Accounting question - reimbursable expenses

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Mr. Serious

Mr. Serious

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Electrical Contractor
This is maybe a question for an accountant. Do you guys treat job permit fees as a reimbursable expense? What about subcontractor charges?

By "reimbursable," I mean you don't account for it as an actual expense, and don't count getting paid for it as income. Rather, it would be sort of a pass-through transaction, for tax purposes equivalent to if the customer just paid the expense himself. When you pay for the permit (or other reimbursable expense) it would be kept track of as an asset, then would go away when the customer reimburses you for it.
Here's an explanation:

So, would the IRS even allow us to treat job permit fees this way? Don't add any markup, simply pass the cost through to our customers. And don't count that amount as income.
 
I charge a mark-up for permits. I have to as there is time and expense involved. I show the MU as income and list the actual cost as an expense. So the total price of the permit is income, off set by expense. Same as any material bought, you are, in essence, reimbursed for it with your total invoice.
 
I guess I just never thought there was much time and expense involved in getting a permit. But, then again, I'm probably just singularly bad at shopping for materials, so that the time to get a permit seems like nothing compared to the time I spend getting materials!
 
From an accounting view, it’s an expense - from a tax perspective, it’s treated just like any other expense.

If you get paid for it, that’s income.

I think treating it as an asset would over complicate things and provide no tangible benefit.
 
Yes, I was over-complicating things. The fact is, these costs are 100% deductible as business expenses. So it makes absolutely no difference to your taxable income whether you treat it as an expense when you spend it and as income when you get it back; or whether you were to treat it as an asset as in my original post.
For accounting purposes, the "job permits" account should be a regular expense account like everything else, not an asset. That only creates confusion for, as you said, no tangible benefit.
I got confused while I was reading this whole thread on the quickbooks forum here:
quickbooks.intuit.com

How to record client reimbursed expenses?

I am a sole proprietor LLC and my business is an IT consulting practice. I use QuickBooks online "Plus" Some of my travel is reimbursed by my clients I also have other "materials" that are reimbursed by my clients When I bill my clients I record these items as "reimbursable" expenses and...
quickbooks.intuit.com
The question involves meal expenses, and the quickbooks employees keep saying "treat it as an expense" and people keep arguing with them, because for meals, there is a difference in taxable income, because meals are only 50% deductible as a business expense. But I see now that for anything 100% deductible, it makes no difference.

Editing to add: "reimbursable" and "billable" have different meanings in business accounting, and really I should have been using the term "billable." An expense is billable when the business incurs the expense, then bills the customer for it; it's reimbursable when an employee or someone incurs the expense, then bills the business for it. I learned this from continuing to read that quickbooks forum thread, it's mentioned in a reply near the end.
 
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My understanding is that there is no real difference in how this kind of thing is accounted for, as far as the end result tax wise. It's just an expense charged to a particular project, like a light switch. You don't pay any taxes on parts that you buy for a project either, it just gets deducted from your revenue when you do your taxes.

There are some benefits in some cases depending on how you do your accounting from year to year if a project starts in one year and ends in another. I'm not sure how this works exactly but basically you can slide expenses from one year to the other depending on how you account for them sometimes but for most people the net really doesn't change much one way or the other.

The real problem with making it an asset is that it is like inventory. If you have more inventory this year than last year the extra inventory is effectively counted as income. It's why a lot of places hate inventory.
 
petersonra said:
There are some benefits in some cases depending on how you do your accounting from year to year if a project starts in one year and ends in another. I'm not sure how this works exactly but basically you can slide expenses from one year to the other depending on how you account for them sometimes but for most people the net really doesn't change much one way or the other.
Click to expand...

Correct

The difference would depend on whether your business uses cash or accrual accounting.

Probably not worth getting too deep into this here!
 
It’s an expense the same as a business license.

When I’m job costing direct expenses, I’m not showing the labor required to procure the permit. Basically for every project, I assign a percentage of total labor hours to cover office staff labor charges. It’s about 8%…. So i have about 50k hours of labor per year, and 8% covers two full time office employees that handle permits, billing, PO’s, etc…


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Mr. Serious said:
Yes, I was over-complicating things. The fact is, these costs are 100% deductible as business expenses. So it makes absolutely no difference to your taxable income whether you treat it as an expense when you spend it and as income when you get it back; or whether you were to treat it as an asset as in my original post.
For accounting purposes, the "job permits" account should be a regular expense account like everything else, not an asset. That only creates confusion for, as you said, no tangible benefit.
I got confused while I was reading this whole thread on the quickbooks forum here:
quickbooks.intuit.com

How to record client reimbursed expenses?

I am a sole proprietor LLC and my business is an IT consulting practice. I use QuickBooks online "Plus" Some of my travel is reimbursed by my clients I also have other "materials" that are reimbursed by my clients When I bill my clients I record these items as "reimbursable" expenses and...
quickbooks.intuit.com
The question involves meal expenses, and the quickbooks employees keep saying "treat it as an expense" and people keep arguing with them, because for meals, there is a difference in taxable income, because meals are only 50% deductible as a business expense. But I see now that for anything 100% deductible, it makes no difference.

Editing to add: "reimbursable" and "billable" have different meanings in business accounting, and really I should have been using the term "billable." An expense is billable when the business incurs the expense, then bills the customer for it; it's reimbursable when an employee or someone incurs the expense, then bills the business for it. I learned this from continuing to read that quickbooks forum thread, it's mentioned in a reply near the end.
Click to expand...
With the meals thing and only being 50% deductible you just need to make sure you keep those expenses in one account so they aren't mixed up with other expenses. At end of tax year you maybe make an adjustment or better yet maybe have a separate account with only that adjustment in it that shows up on reports to show your income/expense reports are including the 50% adjustment. If you make an entry in the meals line on a tax return it needs to be no more than 50% of what the actual expense was is the bottom line. How you get that number is mostly only important should you be audited, and the simpler you make it the less time auditors will spend deciding whether you did it right or wrong. At same time unless there is a rather significant number there they may not pay much attention to it at all.
 
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