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Tax.appeal.168
Tax.appeal.168, Accountant
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Experience:  Tax Accountant
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I'm a software consultant. I picked up a new client late

Customer Question

I'm a software consultant. I picked up a new client late last year and formed an LLC for all billing and contracts with the client.
The LLC articles of organization were filed in Sept 2015.
I received my first deposit from my client in the last week of December for about $10K. That deposit is all that shows on the checking account for the business for 2015.
My next payment from the client wasn't until late January 2016. Even though it was for work in Dec 2015, since the LLC is on a cash accounting basis, I assume that it doesn't play into 2015 taxes, right?
Since the business didn't have any money until the end of the year, I paid the California $800 FTB tax and $20 statement of information filing fee out of personal funds. I wrote myself a check to reimburse these payments in January.
My client is 66 miles from my home and business address. I frequently stay at a hotel close to my client for a few days in the middle of the week.
I set up a spreadsheet and added up my hotel charges (everything including taxes for each stay). I have all receipts. I also added mileage to the hotel and back home according to google maps and multiplied that by 57.5 cents per mile. I eat pretty frugally, so I took the M&IE(5) rate for Santa Cruz from the gsa.gov site ($59) and multiplied that by the number of nights I stayed and then multiplied that by 0.50. It all ends up being about $4K for that last quarter of the year.
I was planning on writing myself a check from the business to reimburse for these travel expenses.
Finally, I was going to write myself a check for the business for the left over from that one client deposit in 2015. So it would be roughly $10K - 820 - $4K. Then that is what I was going to put on my personal tax return for 2015 as income from the business. What should I put as a comment on that check? "Year end distribution for 2015" Does it matter that I'm writing this check and depositing it now in January?
Any concerns over all of this?
Thanks!
Submitted: 10 months ago.
Category: Finance
Expert:  Tax.appeal.168 replied 10 months ago.

In brief, you rec'd the 10k in 2015 and it has to be reported as income for tax year 2015. Sounds as if you are a single member LLC. If this is the case, you are required to complete a Schedule C and report the 10k as gross receipts on the Schedule C. You can also report your deductions on the Schedule. Be sure to indicate on the Schedule C that the business entity is an LLC.

Link to Schedule C/instructions:

https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

Let me know if I can be of further assistance to you regarding this matter. If no further assistance is required, please take the time to positively rate my response 3 or more stars so that I can receive credit for assisting you today. Thank you in advance.

Expert:  Tax.appeal.168 replied 10 months ago.

I didn't see the 2nd part of your inquiry, so I will address that part now.

You are correct, the payment rec'd in January 2016 can be applied to 2016 income.

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Regarding the hotel stay, if you plan to continue to work with this client beyond a year, the lodging expense is not deductible. SEE BELOW:

You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you cannot deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you will work there for more than one year, whether or not you actually work there that long. If you realistically expect to work at a temporary location for one year or less, and the expectation changes so that at some point you realistically expect to work there for more than one year, travel expenses become nondeductible when your expectation changes. For an exception to the 1-year rule for federal crime investigations or prosecutions, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

You may deduct travel expenses, including meals and lodging you incurred in looking for a new job in your present trade or business. You may not deduct these expenses if you had them while looking for work in a new trade or business or while looking for work for the first time. If you are unemployed and there is a substantial break between the time of your past work and your looking for new work, you may not deduct these expenses, even if the new work is in the same trade or business as your previous work. Refer to Publication 529, Miscellaneous Deductions.

REFERENCE SOURCE:

https://www.irs.gov/taxtopics/tc511.html

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Q: What should I put as a comment on that check? "Year end distribution for 2015" Does it matter that I'm writing this check and depositing it now in January?

A: To keep it clean, you can write one check to yourself for the reimbursement and a separate check for year end distribution.

Expert:  Tax.appeal.168 replied 10 months ago.

I just became aware that there might have been a technical issue that wouldn't allow you to respond or rate my answer when I answered your question. Let me know if you require further information regarding this matter and if you attempted to respond or rate and was unable to.