Owners of multiple businesses might have costs that apply to more than one business. Plans or policies will make accounting for these types of expenses easy to calculate, consistent, and more in line with the Treasury’s regulations.

 

The tax code has too many rules to mention here, but their overriding goal is to make taxpayers’ tax return clearly reflect income. Tax accounting methods must be reasonable, and transactions between two related businesses should be no different from similar transactions between unrelated businesses. Many transactions are highly regulated, but these are mostly complex cost-sharing agreements or agreements that produce intangible assets. A CPA should be able to double check policies for reasonableness.

 

The cost-sharing agreements most taxpayers have will be much simpler than the highly regulated transactions mentioned above. For example, when two businesses work from the same office, certain overhead expenses may be shared by both businesses.

 

Take, for instance: an office has cable internet that costs $70 per month and is shared by two businesses, ABC Co. and DEF Co. The businesses have the same owner. The owner may agree to share the cost of the internet equally. Therefore, each business would have an expense on their income statement for $35 each. The owner would have a written plan stating this inter-company arrangement.

 

Alternatively, if ABC Co. only uses the office one day per week, the owner could make a written plan that says that $10 of the internet expense should be expensed by ABC Co., and $60 would be attributable to DEF Co.

 

Business owners should not merely have these plans for tax reasons, but they should have them for accounting simplicity and uniformity. If a business owner is absent for a short period, the administrators of the business will be able to account for business transactions in a consistent, reliable way.

 

In the next installment, we will briefly describe some possible logistics of writing plans.

 

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