Discussion:Independent Contractor Compensation by Car
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| Revision as of 02:42, 4 November 2009 AcadeTax (Talk | contribs) (Hi Kathijud, M) ← Previous diff |
Revision as of 03:00, 4 November 2009 SCCPA (Talk | contribs) (''this is not a) Next diff → |
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| My services will be provided over a period of time (indefinite) and charged at market rate fees, this is not a one time charge. My plan would be to record on my companies books a Debit to Vehicles (Fixed Asset) and Credit Retainers from Clients (Liability). I would record on the LLC's books a Debit to Prepaid Fees (Asset) and Credit Cash. As I bill and receive "payment" for my services over time, I will Debit Retainers from Clients (Liability) and Credit Fee Income. The LLC will record Debit to Professional Fees and Credit Prepaid Fees. It seems that this will allocate Income and Expenses properly over time on both an accrual and cash basis reporting basis for both companies. For example if I bill $1,000/mo. each month in 2010 would I not record $12,000 income on my books and $12,000 expense on the LLC's books?}} | My services will be provided over a period of time (indefinite) and charged at market rate fees, this is not a one time charge. My plan would be to record on my companies books a Debit to Vehicles (Fixed Asset) and Credit Retainers from Clients (Liability). I would record on the LLC's books a Debit to Prepaid Fees (Asset) and Credit Cash. As I bill and receive "payment" for my services over time, I will Debit Retainers from Clients (Liability) and Credit Fee Income. The LLC will record Debit to Professional Fees and Credit Prepaid Fees. It seems that this will allocate Income and Expenses properly over time on both an accrual and cash basis reporting basis for both companies. For example if I bill $1,000/mo. each month in 2010 would I not record $12,000 income on my books and $12,000 expense on the LLC's books?}} | ||
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| + | {{ForumReplyPost|UserID=SCCPA|Date=4 November 2009|Text=''this is not a one time charge'' | ||
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| + | Remember, tax rules are different from accounting rules. If Dad gives you a car titled in your name today, it's taxable compensation today, even if you intend to perform the services in the future. There are exceptions for accrual tax returns, but that doesn't sound like your situation, nor does your situation sound like one that the exceptions would apply to.}} | ||
Revision as of 03:00, 4 November 2009
Discussion Forum Index --> Basic Tax Questions --> Independent Contractor Compensation by Car
Discussion Forum Index --> Tax Questions --> Independent Contractor Compensation by Car
| 3 November 2009 | |
| I'm looking for opinions on how best to setup this scenario:
Single Member LLC as a client (owner is a related party (my father)), who wants to pay for business vehicle for my use as compensation to me for my services to the LLC. | |
| 3 November 2009 | |
| I'd set it up in a written agreement. Will the car be worth what the IC thinks it's worth when the job is finished? | |
| 3 November 2009 | |
| Should have been more explicit. Open ended working agreement, my services will be performed indefinitely for the foreseeable future, monthly payments on auto paid by LLC owner which will be clients monthly compensation to me. For example, if monthly payment is $700/mo. that is my monthly fee to him. I'm looking for best way to setup from LLC's perspective. | |
| 3 November 2009 | |
| This sounds like one of those family situations where Dad is trying to buy a car for Son, and somehow get their tax returns involved to accomplish it.
What's wrong with this scenario - You perform business services for Dear Old Dad, Dear Old Dad pays you what they are worth, and you go out and buy a car? You can then deduct the business use of the car on your tax return. | |
| 3 November 2009 | |
| I have a problem with thinking that the payment on a car is the same as the value of the use of a car. | |
PVCC-CCIFP (talk|edits) said: | 2009-11-03 |
| AcadeTax:
Is dad in the car business? Is this a car the LLC aleady owns? What if any benefits to either party do you antipate? Are they worth the substantial increase in the something fishy meter? PVCC-CCIFP 12:39, 3 November 2009 (CST) | |
Mikex2e7n5 (talk|edits) said: | 3 November 2009 |
| Not too many scenarios to justify an independent contractor getting the use of a company owned vehicle. | |
| 3 November 2009 | |
| I'm not asking for a way to beat ther IRS or do anything fishy/illegal, just wondering if I hadn't considered anything. Dads idea to purchase the car. We'll probably have it purchased by the LLC as a capital asset and depreciated under the existing luxury vehicle limits. I would be using this car the majority for business but for my seperate business and only occasionally for his as a client of my business. It's probably going to have to be the way I just suggested but wondering if I'm missing any better. Dad is just looking to get his son a nice car and suggested this as a way to do it. I am performing accounting, bookkeeping and property management services to his LLC. | |
| 3 November 2009 | |
| I see lots of areas for problems: insurance fraud allegations, SE tax, 1099 reporting, etc.
Why not just have dad pay you in cash, as had been recommended above by SCCPA? Go and buy your own car. He will get the deduction for the amount he pays you, and you will get any legitimate business mileage deductions for your use of your own asset. | |
| 3 November 2009 | |
| I think I figured it out, taking a cue from SSCPA and Kevinh5, why not record car purchase as Prepaid Fees Asset on LLC side and Unerned Revenue liability on my side and work down both as I bill fees over time. Vehicle is then my asset to depreciate or use business mileage as my use dictates. | |
| 3 November 2009 | |
| Seriously - if your LLC is cash basis, the entire amount of the car purchase on your behalf is immediate taxable income to you and an expense deduction for your services to the LLC. Tax is not GAAP accounting. If you need to manage your income yearly, dad needs to loan you the money personally to buy the car. The LLC pays you monthly for fees. You deposit as income and make a payment back to your dad on his personal loan. | |
| 4 November 2009 | |
| Hi Kathijud,
My services will be provided over a period of time (indefinite) and charged at market rate fees, this is not a one time charge. My plan would be to record on my companies books a Debit to Vehicles (Fixed Asset) and Credit Retainers from Clients (Liability). I would record on the LLC's books a Debit to Prepaid Fees (Asset) and Credit Cash. As I bill and receive "payment" for my services over time, I will Debit Retainers from Clients (Liability) and Credit Fee Income. The LLC will record Debit to Professional Fees and Credit Prepaid Fees. It seems that this will allocate Income and Expenses properly over time on both an accrual and cash basis reporting basis for both companies. For example if I bill $1,000/mo. each month in 2010 would I not record $12,000 income on my books and $12,000 expense on the LLC's books? | |
| 4 November 2009 | |
| this is not a one time charge
Remember, tax rules are different from accounting rules. If Dad gives you a car titled in your name today, it's taxable compensation today, even if you intend to perform the services in the future. There are exceptions for accrual tax returns, but that doesn't sound like your situation, nor does your situation sound like one that the exceptions would apply to. | |
