 QuickBooks Online 2023 Tax Tracking for Home Office. Get ready to earn the skills needed to boost your bank books on up with QuickBooks Online 2023. Here we are in our QuickBooks Online test company file using the account and 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. We're going to duplicate some tabs to put our major reports in them. The financial statement reports, the balance sheet and the income statement. To do so, right click in the tab up top and we're going to duplicate it. As that is thinking, I'm just going to right click on it again and duplicate it. As the new tab is thinking, I'm going to go back to the middle tab, we duplicated reports on the left hand side and open up the balance sheet. One of the favorites. These are like the default favorite reports because of course they are the financial statements. Let's tab to the right down to the reports on the left hand side. This time the other one that's there, the profit and loss, the income statement, the P and the L. We're going to close up the hamburger up top. I'm going to scroll up and change the range for the year of 010123 tab 123123. That's January to December 2023. Run it to refresh it. And then we're going to tab to the left. Do the same thing closing up the hamburger err and change the range to the same 010123 tab 123123. January to December 2023. Run it. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. And there's our major financial statement reports. So our general concept will be we will do the data input on the left and then populate see how that populates and adjusts our major financial statement reports on the right. We now want to think about the home office expense or deduction for the federal income taxes in the United States. Our goal being to put our financial statements together, have a bookkeeping system which will help us out for tax preparation as easily and efficiently as possible at the end of the year. Now normally with our bookkeeping system for a small sole proprietor type of business that's going to be reporting their taxes with the help and use of the schedule C, we might be able to enter a lot of transactions with the use of the bank feeds. We might have our bank feeds connected in essence on a cash-based system for many of the transactions and as the transactions clear our bank feeds coming in from our bank increases decreases to the checking account. We're assigning them to a category or an account constructing our financial statements balance sheet and income statement as we add this data into the system. However and that's great because we can we can basically build the main report that we need for taxes for sole proprietor which is the profit and loss using a system like that oftentimes although there are a lot of instances where we could have a more complex kind of accounting system. We talked about bank feeds in general in a prior course or section but now we want to focus in on the complexities just with the tax code. We talked about in prior presentations one of the complexities that almost always comes up with small businesses which is the use of the automobile because if you with the automobile use you might be able to use a mileage method or the direct write-off method and obviously when we are recording the taxes we are recording the actual expenses as they clear the bank. When we pay the gas station we are then recording it as an expense but if we use the mileage method we can't take both the actual and the mileage method so we need a tax adjustment that has to happen. As we do the tax adjustment we would also like to have a nice little reconciliation showing us what the book keeping number is and what the tax adjustment was to get to the tax adjustment which should tie out to the net income or bottom line of the schedule C. We have a similar kind of issue with a home office situation although slightly different. With a home office you've got some expenses oftentimes which you can't easily break out on a payment by payment system between the business portion and the personal portion so you typically have to have this adjusting process or as you enter the expense you might be able to to break them out as you do the data input so those are the two methods we'll kind of look at. What are these kind of expenses? Well typically if you are a renter that's going to be the rent you pay for your home because if you have a home office in your home you would think it would be reasonable then to be able to deduct part of the rent that is related to your home office but obviously when you pay the rent you're not paying two separate checks one for the home office one for the rest of your house you're paying one check so as that money goes through your bank feeds then it's you're only going to allocate it to one account typically. You could try to break it out by the way between two accounts or you could use class tracking so that's one of the methods as you do the data input that we'll look at but we'll talk about that in a second and then if you own the home then you're going to have no rent but you do have to pay the mortgage interest so you're not talking about the full the mortgage payment because part of that's financed that's the loan but the interest represents the kind of rent of the purchasing power of the money so you would think that part of the mortgage interest might be deductible and you're going to have property taxes so you think the amount related to the home office might be deductible there and that gets even a little bit more confusing because you might be able to deduct the other part of it on the personal side on the schedule A as an itemized deduction and then whether you rent or you don't or you own you also could have utilities of course which like the gas and the electric and whatnot and possibly phone if you're using it for business and personal that that you're going to be paying one bill for the utilities which is going to come through your bank account with one bill which you might have to break out again to the business and the personal and then you could have repairs like the roof repair the roof or paint the building or something like that which you might be breaking out between business and personal now the couple different ways that we can do this that the easiest thing to do is when we have these come through the first question is should we be putting them on on our our business bookkeeping side of things or should they be personal so for example if i'm paying the rent or my mortgage interest it kind of seems like a personal type of thing should it be going through the business account at all and you would think well maybe it would be the easiest thing to actually put it through the business account so that you can make sure that you're tracking it because if you have a schedule c type of business you can you're going to try to allocate part of it to the business side of things so you could pull it into the the business account and record it as whatever they're coming up rent utilities and so on and so forth and then possibly periodically at the end of the year most likely or you could do it more often like at the end of the month or something like that if you want to do it for your own bookkeeping purposes and not just for taxes at your end we can make an adjustment using the class tracking in a similar way as we did with the auto expenses so if i turn my class tracking on then i have this i can have this breakout with this adjustment similar to what we did with the auto expenses saying saying look this is the this is the amount of the expenses on the bookkeeping side this is going to be the tax adjustment and then we have our tax uh and then we have our tax amount that's going to be useful for creating the schedule c or when you actually create the schedule c you might you might use the tax software to help you to figure out the deductible amount at that time and then and then put the adjustment possibly into quickbooks if you wanted to have your little tax adjustment basically within quickbooks instead of having to print it out or export it to excel and have your tax adjustment somewhere else so if you come back three years later you have your little adjustment that you can that you can go back to in the event of an audit or something like that now another method that you could use is you can actually figure out what percent should be business or personal based on the square footage calculation which is usually the calculation you get you can get the ratio and then as you do the data input for those expenses the utility of the rent and so on and so forth you can create a rule so that when the money actually comes in you are properly allocating it between uh the tax deductible portion and possibly another another account so you can kind of do the breakout as you do the data input so that's another method that we can use it kind of tracks it on a perpetual method instead of like on a on a periodic adjustment type of system and the other thing that of course you can do is you may possibly have one quickbooks account that has both your personal and business in it a lot of people won't recommend that you do that but if you're a small business you might be able to do that and uh and because you only need the schedule c and you might not want to pay for two quickbooks online accounts so that you can track your business and personal and if you get the plus or above you might have the class tracking which you can basically allocate out and you could I have done presentation on tags so if you if you want to pay for a cheaper version of quickbooks and use a similar concept with the tags it's a little bit more complex to do but you could use the tags uh in a similar kind of fashion so if you take this concept and look at the course or section on tags you could probably figure out how to do a similar kind of thing with the use of tags if you don't have plus or above which has access to the class tracking but if you had your if you had your personal stuff going through here you can assign everything that you enter to either business or personal and then you can have an income statement for both your business and personal type of information that would be broken out and then of course same kind of idea with the home office you can break out the the business side of the expenses and the and the personal side either periodically or as you go using a percent usually derived from the square footage of the home office compared to the whole square footage of the home okay so next time we're going to talk a little bit more about what the tax law generally says with regards to the deductibility of a home office so we can understand that and then think about how we might design our bookkeeping to be to be modeled around that so that we can have information that's relevant to us and have as easy a tax preparation process as possible as well as possibly being able to document the differences between our normal bookkeeping uh input and the tax adjustments that are necessary so that if an audit happened at some point in the future three years down the line we can easily go back and see the reconciliation and say hey auditor this is what I did get out get out of my face because I did it right or something here's my reconciliation or whatever you know you know so that's what we'll do