Tax Affecting vs Not Tax Affecting
What are three common errors that can be found in Sales Revenue?
• Non-adjusted sales returns in Sales Revenue
• Adjusted sales returns NOT in Sales Revenue
• Expense returns in Sales Revenue
• Investments in Sales Revenue
• Loans in Sales Revenue
• Other?
What is Deductibility?
Deductibility refers to the act of reducing the Taxable Revenue based on the amount spent on specific items that government deems useful to promote.
Spending a lot on deductible expenses = low tax burden
What is 76 and how is it categorized?
76 is a gas station chain. It will typically be categorized to Gas & Auto or Business Meals.
Why are merchant adjustments tax affecting?
Tax returns absolutely need accurate revenue reporting. This directly impacts the amount of taxes owed and could be a sticky point if they are audited and it turns out to be incorrect.
Name three ledgers that are always tax affecting if they are even a little wrong?
• Sales Revenue
• Loans
• Accounts
• Inventory
• Investments
• Retained Earnings
• Other?
If you are debating between Software & Web Hosting Expense and Marketing & Advertising Expense, is it tax affecting?
Nope. They are both 100% deductible. That said, if we know there is an error we should still call it out. Marketing Software should still be in Software & Web Hosting Expense unless there is a good reason it is not.
What is CVS and how is it categorized?
CVS is a general pharmacy, similar to Shopper Drugmart. It will typically be categorized to Office Supplies Expense.
Why are payroll adjustments tax affecting?
Payroll is a very touchy point. It is both in regards to ensuring accurate deductions as well as ensuring that all payroll taxes have been paid.
Why do we expect ledger notes in "always tax affecting" ledgers?
We need to ensure we are very clear on how we have verified that the balance is accurate, and if there are any errors we need to explain exactly why there is an error and what we have tried to do about it.
If you are debating between COGS and Office Supplies Expense, is it tax affecting?
Yup! COGS affects Sales Revenue when it comes to taxes, so it is tax affecting.
What is Godaddy and how is it categorized?
Godaddy.com is a web hosting company and a place to buy web domain names. It is categorized to Software & Web hosting Expense. It is also possible to buy marketing services.
Why are inventory adjustments tax affecting?
Inventory is ultimately reported as an asset on Schedule L of a tax return, and it is crucial that all of this information is correct. Also, the numbers in COGS is based on the numbers in inventory. If inventory is off, that means COGS is off too, and COGS affects the Sales Revenue reporting.
What is the relationship between COGS and Inventory and why is it tax affecting?
• Inventory is the value of goods that a company currently has on hand. (Eg. Not sold)
• COGS is the value of goods that a company has sold over a period of time
This is tax affecting because all balance sheet ledgers needs to be as accurate as possible as they are declared on the Schedule L of a tax return. If we are not recording inventory, it will be up to the CPA to make the needed adjustments
What are the deductibility's of the Business Meals and Company Events ledgers?
• Business Meals: 50%
• Company Events: 100%
What is Geico and how is it categorized?
Geico is an insurance company. Typically it will be in Insurance Expense - Auto, but it could also be other types of insurance
Why are End of Year Adjustment tax affecting?
End of year adjustments are to ensure that bookkeeping and tax filing is consistent year over year. If the CPA made an adjustment to be books, lets say determined that an informal loan had been forgiven that we didn't know about, we need to be sure we also record that loan as forgiven.