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Old 07-24-2014, 04:21 PM
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Is it a business expense or is it something else?

A business expense is understood to mean something associated with the 'cost' of running your business. I am trying to understand how to handle something done on behalf of another person (either your household employer or your 1099-MISC job provider) that I actually don't think is a business expense but I'm not sure what it is either. Can someone help? Here's the scenario:

A teenager wants to operate a sole proprietorship and offer fruit picking services. The focus of the income into their business will be the service being provided (e.g. a labor service).

In order to provide this service, however, some fruit at an orchard must be purchased and then the customer would reimburse that purchase and then provide a service (labor) fee for the time spent picking. At this point I say "reimburse" because I cannot think of any other way to think about it. However, maybe there is a better term for what actually needs to happen in terms of accounting for it.

Important Caveat: Ultimately some fruit is being handed over to a customer. It would be entirely too complicated for a teenage business if that triggers an interpretation that what is going on here is the selling of a "product" (versus a service) and its corresponding additional hurdles of sales tax collection and reporting. I hope this can be avoided.

My question/concern is how actually to treat this as it doesn't seem like a business expense in the traditional sense.

I can think of several similar examples of good jobs for teenagers where they need to go buy something on behalf of another person (either as a household employee or as part of their own business service), but that they don't have that job provider's debit card or cash in hand and so the funds to purchase said items are effectively part of what they are doing as part of their sole proprietorship business (or in the case of a household employee out of their own personal funds).

I might have some follow up questions once I can get directed in the general area of understanding regarding what this 'thing' is that I'm trying to describe. Again, I don't think this is really a business expense as it's not an expense related to running the business (and if the scenario is a household employee buying something for their household employer there is no business that exists anyways so it can't be a business expense under that household employment scenario).

Thanks!



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Old 07-24-2014, 08:11 PM
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Quote:
Originally Posted by finsforever View Post
A business expense is understood to mean something associated with the 'cost' of running your business. I am trying to understand how to handle something done on behalf of another person (either your household employer or your 1099-MISC job provider) that I actually don't think is a business expense but I'm not sure what it is either. Can someone help? Here's the scenario:

A teenager wants to operate a sole proprietorship and offer fruit picking services. The focus of the income into their business will be the service being provided (e.g. a labor service).

In order to provide this service, however, some fruit at an orchard must be purchased and then the customer would reimburse that purchase and then provide a service (labor) fee for the time spent picking. At this point I say "reimburse" because I cannot think of any other way to think about it. However, maybe there is a better term for what actually needs to happen in terms of accounting for it.

Important Caveat: Ultimately some fruit is being handed over to a customer. It would be entirely too complicated for a teenage business if that triggers an interpretation that what is going on here is the selling of a "product" (versus a service) and its corresponding additional hurdles of sales tax collection and reporting. I hope this can be avoided.

My question/concern is how actually to treat this as it doesn't seem like a business expense in the traditional sense.

I can think of several similar examples of good jobs for teenagers where they need to go buy something on behalf of another person (either as a household employee or as part of their own business service), but that they don't have that job provider's debit card or cash in hand and so the funds to purchase said items are effectively part of what they are doing as part of their sole proprietorship business (or in the case of a household employee out of their own personal funds).

I might have some follow up questions once I can get directed in the general area of understanding regarding what this 'thing' is that I'm trying to describe. Again, I don't think this is really a business expense as it's not an expense related to running the business (and if the scenario is a household employee buying something for their household employer there is no business that exists anyways so it can't be a business expense under that household employment scenario).

Thanks!
A teenager wants to operate a sole proprietorship and offer fruit picking services. The focus of the income into their business will be the service being provided (e.g. a labor service)
=============>>>>Correct.

In order to provide this service, however, some fruit at an orchard must be purchased and then the customer would reimburse that purchase and then provide a service (labor) fee for the time spent picking. At this point I say "reimburse" because I cannot think of any other way to think about it. However, maybe there is a better term for what actually needs to happen in terms of accounting for it.================>>>I guess the term may be repurchase as the customer REBUYS the fruits that the sole biz owner bought (particularly if there is sale and repurchase agreement, uynder which the sale of the fruits together with an agreement for the seller to buy back them at a later date) ;reimbursment is compensation paid to you for damages or losses or money already spent etc. You really have to decipher your direct and indirect costs to achieve a sale to determine which were the COGS that actually provided the service and which are just the operating expenses for the whole good of the biz. however I do not know what kind of contract it is between the sole owner and the customer.




