Tax laws are ever changing from one administration to another. Customizing your chart of accounts to align with tax deduction categories is a great practice. This action not only helps your accountant at tax time determine what is deductible, but also helps your company make better cost savings or investment decisions based on what is bringing your company value. One example is maximizing the Meals and Entertainment category.
QuickBooks has a native expense account titled Meals & Entertainment. It is recommended to create sub accounts labeled:
- 0% Deductible
- 50% Deductible
- 100% Deductible
Creating these categories is quite easy.
In QuickBooks Desktop:
1) Select Lists, then Chart of Accounts or use the shortcut key (Ctrl + A):
2) Select Accounts at the bottom of the window, then select New:
3) Select Expense and Continue:
4) In the Account Name Field, type 0% Deductible; then select Subaccount of Meals & Entertainment; then press the Save button.
5) Repeat steps for 50% Deductible and 100% Deductible accounts
In QuickBooks Online:
1) Select the gear icon to the top right of your window or use the shortcut key (Ctrl + Alt + A):
2) Under Your Company, select Chart of Accounts
3) Click the New button
4) Choose Expense as your “Category Type”
5) In the Detail Type field, select Entertainment Meals
6) In the Name field, type 0% Deductible
7) Select Subaccount of: Meals & Entertainment
8) Click Save and Close
9) Repeat steps for 50% Deductible and 100% Deductible accounts
Now that you’ve created the accounts, it’s time to learn what goes into each category. You can reference our article from Eric McGraw in January which highlights specific business meals that increase to 100% deductible during 2021 and 2022 to help stimulate the economy due to COVID-19: https://www.adkf.com/news/deducting-business-meals-covid-19-relief-update
Let’s test your knowledge:
1) A business owner purchases a country club membership to take clients for negotiations. The client may have room and dining covered by the business.
- How would you categorize the country club membership?
- How would you categorize the room reservation?
- How would you categorize the food purchased?
2) A business office provides drinks and snacks for their employees
- What is the percentage deductible?
3) An employee is traveling by airplane to a 3-day training conference. Breakfast, lunch, and dinner are purchased on the way to the destination, during the training, and on the trip back.
- What is the percentage deductible?
4) Your company’s busy season requires all hands-on deck. Food is ordered in so the employees can eat while they work.
- What is the percentage deductible?
Extra Tips:
- In the QuickBooks transaction description leave as much information as possible to help your accountant locate miscategorized transactions.
- Itemize transactions that are paid in lump sums to the correct categories.
- Write on the back of the receipt the attendees
- Attach your receipts to the bill or expense within QuickBooks.
- Review your Meals and Entertainment categories on a regular basis, especially if QuickBooks auto feeds are used.
Answer Key:
1) 0% / travel / 100% (Restaurant)
2) 50%
3) 100%
4) 100%
Setting up your QuickBooks to categorize tax deductions makes things easier come tax time and helps keep your books in order.
Tax laws are ever changing from one administration to another. Customizing your chart of accounts to align with tax deduction categories is a great practice. This action not only helps your accountant at tax time determine what is deductible, but also helps your company make better cost savings or investment decisions based on what is bringing your company value. One example is maximizing the Meals and Entertainment category. QuickBooks has a native expense account titled Meals & Entertainment. It is recommended to create sub accounts labeled: - 0% Deductible