Accounting & Bookkeeping & Small Business Forum

[kpngthebks]

Hi,
I just found this forum and hope to get help. I am not a self-emp bkpr, but hope to be eventually. I've been working as an emp. for a small business for some time, inherriting the bkpng from owner's wife, she is actually listed as the president, although she's not very involved in the business at the moment. The business is officially a corporation, as opposed to sole-proprietership or LLC. I stepped into this position with no prior experience, but with a 2 yr degree in Accounting that I earned several yrs ago.
I was told from the start how to enter all of the routine charges and expenses into QuickBooks, and here are some things I'm now not sure of:
1. My boss will purchase fast food for himself and his kids and I enter this as a business expense
2. My boss's wife's cell phone is part of the monthly cell phone bill, business pays this entire expense, even though she now is not using her phone for business purposes. She may have been before, when she was more involved in the operation of the business
3. Gasoline purchased for boss and his wife's vehicles. Her vehicle is actually on our business books as an asset, she drives it most of the time, again, not for business purposes. This business does not require a lot of driving, mainly it's my boss driving from his home to the office and back, with occaisional off site business related meetings or projects that he drives to. Should we be recording their gas purchases as a business expense?

We have a CPA that does the annual business tax returns, and calculates our depreciation. I believe he's aware of how these things are recorded. But I'm not completely certain that this is being done the "right" way. I want to be ethical in how I do my job, and of course I want to obey the law. I don't know where to look to find IRS guidelines on these questions, nor do I know what GAAP would say about this. Thanks for giving me any advice or direction on where to find definate answers. Also, I need something authoritative to show my boss in case I need to let him know that we need to record these things as a draw rather than expense.

[Richard Noot]

kpngthebks wrote: Hi,
I just found this forum and hope to get help. I am not a self-emp bkpr, but hope to be eventually. I've been working as an emp. for a small business for some time, inherriting the bkpng from owner's wife, she is actually listed as the president, although she's not very involved in the business at the moment. The business is officially a corporation, as opposed to sole-proprietership or LLC. I stepped into this position with no prior experience, but with a 2 yr degree in Accounting that I earned several yrs ago.
I was told from the start how to enter all of the routine charges and expenses into QuickBooks, and here are some things I'm now not sure of:
1. My boss will purchase fast food for himself and his kids and I enter this as a business expense
2. My boss's wife's cell phone is part of the monthly cell phone bill, business pays this entire expense, even though she now is not using her phone for business purposes. She may have been before, when she was more involved in the operation of the business
3. Gasoline purchased for boss and his wife's vehicles. Her vehicle is actually on our business books as an asset, she drives it most of the time, again, not for business purposes. This business does not require a lot of driving, mainly it's my boss driving from his home to the office and back, with occaisional off site business related meetings or projects that he drives to. Should we be recording their gas purchases as a business expense?

We have a CPA that does the annual business tax returns, and calculates our depreciation. I believe he's aware of how these things are recorded. But I'm not completely certain that this is being done the "right" way. I want to be ethical in how I do my job, and of course I want to obey the law. I don't know where to look to find IRS guidelines on these questions, nor do I know what GAAP would say about this. Thanks for giving me any advice or direction on where to find definate answers. Also, I need something authoritative to show my boss in case I need to let him know that we need to record these things as a draw rather than expense. Put quite simply the business is not in compliance with tax laws. Hopefully you are not responsible for determining what gets paid nor signing the business checks. If you are you could be personally facing stiff penalties of up to 100%

[kpngthebks]

Thanks for the reply...Can you (or someone) please direct me to where I can find this "in writing", either in an IRS Pub that details what exactly qualifies as a business expense or some other authoritative site. Thanks. I want to do what is right, but I want to be absolutely certain and have "proof" before I go to my boss about this.

