Tracking Discounts

[MMason17]

In a service-based, S-Corp business, is there any tax benefit to tracking client discounts we give? I saw discounts as a line item when processing the tax return for the business, and it made me curious. Typically, we just don't charge the customer for the things we are "discounting". Would it be beneficial for tax purposes to list these services on the invoice (when applicable) and then give a discount for them?

[VolvoGirl]

Not really.  If you enter your total gross receipts before the discount then you can expense the discount.  Or enter the actual income you received and don't enter the discount.  Works out the same.  Example:   Total bill 1,000 with 100 discount.  Either enter 1,000 as income then enter 100 discount equals 900 net income.  Or just enter 900 as income received and don't enter discount, equals 900.  

[Opus 17]

That's more of an accounting question than a tax question.  If you simply record the net revenue, then your accounting is similar, but you don't have an easy way of checking to see what discounts you are offering and to which clients.  If you enter the list price and then book the discount as a separate line item, you can do some financial analysis later, such as

• Which customers get the largest discounts?
• Do the discounts result in new, un-discounted business, or are you just losing sales?
• Do some clients get too many discounts?
• If everyone gets a discount, maybe you should just lower your list prices (nah).

(Think about laundry detergent.  P&G makes cheaper laundry detergent (Era) and expensive laundry detergents (Tide) that (supposedly) have premium ingredients and work better.  Then, they offer coupons, which allows further price sorting among their customers.  (For example, the customer who wants the best and can afford it without wasting time to clip coupons, versus the customer who wishes they could have the best so they are willing to spend the time to clip, sort and use coupons, versus the customer who is willing to settle for the lower priced product.  I imagine P&G learns quite a lot about the detergent market based on sales of different products and rates of coupon use under different economic conditions.)

Tracking your discounts gives you additional information about your business and customers, if you will use that data.