[Anonymous]

If an employer makes no real effort to personally pay for their clearly personal purchases (charges are made to a credit card), but instead runs them through the business and adds them to the income statement as legit expenses, how would you handle this? The situation has already been verbally discussed with them…but the situation continues. It’s a small company not subject to a regular audit – so would you insist they cut a personal check for those charges (I can’t MAKE them cut a personal check) or would you make a special account (i.e., SUSPECTED NON-BUSINESS EXPENSES) and just dump everything into that account? We’re talking about $1,000 per month or so in a business that has operated at a loss for the last several years. I’m not willing to compromise my license for this kind of irresponsible behavior.

[rana_cali]

Being that I'm also a CFE, I can understand where ur coming from with this. I would insist to write them a check with the amount rather than create another account and dump them in there because at the end of the day, the income statement should reflect the P&L of the business, and not personal expenses. I don't know how material the $1,000 compared to other expenses on the statement, it still shouldn't be there.

I would also document this in writing somewhere (like an email or whatever) so that if they continue to dismiss your request, at least u would have done your part as a CFE and can prove it.

AUD: 84
FAR: 75
BEC: 78
REG: 75

DONE-ZO!!!!!!!!

REG: Used Becker 2014 book, NINJA MCQ, Ninja notes, ninja audio
_______________________________
CFE since Oct. 2013.

[rana_cali]

Being that I'm also a CFE, I can understand where ur coming from with this. I would insist to write them a check with the amount rather than create another account and dump them in there because at the end of the day, the income statement should reflect the P&L of the business, and not personal expenses. I don't know how material the $1,000 compared to other expenses on the statement, it still shouldn't be there.

I would also document this in writing somewhere (like an email or whatever) so that if they continue to dismiss your request, at least u would have done your part as a CFE and can prove it.

AUD: 84
FAR: 75
BEC: 78
REG: 75

DONE-ZO!!!!!!!!

REG: Used Becker 2014 book, NINJA MCQ, Ninja notes, ninja audio
_______________________________
CFE since Oct. 2013.

[mla1169]

There are a couple of ways to handle it. The first is to select and pay only the documented business charges on the credit card and ask the employer to pay the difference directly to the credit card company. The credit card will quickly get shut down, end of that problem.

Talk to whoever does your taxes. You can set up a G/L account for “non exempt” expenses so its easy for your tax person to identify what needs to be adjusted.

My boss buys his red sox season tickets on the credit card., The transaction to pay is to credit cash and debit his AAA (retained earnings) account. That way it is part of his personal income for the year. Again, this was per our tax accountant and nothing we just cooked up on our own 🙂

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

There are a couple of ways to handle it. The first is to select and pay only the documented business charges on the credit card and ask the employer to pay the difference directly to the credit card company. The credit card will quickly get shut down, end of that problem.

Talk to whoever does your taxes. You can set up a G/L account for “non exempt” expenses so its easy for your tax person to identify what needs to be adjusted.

My boss buys his red sox season tickets on the credit card., The transaction to pay is to credit cash and debit his AAA (retained earnings) account. That way it is part of his personal income for the year. Again, this was per our tax accountant and nothing we just cooked up on our own 🙂

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Anonymous]

Thanks for the input…both good suggestions. I should have said this is a c-corp so these expenses, if they insist on using the company for personal purchases, would be dividends…correct? Taxed at the corporate rate? Then when these dividends pass to the owner, they are taxed again? I think I need to do the personal memo thing just to CYA…and paying for just business expenses (and letting them pay for their own personal Frosted Flakes and “women's apparel”) is also a GREAT IDEA. Thanks again mal1169 and rana_cali.

[Anonymous]

Thanks for the input…both good suggestions. I should have said this is a c-corp so these expenses, if they insist on using the company for personal purchases, would be dividends…correct? Taxed at the corporate rate? Then when these dividends pass to the owner, they are taxed again? I think I need to do the personal memo thing just to CYA…and paying for just business expenses (and letting them pay for their own personal Frosted Flakes and “women's apparel”) is also a GREAT IDEA. Thanks again mal1169 and rana_cali.

[Anonymous]

If small enough maybe you can suggest they become an S-Corp? Saves on the double taxation, and at tax time it is easier to show as a distribution to the owner. At my office we document items like this.

[Anonymous]

If small enough maybe you can suggest they become an S-Corp? Saves on the double taxation, and at tax time it is easier to show as a distribution to the owner. At my office we document items like this.

[impska]

I'm with Beach Girl – this sounds like someone needs to make an S-election and pass through those expenses as a distribution.

If they don't meet the requirements to be an S-corp, then you need to consider your fiduciary duty to ALL shareholders. That means documenting these personal expenses and churning them out as dividends.

REG - 94
BEC - 92
FAR - 92
AUD - 99

[impska]

I'm with Beach Girl – this sounds like someone needs to make an S-election and pass through those expenses as a distribution.

If they don't meet the requirements to be an S-corp, then you need to consider your fiduciary duty to ALL shareholders. That means documenting these personal expenses and churning them out as dividends.

REG - 94
BEC - 92
FAR - 92
AUD - 99

[Anonymous]

I have a client that does the same thing, only to the tune of about $6,000 a month. I set up a receivable from him to the Corp and I accrue interest on it every month. You can't show his personal expenses in the computation of taxable income or you understate Net Income. Then you underpay taxes and the IRS doesn't like it when you do that. Try explaining to him/her that you have to do this to keep them from committing tax fraud. I probably won't hurt to scare him/her a little with the penalties for tax fraud.

[Anonymous]

I have a client that does the same thing, only to the tune of about $6,000 a month. I set up a receivable from him to the Corp and I accrue interest on it every month. You can't show his personal expenses in the computation of taxable income or you understate Net Income. Then you underpay taxes and the IRS doesn't like it when you do that. Try explaining to him/her that you have to do this to keep them from committing tax fraud. I probably won't hurt to scare him/her a little with the penalties for tax fraud.

[SFLocal]

To the OP: is the person charging the personal expenses also the owner? If the company has a hierarchy, I would bring this to the attention of your boss or their boss until someone listens.

If this person is the owner of the business, the other commenters are right. The personal expenses would be treated as a distribution.

BEC - Passed!
REG - Passed!
AUD - Passed!
FAR - Passed!

[SFLocal]

To the OP: is the person charging the personal expenses also the owner? If the company has a hierarchy, I would bring this to the attention of your boss or their boss until someone listens.

If this person is the owner of the business, the other commenters are right. The personal expenses would be treated as a distribution.

BEC - Passed!
REG - Passed!
AUD - Passed!
FAR - Passed!

[Anonymous]

SFLocal~bosses wife.

Also, I don't think they are interested in an S-corp so I need to deal with this issue as a C-corp. It's like pandora's box…the more I dig the more I find…we're up to about $2k per month right now…all cash I need for company cash flow purposes.

For me, the issue is company profitability and cash flow. For them personally, I think the issue is cash flow. If I put this as an A/R due from the owner, it still hurts company cash flow. Since I'm the only one who gets to answer to the vendors as to why they haven't gotten paid in a while, it seems the owner(s) don't care about company cash flow…only about their own (personal cash flow).

[Author]

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