[Richard Noot]

kpngthebks wrote: Thanks for the reply...Can you (or someone) please direct me to where I can find this "in writing", either in an IRS Pub that details what exactly qualifies as a business expense or some other authoritative site. Thanks. I want to do what is right, but I want to be absolutely certain and have "proof" before I go to my boss about this. www.irs.gov

[dscofever]

kpngthebks wrote: Thanks for the reply...Can you (or someone) please direct me to where I can find this "in writing", either in an IRS Pub that details what exactly qualifies as a business expense or some other authoritative site. Thanks. I want to do what is right, but I want to be absolutely certain and have "proof" before I go to my boss about this.

Why don't you just go talk to your boss about your uneasy feelings on the subject and the items you have concerns about? I am a boss myself and when one of my employees comes to me with a concern or question, I do my best to answer them.

[kpngthebks]

Thanks, I am planning to do that. (Talk to my boss) I picked up some publications at the local IRS office and am reading through them carefully, kicking myself all the way for not doing this sooner, when I first suspected things were not quite right. I guess I win the "Idiot of the Year" award. I need to have at least some basis for my concern, some kind of definitive proof that we need to stop doing some things the way we are and changing course, I think the IRS pubs will help with that. But I think we'll really need to get an accountant involved in order to show us the specifics about the right way to account for these items. As I look into the pubs I see other "red flags" popping up, in addition to the ones I mentioned in my first post. And I'm not trusting the CPA they've been using at our company since before I came along. He mainly does the annual business tax returns and the owners' personal returns, I don't know how much of the detail of how things have been recorded he's aware of, but surely he must be aware of some of this. Why he has not said we should do this differently is beyond me.

[kpngthebks]

So, to try to break these issues into managable chunks, I'm trying to research them one at a time.
In regards to the gasoline purchased for my boss's car, that is not owned by the corporation....I'm reading in IRS pub 463 that we can deduct for "business transportation" the cost of "getting from one workplace to another in the course of your business or profession when you are traveling within the city or general areal that is you tax home." But a bit later..."You cannot deduct the costs of ....driving your car between your home and your main or regular place of work. These costs are personal commuting costs."
My boss has an office at his house where he does do some business related work. But the majority of it is conducted at the main office. It appears that the gas used for getting from his home to the main office could be deductable under the "cost of getting from one workplace to another in the course of your business." I think this might be how he's justifying doing this. Please someone clarify this specific issue for me. Thanks.

[Richard Noot]

kpngthebks wrote: So, to try to break these issues into managable chunks, I'm trying to research them one at a time.
In regards to the gasoline purchased for my boss's car, that is not owned by the corporation....I'm reading in IRS pub 463 that we can deduct for "business transportation" the cost of "getting from one workplace to another in the course of your business or profession when you are traveling within the city or general areal that is you tax home." But a bit later..."You cannot deduct the costs of ....driving your car between your home and your main or regular place of work. These costs are personal commuting costs."
My boss has an office at his house where he does do some business related work. But the majority of it is conducted at the main office. It appears that the gas used for getting from his home to the main office could be deductable under the "cost of getting from one workplace to another in the course of your business." I think this might be how he's justifying doing this. Please someone clarify this specific issue for me. Thanks. the cost between his home and his office and back is wages to him.

[dp1903]

Quote: I was told from the start how to enter all of the routine charges and expenses into QuickBooks, and here are some things I'm now not sure of:
1. My boss will purchase fast food for himself and his kids and I enter this as a business expense
2. My boss's wife's cell phone is part of the monthly cell phone bill, business pays this entire expense, even though she now is not using her phone for business purposes. She may have been before, when she was more involved in the operation of the business
3. Gasoline purchased for boss and his wife's vehicles. Her vehicle is actually on our business books as an asset, she drives it most of the time, again, not for business purposes. This business does not require a lot of driving, mainly it's my boss driving from his home to the office and back, with occaisional off site business related meetings or projects that he drives to. Should we be recording their gas purchases as a business expense?

