Discussion:Inc Tax on Government Contracts
From TaxAlmanac
| Revision as of 04:06, 8 September 2009 Cody2826 (Talk | contribs) (he designs and m) ← Previous diff |
Revision as of 05:13, 8 September 2009 Irsfixer (Talk | contribs) (A sole proprieto) Next diff → |
||
| Line 30: | Line 30: | ||
| {{ForumReplyPost|UserID=Cody2826|Date=8 September 2009|Text=he designs and manufactures the widgets.}} | {{ForumReplyPost|UserID=Cody2826|Date=8 September 2009|Text=he designs and manufactures the widgets.}} | ||
| + | |||
| + | {{ForumReplyPost|UserID=Irsfixer|Date=8 September 2009|Text=A sole proprietor does not pay himself a salary. The Schedule C profits are fully taxable. You need to consider some continuing education.}} | ||
Revision as of 05:13, 8 September 2009
Discussion Forum Index --> Advanced Tax Questions --> Inc Tax on Government Contracts
Discussion Forum Index --> Tax Questions --> Inc Tax on Government Contracts
| 5 September 2009 | |
| I have a client who deals exclusivly with the US government. He basically designs widgets that the government buys.
We use the completed contract method to keep track of the inc/exp on each contract since they span over a few years. The question I have is does he need to pay income tax on the profit he makes on each contract? Something tells me that since he is working with the US government, the profit is not taxable income. He is only taxed on the salary he takes each year. To make matter worse it is a Sch C business | |
| September 5, 2009 | |
| First, what do you mean Sch C business and 'salary'. You can't be your own "employee".
Second, seems to me Haliburton (sp) contracts with the Federal government. I don't believe they are tax-exempt.... | |
Fr. Mackelhenry (talk|edits) said: | 5 September 2009 |
| Following on what Belle said...whew! That's a good one, Cody. Uh, what's an MBT? Is this income so secret he can't report it on his return? I'd ask for more details, but I'm afraid we'd have to classify the whole site. | |
| 5 September 2009 | |
| OK...for book purposes he is allowed a salary. Since he works on the contracts he needs to be paid a salary. On the Sch C the salary in not deducted. I understand how a sole prop works...my question relates to any tax law or special tax rules that relate to contractors that work with the united states government.
We have been reporting the income on the tax return on the completed contract method, however now the client is claiming he doesnt need to pay income tax on the profit he makes since they are contracts with the US government. An MBT is a Masters in Taxation.. | |
Death&Taxes (talk|edits) said: | 5 September 2009 |
| Sounds like he has been listening to Jerry Koosman too much. If his belief is such, maybe he could cut his price by the taxes he doesn't have to pay and thus help cut the budget deficit. | |
| 5 September 2009 | |
| Cody, your client cannot use the completed contarct method for tax purposes, becuase he "designs" widgets rather than "constructs" widgets. The completed contract method can only be used by manufacturers and comstruction contractors.
Your client has to use either the basic cash or accrual method of accounting, for tax purposes. Nevertheless, your client has to pay income tax on profits ... even if those profits are derived from fees received from the government. | |
| 5 September 2009 | |
| Cody, I don't know if your client is an engineer or not. But in my experience, even though engineers and doctors have good minds (in general), when it comes to tax law, they revert back to the days of the four humors, a flat earth, and the alchemist's retort. | |
| 8 September 2009 | |
| A sole proprietor does not pay himself a salary. The Schedule C profits are fully taxable. You need to consider some continuing education. | |
