How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask BK-CPA Your Own Question

BK-CPA
BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 823
Experience:  Owner of a CPA firm
36384704
Type Your Tax Question Here...
BK-CPA is online now
A new question is answered every 9 seconds

Accounting

Resolved Question:

I want to know how I am supposed to categorize insurance claim payment for a stolen business vehicle in quickbooks?

Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Stephen G :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G :

Are you going to replace the vehicle?

Stephen G :

If you have written off (expensed) the book value of the original vehicle, then the insurance reimbursement would reduce that expense. Any excess would either reduce the cost of the replacement vehicle or if the vehicle isn't replaced it would be recorded as other income.

Customer:

The vehicle is not replaced so the insurance reimbursement should be recorded as income and subject to be taxed?

Customer:

The vehicle is not replaced so the insurance reimbursement should be recorded as income and subject to be taxed?

Expert:  BK-CPA replied 1 year ago.

Hello and thank you for your question.

.

I am answering this because it appears to be more of an accounting question and I will address both the accounting and tax aspects (ie... accounting and tax experts are two different things where CPA means certified public accountant).

.

The accounting is different for book and tax purposes. As a cash basis taxpayer, I assume you keep your books on what is truly a modified cash basis. This means you record fixed asset purchases, such as vehicles, on your company balance sheet and then proceed to write them off over time via depreciation adjustments (on the income statement) using an accumulated depreciation account (on the balance sheet).

.

For book purposes, this is treated as a sale with the net gain or loss being shown as other income, below net income from operations, on your profit and loss. To make the entry in QuickBooks you do four things: 1) credit the fixed asset account for the original capitalized cost of the vehicle; 2) debit the accumulated depreciation account for the accumulated depreciation through the date of the loss; 3) debit cash for the insurance proceeds (or a receivable if the cash has yet to be received); 4) credit / debit the difference to other income as either a gain or loss on disposal.

.

For tax purposes, you need to look at the history of the vehicle. Did you claim standard mileage in the past for one or more years? If so, you need to adjust your basis in the vehicle by the number of miles claimed. The basis adjustment depends on the year the miles were claimed (ie... basis reduction is 21 cents per mile for 2009, 23 cents for 2010, 22 cents for 2011, 23 cents for 2012). See Section 3 of IRS Notice 2012-72 and IRC 1016.

.

Once you have your adjusted basis for tax purposes by looking at the prior years' allowable (not allowed, unless greater than allowable) depreciation adjustments, including any adjustments for use of the standard mileage rate as applicable, you are ready to calculate your gain or loss (IRC 1001). Your gain(loss) will be the difference between the insurance proceeds and your adjusted basis for tax purposes. See IRC 1, 1231, and 1245 for special rules in calculating the tax treatment of the disposition, as a portion of the gain, if any, may be ordinary income for tax purposes and a portion of the gain may be a capital gain taxed at a lower rate. See also IRC 165 for rules on losses.

.

As a side note, depreciation should be recorded up until the date of the loss.

.

As a second side note, if you are keeping your books on a pure cash basis, then the entire amount of the insurance proceeds should simply show as other income in your income statement. The vehicle would have already been expensed.

.

As a final side note, if you have a loan on the vehicle that is repaid by you after the insurance proceeds are received (including if insurance proceeds are paid directly to your creditor), the above accounting and tax rules would not change. The repayment of the loan is a separate entry on your books. Make it after making the above entries.

.

Thanks again for your question!

BK-CPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 823
Experience: Owner of a CPA firm
BK-CPA and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
 
 
 
Chat Now With A Tax Professional
BK-CPA
BK-CPA
727 Satisfied Customers
Owner of a CPA firm