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Adjusting entries. Tax return vs. Books

Adjusting entries. Tax return vs. Books
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Answered in 21 hours by:
3/13/2018
Fred Rook
Fred Rook, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 167
Experience: 20+ years as a Certified Public Accountant, including 19 years working in public accounting firms with extensive tax, audit, write-up and consulting experience.
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Hello, my name is ***** ***** I can assist you. What questions do you have on book to tax entries?

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Customer reply replied 5 months ago
What adjusting entries do I enter into the books after tax return is completed? Accumulated depreciation, meals & entertainment, charitable contribution (cash contribution, do I enter 30 or 50 or 100 on tax return)....do I adjust the books to match what was filed on tax return?Thank you,

It depends, if your goal is to maintain tax books then you would make the various book to tax entries that you mentioned above. Also consider - are you a cash basis taxpayer? If you are, then receivables and payables will have to be adjusted accordingly as well. Let me know more of what you are trying to accomplish.

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Customer reply replied 5 months ago
cash basis. I am preparing a tax return. I have different amounts for the tax return than books due to items I have mentioned. Now, I want to make sure that P&L books matches P&L tax return and same with balance sheet. What are your suggestions? How to handle both statements. Thank you.

So assuming you have receivables and payables, I would NOT make journal entries to the books. Rather, I would maintain a book to tax worksheet that you will update every year. You will start with a trial balance that has your final year end figures. That will be column 1. Column 2 will be current tax entries. Column 3 will be prior tax entries. Column 4 will be your tax trial balance.

Let's simplify this example for a minute. Let's say the only thing you have on your trial balance is cash, receivables, capital and revenue. So to illustrate year 1.......

Cash 6,000

Receiables 10,000

Revenue (11,000)

Capital (5,000)

Now, in column two, you would have a negative for your receivables of 10,000 and a debit to your revenue of 10,000, so in column 4 (your tax basis trial balance) will look like this.

Cash 6,000

Receivables 0

Revenue (1,000)

Capital (5,000)

In year 2, before you do anything, you will have a debit to receivables and a credit to capital to establish the beginning tax equity of your tax trial balance.

I know this sounds complex, but I promise you after you set it up it will start to make sense. If you need more info/detail, I am available for a phone call.

Hope this helps!

Regards,

Fred

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Customer reply replied 5 months ago
Thank you for your explanation. This person don't have receivables and payables. I got his books to handle the tax return. He has cash but nothing in receivables, nothing in AP. Just other liabilities and other assets.

Ok, you can still handle the same way, might even be easier with the tax adj you do have.

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Customer reply replied 5 months ago
To conclude, if I do adj. journal entries to books to match tax statements, would that be correct?

You can certainly post journal entries to match the tax return and maintain your books on a tax basis. If you need more assistance or questions in doing so, please let me know.

Fred Rook
Fred Rook, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 167
Experience: 20+ years as a Certified Public Accountant, including 19 years working in public accounting firms with extensive tax, audit, write-up and consulting experience.
Verified
Fred Rook and 87 other Tax Specialists are ready to help you
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Customer reply replied 5 months ago
Thank you for your assistance. Should I need more explanation, I will reach out!Have a nice evening!

No problem, it was my pleasure. When you get a chance, please take some time to rate my service!

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Fred Rook
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Category: Tax
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