Important Caveat: Ultimately some fruit is being handed over to a customer. It would be entirely too complicated for a teenage business if that triggers an interpretation that what is going on here is the selling of a "product" (versus a service) and its corresponding additional hurdles of sales tax collection and reporting. I hope this can be avoided.
My question/concern is how actually to treat this as it doesn't seem like a business expense in the traditional sense.==========>>I do not think it is COGS for the teen’s biz; When it comes to a service business, COGS doesn’t quite make sense. If you want to be precise, COGS is only used for product based businesses.Rather than using the term cost of goods sold, it would be best to use a similar term , Cost of Revenue, I guess. His direct labor should be included in cost of revenue.



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Old 07-27-2014, 09:47 AM
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I don't believe what is going on here is remotely related to a 'repurchase' agreement.

Here's some other examples:

a teenage landscaper who puts out mulch around your home and goes to the garden store to buy the mulch that will be put on your yard.

a teenage household employee who goes to the grocery store to by some groceries but uses their own money to make those purchases.

In every case whether the person is a true sole proprietor (getting a 1099-Misc Box 7 income) or a true household employee (not getting a 1099-Misc and not getting a W-2 if income less than $1800 a year) ... in every case ... the the job provider simply provides them a debit card or their own case then in those cases the teenage worker is using someone elses money to buy those things on behalf of the job provider. That is easy and in an ideal world it would work that way. I want to know how you handle things (both accounting wise and tax wise) when you are the teenage worker and you are using your own money (either your personal money or your sole propritor business account) to buy those things on behalf of the job provider.

Thanks.



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Old 07-27-2014, 11:25 AM
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Quote:
Originally Posted by finsforever View Post
I don't believe what is going on here is remotely related to a 'repurchase' agreement.

Here's some other examples:

a teenage landscaper who puts out mulch around your home and goes to the garden store to buy the mulch that will be put on your yard.

a teenage household employee who goes to the grocery store to by some groceries but uses their own money to make those purchases.

In every case whether the person is a true sole proprietor (getting a 1099-Misc Box 7 income) or a true household employee (not getting a 1099-Misc and not getting a W-2 if income less than $1800 a year) ... in every case ... the the job provider simply provides them a debit card or their own case then in those cases the teenage worker is using someone elses money to buy those things on behalf of the job provider. That is easy and in an ideal world it would work that way. I want to know how you handle things (both accounting wise and tax wise) when you are the teenage worker and you are using your own money (either your personal money or your sole propritor business account) to buy those things on behalf of the job provider.

Thanks.
In every case whether the person is a true sole proprietor (getting a 1099-Misc Box 7 income) or a true household employee (not getting a 1099-Misc and not getting a W-2 if income less than $1800 a year) ... in every case ... the the job provider simply provides them a debit card or their own case then in those cases the teenage worker is using someone elses money to buy those things on behalf of the job provider. That is easy and in an ideal world it would work that way. I want to know how you handle things (both accounting wise and tax wise) when you are the teenage worker and you are using your own money (either your personal money or your sole propritor business account) to buy those things on behalf of the job provider=============>>>>>>>>>in these examples I guesss they are expenses to be reimbursed. Reimbursement of valid business expenses is not usually taxable to the contractor, assuming he meets the rules of adequate accounting and record keeping. To be reimbursed for expenses incurred on behalf of a client/ an employer, the contractor/ an EE provides an invoice with adequate accounting for expenses to the client. Generally adequate accounting includes a detailed list of expenses and receipts if requested by the client. Assuming the client reimburses valid business expenses, the contractor will not report the reimbursement as income, nor will he deduct the expenses as business expenses. The reimbursement will not be reflected on the contractor’s Form 1099-MISC. If the contractor neglects to provide a detailed list of business expenses to the client, the reimbursement, if it is paid, is included as income to the contractor on Form 1099-MISC. Assuming the contractor maintained sufficient records of the expenses, he may deduct the expenses on Sch C of Form 1040. The taxpayer claiming the deduction , either the contractor or the employer , must substantiate business expenses. H eneeds to save receipts or records of expenditures, such as cancelled checks or credit card statements. In addition, document the details of each expense, including the business purpose and the parties involved. Also he needs to record the date of expenses; where the expense was incurred, including the venue and the city if it is a travel expense; and an itemized list of each expense. I guess you can contact a CPA/an IRS A in you rlocal area form more accurate info in detail.



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