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Here we are in our QuickBooks Online test company file using the accountant view as opposed to the business view you can toggle between the two views by going to the cog up top and switching the view down below duplicating some tabs to put reports in like we do every time right clicking the tab up top to do so duplicating right clicking the duplicated tab to do so again duplicating let's tab to the middle as the one to the right is thinking go down to the reports on the left hand side and this time we want the favorite balance sheet report as it is thinking even though it's done tab to the right reports on the left this time we want the P the L the profit the loss otherwise known as the income statement closing the hand buggy scroll it up and the range needs to change so it's going to go from a one oh one two three tab twelve thirty one two three tab run it tab into the middle closing the hand buggy on the left changing the range to the same oh one oh one two three twelve thirty one two three and run it boom all right let's tab to the left that's the setup process we do every time we've been taking a look at the tracking of the mileage mainly geared towards the help of say sole proprietors to deduct business miles uh generally using the mileage method uh for people doing their taxes that need to report on a schedule see typically so let's go down to the mileage on the left hand side close up the hamburger we went through some adding of the mileage and we talked about the fact that you might have an app on your phone to help you track the miles and if you do that it'll basically track all of your driving and you can then classify your miles between business and personal or you can manually put the miles in adding the business trips as you go giving us a nice little log over here of the business miles and we can also look at the personal miles which we might also track for taxes under like charitable trips or something like that so we can put that over here and have that information that we can use for taxes in a different area possibly the schedule a or medical expenses or something like that and then all of the miles so now we want to think how how is this going to actually help us for the taxes now the easiest thing to do would be to say hey look i'm recording my financial statements over here on the profit and loss as they happen as they clear the bank i'm recording gas when i pay for the gas because i actually paid it with money and it's clearing the bank and i'm going to record it somewhere so it's not like you're going to stop recording your cash transactions because you're going to use the mileage method on the taxes so now i've already recorded the auto expenses if i'm going to use the mileage method then i have to do an adjusting entry which you could determine or leave it to your accountant to do or if you are the accountant then then you can think about how you're going to do it or if you're doing your own business and you're doing the taxes at the end of the year you might do this adjustment like in quickbooks for example or you might track it on a monthly basis to kind of see what your tax benefit might be on like a monthly basis as you go so to do this i'm going to i'm going to use a class tracking feature so i'm going to turn on the class tracking and that will give me an income statement that has my unadjusted which i'm going to call the unadjusted income statement and then i'll have the classes break out the tax adjustments to get to the adjusted tax based income statement the one we'll use to populate into the tax return so i'm just going to i'm going to go up top now you only have the classes if you have i think pro plus and above so you might not have classes if you're below that but if you have the classes and you're not using them for anything else then this could be something that might possibly be a useful tool for them uh and note that as i do this if i go to the tab to the left uh if you if you look at like a form like an invoice or let's just look at an expense form then there's no class fields in it right now so if you turn on class tracking if you're not using it or anything it'll just add another field which isn't too bothersome usually and then you can use the class tracking for this tax adjustment or possibly you can turn the class tracking off after you do the adjusting entries like at the end of the month or year so let's see how it works tab up top accounting and settings on the left we're going to the advanced settings on the left hand side we're getting we're getting advanced around here but don't worry don't let that scare you off it's not too bad and then we're looking for the classes which is up top i scrolled down while i was talking so it's under the categories tab so we want the class tracking so i'm going to be picking this one i'm going to turn on the class tracking and then it says warn me when a transaction isn't assigned to class now if you're not assigning a class to every transaction like we're not going to be doing here then you do not want this checked or it's going to give you a warning every time oftentimes when you use class tracking you want to assign every transaction to one or another class and then down here it says one to each row in a transaction so we could have one to the class for the entire transaction or one to each row so i'm going to keep the default which is generally to each row meaning we can break out a transaction into multiple different classes if it has multiple different line items within a transaction all right so i'm not going to turn on location tracking make sure to save it before you hit done you have to hit save and then done so it says on and then okay we can check out if it has done indeed turned on by going to the expenses tab and then we can see class tracking has now been added in our form so it's not very intrusive of a thing when you're doing your data input but it does add another field on the class tracking so now if i go on over to the income statement if we imagine what's going to happen this adjusting class is going to show up as another column so what i'd like to do if i scroll down to where we're focused on which is the auto expenses what we want to do is have the actual auto expenses reflected but also make a tax adjustment and i'd like to do it with the classes so everything's basically on the income statement so we're not actually adjusting the bottom line when you think of all the classes put together and there's no impact on in essence the balance sheet accounts so what we're going to do is we're going to take these auto expenses which are not deductible for taxes because we're using the mileage method and these are the actual expenses off and then we're going to put on the books the tax adjustment for the mileage method calculation it just so happens that these numbers are much larger than the deduction that we are calculating on the mileage method because we didn't actually use an example that's that's similar to real life we put a lot more of the actual expenses in dollar amount than the calculation on the mileage method but you would think they would be fairly similar because that's what the iris is basically trying to do with the mileage method make it a fairly fairly decent approximation of what the actual cost would be based on a cost per mile so i'm going to i'm going to add these up i'm going to say okay let's how would this work let's add these up and say we're going to say we have uh 60 plus one two oh oh plus the 70 plus i'm not going to add this 30 the 370 because that might still be deductible like we talked about in prior presentations even if using the mileage method and then i'm going to add the 240 so this is the amount that i'm going to take off that i'm going to exclude for tax purposes by using