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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16575
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have an LLC for a software company. I file as an S-Corp. Sometimes

Customer Question

I have an LLC for a software company. I file as an S-Corp.

Sometimes on a project A customer may want/need equipment (i.e. a computer, printer,etc..). Usually I just tell them "I'll buy it for you and you pay me back".

For example, for a customer I bought 2 computers from Dell for $2000 total.

In quickbooks the expense goes to a "ReimbursableJobExpense" Expense account. So when the charge shows up in my credit card I assign it to this account.

I invoice them $2000 in quickbooks (I make a separate invoice for these)
WHen they pay I assign it to "ReimbursableExpenses" Income account.

So, now when I do my profit and loss (ignoring everything else) I see this:

Total Income: (ReimbursableJobExpense) 2000.00
Total Expense (ReimbursableExpenses) 2000.00

So, when I do my taxes and put in my expenses/deductions would I just put the reimbursable expenses as a line item? (next to stuff like Office Supplies, Bank Charges, Telephone, etc..). It doesn't seem right, wouldn't the IRS wonder what those expense are?

Is this the right way to do this? ALso, what would happen if I buy something for a client for $100 but when I bill them I charge them $110. The $100 is a reimbursable expense but the $10 is just profit.
Submitted: 3 years ago.
Category: Tax
Expert:  Megan C replied 3 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question and thanks for using JustAnswer.com. On your tax return I would put it as other expense with the description "Expense Reimbursed by Clients" and include the amounts received from your customers in your income. If your income is greater than your expense, you will just pay tax on the profit. So in your example you would pay tax on $10.

If the IRS has questions about your expenses, they will send you a letter. It will be easy for you to show them what the expenses are and how they were included in your income.

Please let me know if you need anything additional. Thanks again for using JustAnswer.com and have a great day.

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You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Customer: replied 3 years ago.

Thanks for the info. What happens in cases where I purchase equipment for a client in December, but they don't pay until January.


 


In this case I would in essence have a loss 1 year and profit the following year. Would that be correct?


 

Expert:  Megan C replied 3 years ago.
Thank you for your follow up. If you are a cash basis taxpayer, then you are correct - you will have the expense one year and the revenue the next. There's no matching of revenue and expenses with the cash basis.

Please let me know if you need anything additional. Thanks again for using JustAnswer.coom and have a great day.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site. This answer is not to be construed as financial or legal advice. Please contact a local tax professional, and do not rely on this assessment to avoid penalties or to make financial decisions. This is for informational purposes only**
You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Expert:  Megan C replied 3 years ago.
Thanks for allowing me the opportunity to help you. Please let me know if I can be of any further assistance to you in this matter. I really enjoyed working with you – please feel free to request me again when you come back to ask another question. Simply enter "MyVirtualCPA" in the subject of your question Thanks again for being a JustAnswer customer