Accounting & Bookkeeping & Small Business Forum

[Guest]

Like a previous poster, I am trying to encourage referrals. I offer my current clients a $50 credit on monthly billing fees if they refer a new monthly client (after the 3rd month is paid by the new client). How do I account for this and is the discount taxable to my client?

Do I just report income of the cash I actually receive (after the discount is applied) and my client reports expense of the same amount? Or is this considered bartering and it is accounted for differently? I'm also confused about the rules regarding kickbacks and what they really are.

Thanks,
Kassie Inman

[Guest]

kASSIE: iT JUST SO HAPPENS THAT i DO THE SAME THING. I HAVE THREE DIFFERENT PAYROLL PRICINGS. iF I GET A REFERRAL AND THE PARTY STAYS WITH ME FOR 3 MONTHS, I WILL GIVE THE REFEROR A DISCOUNT EQUAL TO THE LEVEL OF SERVICE OF THE NEW CLIENT . EXAMPLE; I HAVE A CLIENT WHO PAYS ME 20.00 A MONTH THAT REFERS A CLIENT WHO PAYS ME 50.00 PER MONTH. iF THE 50.00 STAYS WITH ME FOR THREE MONTHS, I WILL GIVE THE 20.00 REFEROR 50.00. EVEN THOUGH THAT IS EQUAL TO 21/2 MONTHS OF SERVICE. I AM STILL WAY AHEAD. i SHOW THE PAYMENTS AS AN ADVERTISING EXPENSE. AND YES THE AMOUNT IS TAXABLE TO THE CLIENT. IN FACT IF SOMEONE REFERS OVER 600.00 IN A CALENDAR YEAR I AM REQUIRED TO SEND OUT A 1099MISC. IF YOU WOULD LIKE TO SEE MY ADVERTISING GO TO WWW.RPNOOT.COM.
CLICK ON PAYROLL AND THEN CLICK ON PRICING.

RICHARD

[Guest]

You are simply offering a discount. It's no different than getting a special airfare price for bookking a flight today. You will record the income after deducting the discount, and there's no impact to the client.

[Guest]

sORRY dAVID BUT YOU ARE 100% WRONG. tHE CLIENT IS PROVIDING A SERVICE. AS SUCH IT IS 100% TAXABLE. ALSO THE CORRECT WAY IS TO SHOW THE DISCOUNT AS A REDUCTION OF INCOME OR AN EXPENSE NOT TO IGNORE IT AS YOU HAVE SUGGESTED.

[Guest]

David asked me to respond to this. I am not aware of any defined directive from GAAP, or the IRS, so we have to make our best judgement based on the facts at hand and our preference. There are a number of ways to handle this. One, is certainly to show it as a separate discount, or expense as Richard recommended. But, then you run the risk of making it a 1099 event. If the expense exceeds $600, you may be required to report it to the IRS, and you'll have an upset client. I choose to handle it in the simplest, least troublesome way and that is as a gift for their kindness. It's justified in that, there was no contractual requirement with the client to give you a referral. You were not requiring their support this way, in order to provide accounting services. You were just offering a kindness for a kindness. Had you not given the discount, you may have had an angry client, and have in fact lost the client. But, there was no breach of your agreement to provide accounting services to him/her. In my opinion, practicality wins here -- although it can be done either way.

[Guest]

I have a follow up Question. Are there any more ideas on giving clients an extra push to try my services?

[Jennifer T]

Both sides make a good case! I'm hard pressed to decide which is right. Does anybody know if there's been a definitive answer? :?: