 QuickBooks Online 2023 Home Office Expense Tracking Method 1 Adjusting Entry Get ready to earn the skills needed to boost your bank books on up with QuickBooks Online 2023 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 Here we are in our QuickBooks Online test company file using the account 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 duplicate it Right clicking the tab up top to duplicate again back to the tab to the middle so we can open up one of the favorite reports on the left hand side that being the balance sheet Let's tab to the right and down to the reports on the left again this time opening the other favorite report that being the PNL, the profit and loss, the income statement Closing the hamburger up top and we'll change that range from a 1-0-1-2-3 to 12-3-1-2-3 and run it January to December running it tabbing to the left closing the hamburger scrolling up and change the range to the same 1-0-1-0-1-2-3 tab 12-3-1-2-3 and running it then we're going to tab to the left we're thinking about a home office how we can do our data input into our QuickBooks system to make the tracking of the home office deduction for a sole proprietor reporting on a schedule So normally what's going to happen here is you might have the bank feeds set up and you might have certain things that you are paying just like every other type of thing you're assigning an expense account out for them And those things could include things like the utilities or the rent on the home or the mortgage interest or the property taxes and you're just going to assign them to an expense account is the easiest thing to do And so that's what we'll start off with we'll imagine we're entering these in the place and we're just going to assign them to the appropriate expense account even though we know that there's going to be a business and personal component to these Because I'm paying for the whole bill of utilities and I need to assign some of it to the business side of things so let's mirror the bank feeds by just going to the plus button and entering an expense form So we'll just do this with a good old expense form and we're going to say that let's say the first one is the utility utility utility you let's say gas company let's say gas company boom and we'll add that generic gas company that we're paying And let's say that happened on 01323 hold on 01323 and we will say that we're just going to generically put that into utilities utility so there's our utilities expense and we'll say I'll just put one in for the entire year So I'll say this was like like $750 for the entire year let's say and then we're going to say add let's say add another bill new bill let's say this is going to the the gas company already did the gas company electric electric company boom save it Put the same date and we'll say this also I'm just going to dump it into utilities utilities just putting those two in there I break out the phone bill usually you but I'll put the gas and the electric to the utilities and let's say that that was that that was $550 and we'll say alright save and new and then let's say we had the rent so we have the landlord landlord the lord of the land for crying out loud these lords ladies driving you crazy Gotta pay the landlord alright and then we'll say that that's going to be for rent say that's the rent expense it's not garage rent I'm just going to call it rent I'll set up a new account just an expense account we would see these come through the checking account we'll just have an expense account for the rent Now this of course would only be the case if we're renting the property let's say that comes out to fairly significant amount if we did it for the whole year let's say it comes out to 24,000 that I'm going to put for the whole year So then I'm going to say save and new now note that if you had your own home and you own the home you wouldn't be playing the landlord you'd be your own landlord but you'd still probably have to pay the mortgage company so you'd have to pay the bank let's say now you wouldn't have the rent and the mortgage at the same time but let's just see the two circumstances you might have owning versus renting and so we'll say we're paying the bank now for the bank and usually there's going to be a principal versus interest portion so again let's put a fairly significant amount here and say that we had the bank that we're going to pay we have possibly a loan reduction amount that's going to be going down and let's say that was for let's say that was for you know 20,000 and then we're going to have an interest portion interest expense expense and that's the deductible portion and we're going to put that to an expense part of it may be deductible and I'll just put it to other business expense and interest expense and you might put on the mortgage let's put for the mortgage might not spell that right it's got a spell check of course it does fix it then if you can't spell that's what the spell checkers for spelling is not necessary these days so let's go ahead and do that and then you might have like property tax if I save a new you might pay the government the government big gov big gov once they're 10% so we're going to say alright got to pay the big gov and then we're going to say that that's going to be let's just say that that's going to go to property taxes boom and we'll say that that's going to be the expenses property taxes we'll just say other business expenses and let's say that that was 6000 something like that and those things would be coming through the bank feeds and we'll we'll save and close that one so something like that that'll give us a good example if I go back on over to my P&L then as we construct our profit and loss we're going to have our expenses for you know the property taxes the rent the utilities now one thing that we might want to do is try to house these expenses under a parent category of like home office expenses so that we can basically see them in one place so the way we can do that let's go to the first tab and say I'm going to go down to my accounting and here's our chart of accounts now when you first get the chart of accounts from QuickBooks they're going to put all kinds of accounts down here which might or may or may not be categorized the way you want them but you know I'm just going to I'm going to I delete the chart of accounts oftentimes to try to build my own chart of accounts because of their massive chart of accounts but you could look at what they give you and see if they house in a similar way these kind of home office expenses but the way I'm going to do this I'm going to make a parent account new and I'm going to say this is going to be an expense account and we'll just say it's going to be an expense and I'm going to just call it a tax line home office office I'll just say I'm not going to worry too much on the tax line because I don't find that to be completely helpful at this point in time hopefully at some point they'll be better that'll be more useful but right now I'm just going to say home office expenses boom and so let's save that and then the ones that I just set up I'm going to put them under that that category so I'm going to go ahead and find these that I set up I put in here under the expenses I got the interest so I'm going to edit that one and let's make that a subcategory of the home office so we have the home office here so I'll pick that one the home office and then we'll say okay let's save it and I'm going to say yes do it just do it man so now we've got the home office then we got the fees we had the repairs this is all the auto stuff and then Amazon charges and I've got to go to the next page here next page and then I've got uncategorized so here's my utilities let's go into that one and edit the utilities and I'm going to say that this one I'm going to put under the home office again so home office boom let's do that one and save it so here's the property taxes I'm going to do the same thing here edit property taxes I'm going to put that under the home office boom home office for the property taxes and yes same thing for the rent so I'm going to pick up the rent again edit it and I'll put that under the home office okay yes okay so then I'm going to go over to my income statement and let's run it and say okay so this is what we have thus far so now we've got this information nice and housed under the subcategory of the home office expenses so as I do this data input I'm going to recognize the fact that that number is probably high of course for my business expenses because I need to allocate them between the business and professional but this number might be necessary to help to populate the tax return so that the tax return can break out those those allocable expenses between the business and professional so I kind of want the entire number here in some way shape or form so the tax software can help to do that calculation even if I want to mirror that calculation in my system as well so remember if we did it if we did a normal calculation for like a home office we would think that we would get a percentage of these expenses if these were were expenses that were indirect so let's say the percent was 30% let's take we we take our office square footage compared to our total square footage for example and we come up to like 30% now we could say I'm going to apply that out before I give it to my my tax professional or possibly do it on a monthly basis saying this is my total number and then I'm just going to break out 30% as like an adjustment a tax adjustment so I can kind of see the adjustment each time frame or or I might do the tax return first and use this method to kind of do the reconciling entries between the tax method and the bookkeeping method so I'm going to use the class tracking you might be able to do a similar thing with tags if you don't have the class tracking but let's turn our class tracking on we turned it on in a prior in prior sections but the way to turn it on let's go to the first tab as you go to the cog up top you go to the accounting and setting and then in the advanced tab we want to take a look at the the categories here so we're in the categories within the categories you've got the class tracking on I'm not going to turn this on to warn me every time I enter a data input because I'm not putting a class on every transaction I'm just using it for my adjustments at this point oftentimes when we use class tracking we want to put a class to every transaction we'll take a look at methods that we're going to use that as well but we got it turned on we're using the default one to each row and then I'm going to save it make sure you save it before you hit done and then you can check it to make sure it's working by adding like an expense form and you should have another field here for class tracking so now you got your class tracking on the right so it is on so what we're going to do is we're going to imagine that 30% of this is business versus versus the the personal so I'm just going to break this out and we're going to say let's just say that I'm going to say then of this 46300 times point 30% we're going to say 13890 is going to be the business portion and the the rest the difference is going to be personal now you might say from a bookkeeping standpoint that I should put a draws you could say that the personal half should be draws we'll take a look at a method that we can do that we can put it to draws but it's kind of nice to be able to see it the total number here on the income statement there's other ways we can get the total number but we might need to give that total number to the tax professional not just the business part of it but we might also want to track the business part or after doing the taxes put the business part in here possibly to help us to kind of do a reconciliation between the tax and the business now so what I'm going to do is I'm actually going to say that there's the business portion so I'm going to remove from this the personal half so I'm going to say minus the 46300 or you can say if 30% is business 70% would be personal 46300 times .7 there's the personal part so I'm going to turn the class tracking on by hitting the drop down and sort by classes and run it now we did this in a prior section or course with the auto expenses so we're going to do a similar type of thing here I would like to put another account which is just going to be for the home office accounts which will break out the tax adjustment so then we're going to have the amount that's appropriate for taxes and we will have the total amount that includes everything as well and so that we have this kind of reconciliation within you know the income statement so we'll do a similar kind of process here let's go to the first half to do the journal entry we'll just hit the drop down and we're going to say we have a journal entry and it would be at the end of the year normally so let's just do it at 1231 to 23 and let's say that we had then the new account home I'm just going to make an account home office office tax