We have a CPA that does the annual business tax returns, and calculates our depreciation. I believe he's aware of how these things are recorded. But I'm not completely certain that this is being done the "right" way. I want to be ethical in how I do my job, and of course I want to obey the law. I don't know where to look to find IRS guidelines on these questions, nor do I know what GAAP would say about this.

Your boss is clearly violating IRS regulations and GAAP. I would consult with the CPA about whether you could be legally held as an "accomplice" in aiding and abetting the boss in violating federal law and possibly subject to fine or worse.

The CPA prepares the tax returns and calculates depreciation, but he is not legally responsible for the boss's books since he has no other involvement with them. Hence, he is in no danger of violating his ethics or the law. The boss is responsible for his own books.

If the boss reports a "home office" on his tax return and deducts expenses for it, such as mortgage interest expense, mortgage ins., property taxes, utilities, etc., then the trip from his "home office" to his other office and back would be legitimate business mileage in my opinion. If he doesn't deduct expenses for a "home office" on his tax return then the trip from his home to this office is merely commuting. He is also required to keep track of his business mileage and total mileage for the year whether he uses the mileage rate or actual expenses.

As Richard said, a business vehicle used for personal purposes may be considered wages to the individual. Again, there are pubs explaining this at the IRS website.

In regards to the cell phone, he is required to keep track of business use and total usage. A cell phone is listed property, as are autos, and have strict record keeping requirements. He can not legally deduct all cell phone expense for business unless it is all used for business and he must keep track of usage as I said previously no matter what. Only business use may be deducted for tax purposes.

There are guidelines for deductible meal expense. See the IRS website under "Travel and Entertainment" expense.

I'm sorry you're in such a situation. I was in a similar situation several years ago. I stayed with the company for a year trying to persuade the boss to change his ways. I finally had to leave.

There are good reasons for keeping business and personal transactions seperate in addition to the fact that the IRS disallows personal expenses for business. Keeping business and personal transactions seperate enables you to determine what your true Gross Margin is and what your true Net Income/Loss is. This informations enables you to manage your business effectively, setting accurate prices for your products and enabling you to see trouble coming [from your financial statements] so that you can take appropriate action in order to remain profitable.

Mixing personal expenses, which are material in relation to the revenue and expenses of the business, with the business totally screws up your gross margin and net income/loss. It distorts your financial statements to a degree that they are totally unreliable. You can't use them to help you run and manage your business. Also, if he ever needs to get a business loan, he'll probably have to provide certified financial statements. By mixing personal transactions with business when such transactions are material to the business, the statements are totally untruthful and unreliable for any purpose, including obtaining a loan.

[Richard Noot]

kpngthebks wrote: So, to try to break these issues into managable chunks, I'm trying to research them one at a time.
In regards to the gasoline purchased for my boss's car, that is not owned by the corporation....I'm reading in IRS pub 463 that we can deduct for "business transportation" the cost of "getting from one workplace to another in the course of your business or profession when you are traveling within the city or general areal that is you tax home." But a bit later..."You cannot deduct the costs of ....driving your car between your home and your main or regular place of work. These costs are personal commuting costs."
My boss has an office at his house where he does do some business related work. But the majority of it is conducted at the main office. It appears that the gas used for getting from his home to the main office could be deductable under the "cost of getting from one workplace to another in the course of your business." I think this might be how he's justifying doing this. Please someone clarify this specific issue for me. Thanks. The office in home is NOT deductible nor are his auto expenses from his home to his office. His home is NOT his main workplace the business is.

[cdiii3]

Whenever there's a question regarding deductibility, Richard Noot almost always tells you "NOT." So when it comes to tax deductions, Richard Noot is Richard Not.

[dp1903]

Richard is right. Looking up the requirements for claiming a home office on your tax return, it must be your main or principal place of doing business. I would infer that your boss's main office, not his home, is his main place of business in which case mileage from home to his office and back is commuting and not deductible.

http://www.irs.gov/newsroom/article/0,,id=172239,00.html