for the penalty amount. | |
PostingFromWork (talk|edits) said: | 9 February 2008 |
| JAD- The penelties are the client's liability, not HRB's.
I'll disagree with Rgtax and claim that they are deductable as ordinary and neccssary business expenses since HRB only pays the penalties and interest as arising from a warantee contract, not from a penalty or interest being assessed on HRB by the IRS. It doesn't matter if a 1099 is issued, and many of the amounts would be too small to require 1099 reporting. | |
