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vanguard08
Level 1

Business Expense report for profit

I work full time for a company, I'm an employee. They use a product from a vendor that requires you to become a reseller to purchase their product. I did so, and can now purchase that product at a 25% discount and use that product with my company. I don't have an owned company of my own so I cannot re-sell that product to my employer. What is the most appropriate path for me to legitamatley transfer that product ownership? Can I use the product with the company and just expense it at market value, and then file that profit as extra income, or is the only legit way to get any profit from the transfer to actually "sell" that product to my employer? Now that I've typed that out it sounds silly, but can't hurt to ask I guess.

1 Best answer

Accepted Solutions
Opus 17
Level 15

Business Expense report for profit


@vanguard08 wrote:

 

 

With me being a reseller of this phone system license, I get a 25% discount on the product as do all resellers. That's 25% discount lower than market value, just like wholesalers get cheaper prices then resell those products in their retail stores. So I'm trying to figure out if there is a legitimate way for me to keep that 25% margin as personal profit without having to create an LLC or something to sell the product to the company I work for. Does that make sense, or am I just trying to create a sketchy scenario, and the only real way to do that would be to actually sell that license to my employer?


I think you need to talk to your employer about this.  I don't know how they would feel about paying you (let's say) $1000 a month for the service, when you are paying $750 per month, in a sense, giving you a $250 per month back door raise.  You can legally do it for income tax purposes by setting up a schedule C business as a reseller, and reporting your gross proceeds (what your company pays you) and your costs (what you pay the provider).  The question is, will your company approve of making you a vendor, so that you now have two separate income streams.

 

Then I also think you need to consider "support" you mentioned.  If you are providing tech support for the phone system, is that within the scope of your current job description, is that what you are being paid for by your employer, or will that constitute additional duties, and if so, will you receive additional compensation?  Would that compensation be via your business as a reseller?  Does that mean you have to work 40 hours/week for your regular salary plus work additional hours as a reseller providing tech support?

 

For federal income tax purposes, you could set up a sole proprietorship as a reseller of phone services and charge your company more than you pay the root provider, and pay income tax and SE tax on the difference.  The real question is, if the company knew you were marking up the service, would they approve, or would they think you are cheating them?

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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6 Replies
Opus 17
Level 15

Business Expense report for profit

If you are a W-2 employee, and you are required to purchase supplies out of your own pocket for use in your job, the most common way to handle this is to obtain reimbursement from your employer.  Your employer can reimburse you for work-related expenses tax-free through an accountable plan, which means that you are only reimbursed for expenses you prove with receipts.   It doesn't matter how or why you purchased the supplies—if you purchase supplies for work, your employer may reimburse you.

 

(In fact, state law might require they reimburse you, or pay for the supplies themselves.  You may wish to discuss with your state labor board.)

 

Anything else starts to seem really strange and dodgy.  For example, they might refuse to compensate you for the supplies.  That's morally wrong, especially if they require the supplies, and it may be illegal.   Why can't the company purchase these supplies directly and issue them to their employees?   I don't understand why you would want to "Sell" the supplies to the company, that makes you a business.  Most legitimate companies have conflict of interest policies that limit the ability of someone being an "employee" at the same time as being a vendor who also sells supplies to the business, since that creates a situation where the employee arranges to buy supplies from himself at an inflated price, which harms the company.  

 

Simple reimbursement under an accountable plan is the method that would be most commonly accepted and least subject to question or abuse. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
tagteam
Level 15

Business Expense report for profit

Can you provide more details with respect to the nature of the resale agreement and how that relates to any presumed extra income?

 

For example, you stated that you "use the product with my company", but it is not clear what that means in terms of your being able to purchase the product you "use" at a 25% discount. Does the company pay (or otherwise reimburse) you for the 25%? 

 

Also, does the company require a certain business structure (e.g., a corporation) from which to buy the product? Would you be able to resell the product to the company as a sole proprietor? 

vanguard08
Level 1

Business Expense report for profit

Thanks for the replies and apologies if I didn't convey the scenario appropriately. I have monthly expenses within the company and submit a typical expense report and I am appropriately reimbursed dollar for dollar. The product I speak of is a phone system license. They simply do not sell directly and require a "partner program" with them to be able to purchase their licenses. That's not an uncommon scenario, it's like wholesale vs retail. My company could buy from another reseller, but then that reseller would have to support the product. With me becoming a reseller, I can now support the product that my company is using. I don't have an issue or a question with that part. 

 

With me being a reseller of this phone system license, I get a 25% discount on the product as do all resellers. That's 25% discount lower than market value, just like wholesalers get cheaper prices then resell those products in their retail stores. So I'm trying to figure out if there is a legitimate way for me to keep that 25% margin as personal profit without having to create an LLC or something to sell the product to the company I work for. Does that make sense, or am I just trying to create a sketchy scenario, and the only real way to do that would be to actually sell that license to my employer?

Opus 17
Level 15

Business Expense report for profit


@vanguard08 wrote:

 

 

With me being a reseller of this phone system license, I get a 25% discount on the product as do all resellers. That's 25% discount lower than market value, just like wholesalers get cheaper prices then resell those products in their retail stores. So I'm trying to figure out if there is a legitimate way for me to keep that 25% margin as personal profit without having to create an LLC or something to sell the product to the company I work for. Does that make sense, or am I just trying to create a sketchy scenario, and the only real way to do that would be to actually sell that license to my employer?


I think you need to talk to your employer about this.  I don't know how they would feel about paying you (let's say) $1000 a month for the service, when you are paying $750 per month, in a sense, giving you a $250 per month back door raise.  You can legally do it for income tax purposes by setting up a schedule C business as a reseller, and reporting your gross proceeds (what your company pays you) and your costs (what you pay the provider).  The question is, will your company approve of making you a vendor, so that you now have two separate income streams.

 

Then I also think you need to consider "support" you mentioned.  If you are providing tech support for the phone system, is that within the scope of your current job description, is that what you are being paid for by your employer, or will that constitute additional duties, and if so, will you receive additional compensation?  Would that compensation be via your business as a reseller?  Does that mean you have to work 40 hours/week for your regular salary plus work additional hours as a reseller providing tech support?

 

For federal income tax purposes, you could set up a sole proprietorship as a reseller of phone services and charge your company more than you pay the root provider, and pay income tax and SE tax on the difference.  The real question is, if the company knew you were marking up the service, would they approve, or would they think you are cheating them?

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
vanguard08
Level 1

Business Expense report for profit

Thank you for your input and perspective. Ethically speaking, I don't see an issue with it as they cannot get a better deal anywhere else. It's a process set forth by the phone company they chose, and to make me give them the license below fair market value would seem the less ethical thing to do, but... as you stated... one of my roles is specifically to support that system so that could be viewed as part of my responsibilities. If I want to proceed with that, I'll take your advise and discuss that internally with them, otherwise I'll just pass the discount along directly to them and simply expense the purchase with the company and no profit/loss will be had. Thank you again for your time.

Opus 17
Level 15

Business Expense report for profit

@vanguard08 

 

Yes, I think the most ethical thing for you to do is provide the service at cost and add it to your accountable plan reimbursable expenses.

 

However, if you are going to be required to provide tech support in addition to your other duties, I think the most ethical thing for your company to do is provide you with additional compensation for the additional work.  Hopefully they agree.  Good luck. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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