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New client, has a car lot. I have never done a car lot before and don't recall, if I am remembering correctly, the total financed goes in as income regardless of if he has received the funds or not, as well as the total cost of the vehicle sold as cost of inventory sold. Any interest received from said sale goes on schedule B. So he has to pay tax on money he hasn't received correct?
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Is he operating as schedule C?
Business income is business income.
If he is in the business of financing interest would be busines income I think.
I think you are correct with the sale of the vehicle on contract as I believe inventory cannot be sold on installment sale.
Ask yourself what he is in the business of doing and identify his business income.
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Yes it is a Sch C. He does charge interest on a good part of his vehicles so I would consider that part of the "business." I thought so I just hate the thought of paying tax on income not yet received so I think my heart is arguing with my head.
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"hate the thought of paying tax on income not yet received"
If this is a "buy here/pay here" finance, then you are not thinking it through properly.
He lists the Sale, and then Lends them the principal. The repayment is principal + interest and only that interest is the new income. The sale of the vehicle is Income; you have a condition of how the customer Paid.
And that's why the principal payments are not the income.
Hope that helps.
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That makes perfect sense. I wasn't thinking of it that way thank you.
