Can Consultants Write Off Fee Discounts?

One of my colleagues told me that I can write off the discounts I give to my favorite clients.

For instance, I typically charge $120 for one of my services. But I have certain clients I appreciate who have smaller budgets. So I discount my fee by up to 50%.

Can I invoice them at $120 per hour, adding a line item subtracting my discount amount so that they get my reduced hourly rate, but I can then write off my discount on my taxes as an expense?

 

No, you don't write it off as an expense, you deduct it from income.

Say your normal fee is $120 normally you would put $120 in income.

If you charge $60, you can book it as $120 income and then have a contra-income account called discounts where you would put the -$60, leaving you with a net income of $60.

Or, you can just invoice them for $60 and show $60 income.

I suppose you could report $120 income and then an expense of $60, that would be virtually the same, however the correct way to do it is the first example.

But whatever you do, don't book $60 in income and then take a $60 deduction for the discount. That is double dipping and the IRS frowns on it!

Let me know if that is not clear.

Remember, I am a tax professional, but it's not tax advice unless you pay for it!

 

I actually believe that you are a tax professional simply because you managed to write the most confusing answer possible.

In simple terms that anyone can understand.

No, you can't do that, and why you would want to anyway?

Just charge them $60 and report the $60 as income.

 

Sorry if it was confusing, but I've talked to lots of people about this very same subject and many of them don't want the simple answer.

 

It's all good, at least you gave the correct answer

 

General comment: If you use a decent accounting system, it'll take care of all this stuff for you. Automatically.

When someone has questions like this, in a sense, it suggests they don't really have an accounting system. QuickBooks, Quicken, etc.

 

Thanks for the answers. At this time, I don't have an accounting system, and am currently getting everything set up.

But more importantly, I coach marketers to consult with paying clients and wanted to be sure not to pass on any advice I didn't validate first as true. Good thing, too, in this case!

Thanks for the info.

 

For service businesses (consultants, etc), something like Money or Quicken works fine.

Also, QuickBooks is really pretty good.

Er, maybe I should point out that I wrote Quicken for Dummies and QuickBooks for Dummies. I may lack some objectivity. (Sorry.)

 

haha...well in your case, you have a right to be subjective! Thank you for being so helpful. I'm currently getting my books set up and interviewing accountants to find the right one to handle my stuff.

 

@tke71709: There is something to be said for short and sweet.

@Jaime Mintun: I say don't bother with Quicken, just go straight to QuickBooks. Assume your business is going to grow and you might as well get started with something that is going to last you awhile. While you're at it you should also go ahead and get QuickBooks for Dummies.