QuickBooks Troubleshooting & Tune up - to be ready for year-end !
A QuickBooks tune-Up is a great way to prepare the books for year-end close as well as maximize your tax deductions on your next business tax return!
Example #1 of tune-up: reconciling inventory for the COGS deduction
As a general rule, inventory is merchandise that is held for sale to customers. Purchased or manufactured goods are kept in the balance sheet account “inventory” until the product is sold. When the sale occurs, the cost of merchandise is transferred to the account “Cost of goods sold” and deducted from business profits. For example if you operate a restaurant and buy bottles of wine that you store in the cellar, these bottles are recorded in inventory and then deducted from profit when sold to a customer. Making the transfer to COGS ensures you benefit from the tax deductions you are entitled to.
Example #2 of tune-up: classifying equipment for the expenditure deduction
As a general rule, the cost of capital improvement (such as the purchase of equipment) is recorded on the balance sheet in the Fixed asset” account and the cost of maintenance is recorded in the “repairs” account. Capital improvement is deducted partially each year through “depreciation”. Repairs on the other hand benefit from an immediate tax deduction. The challenge has always been to determine whether expenditure is to be recorded in fixed asset or in repairs. The IRS has issued a regulation to help taxpayers: usually if the amount of your expenditure is $2500 or less, you can deduct it in repairs without any further research (De minimis safe harbor election). For example, if you purchase a new computer for $2,400 to keep your business books, you can deduct the full cost of the new computer in the year of purchase. Therefore, it is important to categorize these purchases correctly in QBO to get the most tax deductions!
To read more on the IRS regulation: https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations
The IRS has started requesting QuickBooks files!
QBO is an integral part of your business tax preparation work. The IRS has started requested QBO data when performing audits, so it is more important than ever that your data is accurately recorded.
To prepare your Quickbooks for your tax return, contact Karine Bauer at Kbauer Financials LLC for a tune-up session. Karine Bauer, EA is a QuickBooks Pro-Advisor and an Enrolled Agent licensed by the Treasury Department with unlimited rights to represent taxpayers before the Internal Revenue Service. She is an experienced tax professional with more than 20 years of international experience.
As always, the views contained in this article are not tax or legal advice and are not a substitute for consulting with a professional. Contact Karine Bauer EA at Kbauer Financials LLC for advice on your specific tax situation.
Updated - August 11th, 2019