Reserves For Contingencies

[QBslave]

Tax guy says Reserves are deductible from business income. Pub. 535 says "Not". Tax guy argues it is income not available to conduct ordinary business.

 

[kirby]

You are correct. Get another tax guy.

 

[smallbushelp]

I'll second that.

 

[kirby]

I'll third that myself!!

 

[bradgilliatt]

Ill fouth that...further, not only is it not deductible in the same manner as a warranty accrual, if you put an unreasonable amount in your risk reserve (contingency) and you are taking revenue based on percent of completion that is driven by cost, you risk a reclass of part or all of your reserve as income

 

[bradgilliatt]

.. also, having a risk reserve does not mean there is a cash outlay, it means a percent of your budgeted expenses is for unforseen costs somewhere down the road. A contingency is an unknown and therefor not reasonably measured...that alone would lead to the conclusion it is not deductible....i hope your tax guy has good malpractice insurance