My client is a high end Interior Designer. Most of her income is from the sale of hard goods - furniture, fabric, artwork, etc. She puts together a design plan, works with architects, contractors and the client to achieve the final goal. Her services are not available on a standalone basis, in other words, you can't go into her office and ask for ideas on how to make your space look great, and walk out the door with a plan in hand and a bill. Which I believe is an important point in the definition of a consultant according to what I've read.
Because of the nature of the beast, some of her revenue is from consulting, and we are working on ways to keep that within the boundaries of the 10% safe harbor so she can retain her ability to utilize the QBID on her personal return. She has a line item on her financials called Time Billing which is used to track time spent on a project by everyone in the office. When I reviewed the activity, much of what is booked there is of an administrative nature and is attributable to her staff. My thought is that there should be a separate category to identify actual consulting time spent, and that its use would be limited to the principal whose is the only person actually consulting with the client. We are wondering if that would hold up in an audit if the question of consulting time arose. The staff people rarely if ever meet with or "consult" with clients.
One example of a possible conflict we discussed would be time charged for an internal office meeting. An employee meets with the principal to discuss some aspect of the project. She books her time and so does the principal. My thought is that the intent of the meeting on the part of the employee is to apprise the principal of her findings, which would be administrative. For the principal the intent is to become knowledgeable so she is able to consult and advise her client on what needs to be done, which would make her time consulting. Would the argument of "intent" hold up to an auditor?
Are there better ways to document and book the consulting part of this?