Explaining a Loan/Services Rendered in an Audit
paininmyaudit
been using ended up screwing up my taxes, so I went into the audit
representing myself. Obviously not the best choice, I realize now. I've
done a decent job so far. We are down to only two more issues that I need
to explain. The one I have a question about is as follows>
I was a sole proprietor at the time. I made a loan to one of my 1099
employees in the amount of $6,350. She used that money for business
purposes. I drew the money from my personal line of credit, because I
couldn't get a business line because the business had not been around for
long enough (from what I remember). I deposited the money into my
business checking account, and then transferred her the money. Throughout
that year, so performed a number of services for me, for which she would
have received payment, but instead of payment I just knocked off the
amount she owed me for the loan. I have invoices for the services
rendered, but we did not write up an agreement for the loan.
I am trying to write off the $6,350, not as a loan (since it was repaid by
services rendered), but as payment for the services rendered. My auditor
wants to treat it as a personal loan, and doesn't want to let me write it
off.
Any thoughts on my situation? It seems like I should be able to write
this off, but I am not sure how to explain it in a way that the auditor
will accept.
Thanks for all the help anyone can give me!
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Alan
that was paid back in what I will call a "barter" exchange. You
should have issued to her a 1099-MISC for the $6350 in
compensation you paid her. That $6350 is tax deductible on Line
11 of the Schedule C as long as you issued the 1099. There's no
loss on any loan.
HLunsford
> was paid back in what I will call a "barter" exchange. You should have
> issued to her a 1099-MISC for the $6350 in compensation you paid her.
> That $6350 is tax deductible on Line 11 of the Schedule C as long as you
> issued the 1099. There's no loss on any loan.
>
6350$, not entire amount. Hence she should have received a 1099misc
for that total, with the balance of the 6350 written off as non business
bad debt.
ChEAr$,
Harlan Lunsford, EA n LA
removep...@yahoo.com
> Alan wrote:
However, the loan will probably be continued to be paid off next year
and maybe the following year. Not sure what the terms of the loan
are. As long as the loan is still going on, it can't be written off
as a business bad debt. I would think there would be a little bit
written off each year on Schedule C.
Alan
amount she owed me for the loan." to mean the loan was paid off.
HLunsford
> HLunsford wrote:
>> Alan wrote:
>>> paininmyaudit wrote:
> I interpreted "but instead of payment I just knocked off the
> amount she owed me for the loan." to mean the loan was paid off.
>
You're right on that point. Now it sounds like he paid her in excess of
6350 for her services.
So he should have given her a 1099misc for the entire amount which
would have cinced the business deduction and treated the "loan" merely
as advanced payments for her services.
If done this way, correctly, no "loan" would have existed, and auditor
would not now be seeking to disallow it's writeoff.
ChEAr$,
Harlan Lunsford, EA n LA
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