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Quick Tips for QuickBooks: Tracking Tax-Deductible Expenses

Sometimes as a small business owner, you may pay a personal expense with a business check. The personal expense is not a business tax deduction, but may be a personal tax deduction. The payment may be recorded as an owner draw, distribution, loan, advance, or another type of transaction. The accounting varies based on your equity structure (for instance, sole proprietor, partnership, or corporation).

How do I track personal expenses in QuickBooks?

How do I run a report of personal tax-deductible expenses in QuickBooks?




Q:  

How do I track personal expenses in QuickBooks?

A:  


Record personal expenses in a Balance Sheet account.

  1. Consult with your accountant or tax preparer before you write business checks for personal expenses. He/she can help you decide which type of account to use for non-business expenses. (He/she may advise you against writing any personal checks from your business.)

  2. In QuickBooks 99 through 2005, choose Lists > Chart of Accounts.

  3. Choose Account on the bottom of the Chart of Accounts.

  4. Choose New.

  5. Click the down arrow in the Type field to display the account types.

  6. Select the account type appropriate for your business:

    1. Select Equity for a draw or distribution if you are not going to pay the money back. (For instance, a sole proprietor or partnership would select Equity for a draw. A corporation would select Equity for a distribution.)
      OR
    2. Select Other Asset for a loan or advance that you will repay in the future.

  7. In the Name field, type the account name for your personal expenses:

    1. If your business is a sole proprietorship or partnership, type 'Your Name Draw.'
      OR
    2. If your business is a corporation, type 'Your Name Distribution.'
      OR
    3. If you will repay the money to your business, type 'Your Name Loan' or 'Your Name Advance.'

  8. If you want your personal expenses account to be a subaccount:

    1. Check the box next to 'Subaccount of.'
    2. Click the down arrow to display the account list.
    3. Click on the desired account. (For example, if you are a sole proprietor taking a draw, 'Your Name Capital' or 'Owner's Equity').
    4. Press Tab to move to the Description field.
    5. Enter 'Personal expenses.'

  9. Choose OK to close New Account.

  10. Press Escape to close the Chart of Accounts.

  11. If you:

    1. previously saved a check for a personal expense, open the check.
      OR
    2. choose Banking > Write Checks to write a new check. (QuickBooks 99 users choose Activities > Write Checks.)

  12. Click in the Account field in the bottom of the check.

  13. Click the down arrow to display the account list.

  14. Use the mouse to move up the account list to see the personal expense account you created in the earlier steps (for example, 'Your Name Draw').

  15. Select the personal expense account (for example, 'Your Name Draw').

  16. Enter other information on the check.

  17. Choose Save & Close to close the check. (QuickBooks 99 users choose OK.)

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Q:  

How do I run a report of personal tax-deductible expenses in QuickBooks?

A:  


Run a Balance Sheet Standard and QuickZoom on the owner account(s).

IMPORTANT: You need to complete the Quick Tip "How do I track personal expenses in QuickBooks?" before you can QuickZoom on the owner account(s).

  1. In QuickBooks 99 through 2005, choose Reports.

  2. In QuickBooks 2000 through 2005, choose Company & Financial > Balance Sheet Standard. (QuickBooks 99 users choose Balance Sheet > Standard.)

  3. Change the 'As of' date to the last day of the previous calendar year (for instance, 12/31/04 is the tax year end for most individual tax payers).

  4. Choose Refresh to update the Balance Sheet report.

  5. Click once on the dollar amount next to your personal expense account to select the amount. (For example, scroll down to 'Your Name Draw' account and click the amount.)

  6. Double-click on the dollar amount to QuickZoom on the account.

  7. The Transactions by Account report lists the total personal expenses as of the end of the calendar year.

  8. Change the From date to 1/1/04 to show the 2004 transactions. (Leave the To date as 12/31/04.)

  9. Choose Refresh to update the Transactions by Account report.

  10. The Transactions by Account report lists each check recorded as a personal expense.

  11. Choose Memorize.

  12. Enter the name "2004 personal expenses."

  13. Choose OK to save the Memorized Report.

  14. Choose Print > Print.

  15. Press Escape to close the Transactions by Account report.

  16. Press Escape to close the Balance Sheet report.

  17. If the Balance Sheet report asks if you want to memorize the report, choose No.

  18. You and/or your tax preparer can review the report for transactions that may be deductible on your individual tax return. For example, personal medical expenses may be deductible on IRS Form 1040, Schedule A.


Tip

  • In some cases you may need to create an additional account or subaccount. For instance, if the business makes a second loan to you before you pay off the first loan, you may need to track each loan in a separate account.

  • To run the memorized report in the future, choose Reports > Memorized Reports > 2004 personal expenses.

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