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Old 21st February 2009, 07:23 PM   #1
jmbiz
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Join Date: Feb 2009
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Default Timing Question: Incorporation & Revenue

First post, first business, so hopefully the questions I'm asking are appropriate for the forum...

I recently started a small IT consulting and training firm, and I have been performing some services before completion of incorporation (LLC) paperwork. I have one engagement that pre-dates the official request for incorporation (acquisition of an EIN, etc.), and another that pre-dates the filing of paperwork in my state.

My question is this: Is the revenue from these engagements applicable to my new business? I have not yet invoiced the clients, but I am about to, and I need to know whether I can do it from my new business or I must do it as an individual for tax/GAAP purposes.

Also, I'm pretty sure this is the case, but most states don't require sales tax on professional services such as consulting, accounting, etc., correct?

Thanks!

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Old 22nd February 2009, 09:50 AM   #2
mfackrell
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Location: Boise, ID
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Default Record the revenue in the business

You could do it either way, as long as your accounting accurately reflects that.

The simplest way is to just invoice them from your business and record the revenue there.

Most states do not require sales tax on services, but check your states (and local) requirements

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Old 24th February 2009, 09:41 PM   #3
phanio
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Two things - go to www.irs.gov (or make an appointment with your local IRS office). Ask them when or by what organization you need to recognize that revenue.

Each state has their own rules on sales tax. Some serivces are taxable - some are not - more and more are becoming taxable. You state's Secretary of States website should have a list of what is taxable and what is not.

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Old 25th February 2009, 05:41 PM   #4
SeattleCPA
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A couple of points:

1. Your LLC is actually disregarded for tax accounting purposes. I.e., unless you've made an election to have LLC treated as a corporation, the "sole proprietorship" phase of your consulting and the "LLC" phase of your consulting are treated as one business.

2. Keep in mind, too, that you're almost surely a cash-basis tax payor so even if you've made an election to be treated as a corp, the revenue isn't recognized until you collect it.

I don't know if my sig still shows this, so I'll note that I'm a CPA and used to teach LLC and S corp tax law in a masters in tax program.

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Old 26th February 2009, 09:04 AM   #5
jmbiz
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Thanks for the responses. It sounds like I'm in good shape, but I will definitely double-check with state tax authorities.

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