adjustment account and you could use the same accounts but I think it's even less intrusive to the bookkeeping to make another account just has your adjusting entries although you could put the adjusting entry to the actual accounts involved because we're going to break them out by class but I'm going to say this is going to be an expense type of account and I'm going to say home office on the subcategory I'll pick a subcategory business expense I'm going to make it a sub expense of that home office expense again so the home office that's the key where did it go don't day don't day home off there it is okay so let's let's save it I think that's correct and then the amount we're going to put in here is the adjustment of the 32410 adjust for home office let's just say tax entry adjust for home office and then the other side is going to go to the same account so it's just going to go in and out of the same account home office tax adjustment I'll have the same description and then we just got to get which way is it is it going I'm going to assign a class to do this so I'm going to assign the class to this one so we're going to say this is the adjusting entry now if you don't have an adjusting entry you can add a class called tax adjustment this is your tax adjustment column which is going to show up another column so this will just go in and out of the same account no impact on the on the income statement at the end of the day but it'll break out between those two columns given you kind of an adjusting entry column so let's save it and close it and see if it does what we hope that it would do if I go on over to the tax worksheet I can say run it and then scroll it on down we are in the home office and you can see here it just goes in and out here's the new account it's in the same subcategory so it's not scattered all over the place that's why it's nice to have them grouped into a parent account that are all related to this everything that's going to go into that home office calculation and then it just goes in and out so there's no impact on the end result here the account just zeros back out so if I ran a normal profit and loss like this and just said I want the totals then no problem you just got this account with a zero in it and so it doesn't really it's not intrusive in that way and if I then say that I put my classes back on then scrolling down we've got it going in and out and instead of adjusting these accounts each of them which we could have done because that might give you a little bit more detail but we don't really need it we put it in its own account so it's not not even messing up those GL accounts really which is easy to do if you have them grouped under the home office group and then the total over here is like the bookkeeping amount that that includes the entire expenses and then this is the amount that has been reduced which only includes the expenses related to the business portion which we said was 30% so 46 300 divided by 0.3 hold on a sec 46 300 times 0.3 is the 13 890 and this is the the personal side of things so it's a nice little it's a nice little method that you could do on on your own if you wanted to make like an adjusting entry to break out the business versus personal and you could give this to your tax professional and they would have or you can do your taxes yourself and you would have everything you basically need because when they enter the data into the system they don't just need the business the business number they might need the full number so they can properly do the calculation of the square footage calculation but they should come out to the same result of that 13 890 so you can kind of give yourself a little bit of an estimate here by saying you know this is the business portion versus the personal portion but still be able to give your tax professional the entire thing if you wanted to or if you are a tax professional or you do your own taxes or something like that you can use this as a nice little worksheet inside of QuickBooks to be able to say hey look if if I get audited later I can make myself a little worksheet to say this is the full number before I have the allocation between between business and personal and then here's the allocation so that you have a nice cash flow that's going into all the same accounts and you have this nice adjustment and you can say hey look this was my number without the adjustments and then here's the number for net income that should tie in to my schedule C and then this tax adjustment basically represents the adjusting entries and you could do it all here instead of like what normally happens when you get more complex tax returns and even a basic schedule C gets fairly complex is that you need another worksheet like Excel often times to help you with a worksheet like this and so maybe you can kind of do this in in QuickBooks and then you can possibly run the reports of the adjusting entries with your notes on it for your tax schedule and everything is kind of inside the the system which is kind of nice now of course if you wanted to you can imagine doing this adjusting entry monthly so that you can so that you can kind of have this breakout between the the the business and non-business on a monthly if you run it on this format or you can do it perpetually by imagining you have your bank feed set up and then you might be able to make rules so that they automatically breakout between the classes as you do the data input or you can imagine using these classes to have a whole class versus that's business versus personal which is another common format for small businesses that a lot of bookkeepers don't like but it can work fairly good for a small business sometimes or you can think about having this amount here be in the format of draws because this is really on the personal side so if this is your business books you can put it in the system and have the other side go into the balance sheet account as draws so there's pros and cons to each of those methods so we'll dive into a little of the pros and cons of those in the future but I just this nice little worksheet right here is kind of nice because it gives you everything like in one place right it gives you it gives you the full amount it gives it a breakout of each category so you can input it into the tax return and it gives you the breakout of the personal versus the tax deductible side of things and it gives you your nice little worksheet that might be useful in the event of an audit happening like three years later or something