another class and then i'm going to add the amount that is deductible which is a much lower amount but usually you would think would be fairly approximate in a real life situation all right so i'm going to do that with a journal entry i'm going to go to the tax tab up top and i'm going to say that we want to just enter a journal entry the journal entry would happen at the end of the month or year i'm going to do this as of the end of the month as if we're doing this kind of like on a monthly basis but you might just do it on a yearly basis for taxes as 12 31 uh year end i'm going to have another account for the tax account and i called it uh a tax adjusting entry or what did i call it auto here it is i called it auto tax adjustment and basically i just put it on the books as an expense account so i'll just to show you how it would go on the books if i was to add a new account here it's going to be under the expenses it would be auto auto tax auto adj and then i put it under a subcategory of the uh auto auto stuff that we were putting together right here so that's how i created the account closing that back out this is going to be a tax auto that's the account name sub account all right so then i'm going to say that this is going to go down by the 1570 and then the other side is going to go to the same account uh auto tax adjustment so auto tax adjustment but i'm going to break out between two classes so i'm gonna i'm going to have a class adjustment up top for the tax adjustment and then down below i'm not going to put a class which means it's going to be into the unclassified area and i'm going to call this then the we'll just make a description adj for mileage method for taxes or something like that and copy that and paste it here so this isn't going to have any complete effect on the bottom line net income of the income statement because the two classes are going to net each other out it's just going to break out between uh one class note also that i didn't assign it to each of the actual accounts used for the auto accounts because i want to break it out in its own tax adjustment so i can see exactly what's happening here that this is an adjusting entry in essence so let's save it and close it and see what it does we're going to go on to the to the journal tab note that you might have to refresh the the whole report so that you can now track by the class tracking i'm going to run it here and i'm going to hit the drop down if you have refreshed you should have classes now added so because i turned on classes but you need to refresh it to make sure that it picks up those classes so then if i go in here now i've got this not specified this is everything that wasn't specified as a class we have another column which we're just using for those tax adjustments so then if i scroll down this is our info and you can see i actually put it in here backwards i wanted this one to be the negative and that to be the positive so let's let me just change my debits and credits i'm going to go back in uh and say wait a second hold on a second let's put 1570 here and then on this side the 1570 here okay and then i'll save and close it and see if it went the proper direction this time back on over okay so now now this this column is representing our uh our our basically tax column now because we've reduced the auto expenses by everything except for that uh 370 i didn't reduce the actual gl accounts because i don't want to mess with the actual gl accounts i want to show that the auto category is being adjusted for taxes with this other category and then you can see the total here and then the total uh tax adjustment is on this side and then you can see that it basically nets out back to zero so it doesn't really have an impact if we just ran the income statement normally it doesn't really mess up the income statement and it gives us our nice column over here uh which could help us for the tax adjusting entries the basic idea this looks similar to an tax adjustment worksheet that you might do as a tax professional outside of quickbooks you might export this to excel and then try to do an adjusting entry taking the actual books from the client which in this case uh is the total column and then do your tax adjustments that you need to do no matter how perfect the books are you're going to have to do some tax adjustments because for example here the bookkeeping was completely fine but obviously they they're going to record the auto expenses on an actual method as it clears the bank account and we have to adjust that if we're going to use the mileage method so we do an adjusting entry which is basically uh reducing reducing the amount the amount for the tax adjustment so this is kind of like our adjusting entry and this is the the tax line item now that we can help to to tie out to our number on the tax return using some kind of adjusting entry that you can say hey this is my if you got audited you'd like to say hey this is my net income or loss from normal from my bookkeeping and these are the tax adjustments that I made and then be able to reconcile it so having some kind of worksheet in the event that you get audited like three years later uh would be useful right so now we're going to put the other side on the books and that's we're going to say we're going to be able to deduct based on our calculation here the 23 the 23 42 based on the mileage rate so now I'm going to go back on over and again I know this is quite small compared to the actual dollar amount we put in place but you would think in practice they would be closer so we're going to say all right this is as of our cutoff again 531 and I'm going to do a similar process we're going to say this is going to go into our tax uh auto adjusting entry and there's going to be a debit of 23.42 and the other side is simply going to go into the auto adjusting entry auto tax adjusting entry for the same amount for the uh uh tax ADJ mileage method calculation I'm going to copy that and put that up top and then let's see if I can pick the right class this time so I'm going to increase the unclassified one I'm going to decrease with a credit the the this one the tax adjusting entry should be this one if it goes the wrong way that I can go back in and fix it which I did totally on purpose last time to demonstrate that concept so let's go back on over to the the income statement and then we can see down here our adjusting entry now uh is here so so now we have this is this is it nets back to zero it nets back to zero and our 393.42 that we're going to be entering into the tax return is in essence that 370 which we think is still deductible for taxes plus the plus the 23.42 which is giving us that 393.42 so you can get you can use it a nice little worksheet you know even within QuickBooks without having to export it to excel that gives you that nice little adjusting entry that can doesn't really mess up your actual QuickBooks on a normal kind of cash basis or book based method because it nets out to zero in other words if I didn't use a class tracking I just used the totals only then it still runs fine here and that adjusting entry just nets out to zero doesn't really bother anything and it's not hitting the balance sheet so this will roll over and adjust out uh into retained earnings and then for taxes I can kind of break that out using my classes and be able to do my tax adjusting entries inside of of QuickBooks without having to do this export it to excel and stuff which is kind of neat and then if I was to get audited I can have this report ready so that I can say yeah this is my net income on a book basis based on a cash basis and these are my adjusting entries that got me to my tax calculation which is basically an adjustment simply in this case for the for the auto expense using the mileage method as opposed to the actual deduction method