Legal Question in Tax Law in New Jersey

Cost of Goods vs. Direct company expenses

We just had a new accountant come in and tell us that we should be separating our expenses. We have company related expenses (office supplies, rent, cleaning) and expenses that are charged back to clients (travel, printing). We've moved most of our expenses on our chart of accounts from direct company expenses to cost of goods sold. It made a huge difference in our gross proft number when we run a p&L. Question - Would this effect our taxes? Did we over/under pay last year because our accounts were set up differently?


Asked on 10/10/05, 12:54 pm

1 Answer from Attorneys
Walter LeVine Walter D. LeVine, Esq.

Re: Cost of Goods vs. Direct company expenses

I DO NOT BELIEVE HOW YOU HANDLED THIS HAS CHANGED THE BOTTOM LINE. REGARDLESS OF WHETHER YOU TOOK EXPENSES AS PART OF COST OF GOODS, OR AS SPECIFIC DEDUCTIONS, YOUR BOTTOM LINE (PROFIT OR LOSS) SHOULD BE THE SAME. THIS OPINION DOES NOT GO TO THE QUESTION OF WHETHER OR NOT YOU HAVE PROPERLY LABLED THE EXPENSES (SPECIFIC OR AS PART OF COST OF GOODS). I SUGGEST THAT EACH TYPE OF EXPENSE (OFFICE, SUPPLIES, RENT, ETC.) BE SEPARATELY LISTED, NOT AGGREGATED. I PRESUME THAT THE REIMBURSEMENT OF ITEMS CHARGED BACK TO CUSTOMERS IS INCLUDED IN GROSS INCOME.

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Answered on 10/10/05, 2:32 pm


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