Help me not go to jail, and get new technology!

November 4, 2007 8:35 PM

Is it legal to buy gift certificates with business money in order to have the money out of the business in 2007, and redeem the gift certificates for hardware in 2008? More inside.

My small business has some legitimate purchases it wants to make before the end of 2007. This mainly includes a few new laptops. Said laptops are due for a major revision in mid-January 2008, but we really want the money spent before the end of 2007 since we've already been taxed on it. Is it legal for the business to buy gift certificates in 2007 and then redeem them in 2008 (to avoid paying taxes on the money we put on the gift certificates in 2008)? This seems kind of borderline shady, but I'm not sure why and any actual documentation someone could point me to would be nice, because I haven't been able to find any. We definitely don't want to do anything illegal or questionable. Help if possible! Thanks.

posted by anonymous to work & money (10 comments total)

Can you pre-order the laptops on December 31st? I'll bet you can call up the retailer and do that over the phone if the website won't let you.
posted by yehaskel at 9:40 PM on November 4, 2007

No reputable retailer would charge your card before the laptops ship though, or at least the order processing has begun.

You're a small business -- you have a CPA, right? Give her a call.
posted by misterbrandt at 9:56 PM on November 4, 2007

You're asking this anonymously so we cannot ask you any questions, but I guess I'll just assume you're in the US and you're not a public company... AFAIK there isn't anything illegal about doing your books anyway you want unless you're talking about "tax" issues. Again, AFAIK, the issue of "gift cards" is something that is still being worked through, and it's a state-by-state issue.

"Legal" and "right" are two different things though. What are you "buying"? Nothing, you bought a card. What is a card? It's a form of money to buy something next year. It's like converting dollars into pesos so you can buy something next year in pesos. You never really spent the money.

What you should do is pay someone for a "service" in 2007, say something like spend 90 days investigating which computer we should buy... and have them buy you a computer in 2008. Set them up as an independent contractor and give them a some dough for their trouble and the taxes they "should" pay on the income and everybody is cool.
posted by pwb503 at 9:56 PM on November 4, 2007 [1 favorite]

Oh, and just to reply to something above... By regulation of the FTC, a retailer cannot bill you for an item until it ships. Pre-ordering will not work. Of course, not all retailers fallow FTC regulations, but just so you know.
posted by pwb503 at 9:58 PM on November 4, 2007

But a retailer can date a quote for the current year even if you don't technically pay them until the next year. I've seen similar things done with non-profits having to spend grant money before the end of a fiscal year. A big-name retailer probably (like Dell) won't do this for you, but a smaller local business that would like to keep your business probably would.
posted by rhapsodie at 11:11 PM on November 4, 2007

Seconding pwb's suggestion. There are much more creative and sure-fire ways to pull this little bit of accouting off.
posted by tehloki at 12:38 AM on November 5, 2007

So what you're saying is that you want to spend the money in 2008 but make it look like you spent the money in 2007. And taxes are involved.

Get thee to an accountant. You likely can't find documentation about this because it's a complex issue that involves taxes, and in my opinion, it should be run by a professional. You know that dude who does your taxes? Call him up and ask. He might not even charge you.

If anything, your accountants ought to know in case the IRS ever does come calling, in which case, this will look shady.
posted by sondrialiac at 4:12 AM on November 5, 2007

Keep in mind that Gift Certificates/Cards aren't recognized as revenue by the issuing store until they're redeemed...the IRS might see this as "You didn't spend the money until you bought the Hardware...you just shifted it to another cash equivalent".
posted by taumeson at 4:53 AM on November 5, 2007

You don't say where you are so the tax issues will vary but no its not illegal to buy gift certificates in 2007 and spend them in 2008.
HOWEVER...
You may (probably) be required to declare the gift certificates as an asset of your business. Of course, your accountant will be advise you.
Is there any reason why you can't just buy the new laptops a month early?
posted by missmagenta at 5:45 AM on November 5, 2007

Essentially the same question last year.

IANACPA, but I don't see any way that a gift card can be considered a depreciable asset and thus expensed under section 179. See Pub 946 for more info.
posted by backupjesus at 6:51 AM on November 5, 2007