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    odinn7's Avatar
    odinn7 Posts: 7,691, Reputation: 1547
    Entomology Expert
     
    #1

    Feb 28, 2014, 10:40 AM
    Business Tax Questions
    I run a used car business in Pennsylvania that I officially opened in November, 2012. We had huge losses for that year because everything was an expense from licensing all the way up to inventory.

    This past year, 2013, was more losses as the business is new and very little money was actually made yet plenty was spent to try and keep it floating.

    Now the accountant did our taxes for the year and claims we made more money than I know we did. I know they are overlooking something and I don't want to get screwed for it. First, I know that they are looking at the cars I had sitting on my lot at the end of the tax year and counting that as all profit. I don't believe that is correct though. Just because I have a car priced at $5k doesn't mean it will sell for $5k and they are not taking into account how much I actually owe to the floor company to release that vehicle to me when I do sell it. So this is one problem I am trying to correct.

    Here are my other questions:
    1) I could swear I read somewhere that a business can claim first year start up losses against the second year....something like that but perhaps I am mistaken. True or not?

    2) My wife is telling me that the accountant isn't counting building rent, phone, internet, etc....I am 99% sure that all of this is a business expense and is to be counted against profit. Am I wrong? Perhaps my wife is not understanding what they said.

    3) We had to add a large sum of money from our own savings account back in may to keep us floating...is this profit or not? Shouldn't this be some sort of loss?
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
     
    #2

    Feb 28, 2014, 10:53 AM
    I'm not sure of all the answers to these questions, but some of them are dependent on the way your business is organized. Is is a sole proprietorship, LLC, S-Corp or what? I'm pretty sure our tax experts will need to know that to answer.

    But yes, building rent (assuming the lease is in the business name and used solely for the business should be an expense against income. As should phone and internet costs, again assuming they are in the business name.

    As for the money you put into the business, that would be considered a capital investment. If it was done correctly, I think it should have been recorded on your books as a loan and therefore a liability. Payments including interest, PAID on the loan would be an expense.
    odinn7's Avatar
    odinn7 Posts: 7,691, Reputation: 1547
    Entomology Expert
     
    #3

    Feb 28, 2014, 11:20 AM
    Partnership.

    All utilities and rent are in business name.
    MLSNC's Avatar
    MLSNC Posts: 158, Reputation: 17
    Junior Member
     
    #4

    Feb 28, 2014, 11:57 AM
    Accounting for car dealerships can be very complicated. As noted it is difficult to answer questions as you have a lot going on. You noted you had losses related to inventory, but inventory is not deductible. Yes it decreases cash, but it not considered an expense until it is sold. That being said the inventory should not be valued at the selling price. As a general rule inventory is valued at cost for purchases, or wholesale value at the time of trade-in. In addition certain expenses may be required to be added to the cost amount. Your accounting system needs to be able to track your vehicles.

    The fact that you put money into the business is not indicative of income or loss in a business that has significant inventory.

    If you are not confident with the advice you have been given, and it does sound like there may be issues, you need to run to another tax professional, such as a CPA or EA and have what has been done reviewed.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,771, Reputation: 846
    Senior Tax Expert
     
    #5

    Feb 28, 2014, 03:32 PM
    I agree with MLSNC.

    If you do NOT have confidence in how the accountant is doing his work, he needs to either better explain the process, or you need to get another account.

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