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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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When I was entering Meals and Entertainment Expenses in my

Resolved Question:

When I was entering "Meals and Entertainment Expenses" in my QuickBooks, I was entering the full amount. However, on the tax return I can only deduct 50% of that amount. How should I record the transaction in Quickbooks, reflecting 50% deduction for federal tax purposes and where to record the other 50% in order to match the Net Income of the tax return? The CA Franchise Tax is also non-deductible for Federal purposes. How to record it in Quickbooks, so it will reflect correctly on the Net Income. I would like to synchronize the Net Income from QB and Tax return
Submitted: 5 years ago.
Category: Tax
Expert:  MequonCPA replied 5 years ago.

DearCustomer-

 

If you use any tax software or an outside tax preparer, you will want to keep all of the meals and entertainment in one place.

 

Book income should be just that, book income. Any adjustment to that amount is made on Schedule M-1.

 

Tax software automatically takes 50% of the meals and entertainment as a deduction for taxable income and transfers the other 50% to Schedule M-1 as a non-deductible expense.

 

Schedule M-1 will take book income and add non-deductible expenses like 50% of meals and entertainment as well as current franchise tax.

 

The franchise tax will be deductible the following year. Additionally, last year's franchise tax will be deductible in the current year. This amount will also be included on Schedule M-1 as a deduction on the return but not on the books.

 

If you really want to segregate these items, you could include them as other expenses in Quickbooks (not recommended).

MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Dear XXXXX.

Thank you very much for your reply. I realize that I do not have to separate the other 50% non-deductible part in Quickbooks and the software will do the separation. However, when I tried to replicate the balance sheet by entering the proper amounts, the retained earnings figure is different than that of the Quickbooks, because of 50% non-deductible items, franchise fee, etc. What would you recommend to do; do I need to make general journal adjustment to match the retained earnings of the tax return? (in that case please tell me the entries), or how should I try to correct the balance sheet on the tax return?

Thank you very much
Customer: replied 5 years ago.
Dear XXXXX. Thank you very much for your reply. I realize that I do not have to separate the other 50% non-deductible part in Quickbooks and the software will do the separation. However, when I tried to replicate the balance sheet by entering the proper amounts, the retained earnings figure is different than that of the Quickbooks, because of 50% non-deductible items, franchise fee, etc. What would you recommend to do; do I need to make general journal adjustment to match the retained earnings of the tax return? (in that case please tell me the entries), or how should I try to correct the balance sheet on the tax return? Thank you very much
Expert:  MequonCPA replied 5 years ago.

Nick -

 

The net income, should be just that, the book net income. If taxable income is different than book income the cause of those adjustments is made on Schedule M-1.

 

Using your information for an example. Net income per books is $25,000. There was $1,800 in meals and entertainment expense. CA franchise tax paid was $650. Last years franchise tax paid was $480.

 

Schedule M-1

 

Net income - $25,000

Exp on books not return

M& E $900

CA Fr Tx $650

 

Ded on Rtn not on books

L/Y Fr Tx $480

 

Taxable income $26,070 (25000 + 900 + 650 - 480)

 

 

MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and other Tax Specialists are ready to help you

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