How to use Wave to account for 50% meal deduction

GeneSVB

I'm starting to prepare for tax season, and I've added all my 2018 expenses to Wave, including Meals. I've noticed that Wave subtracts 100% of each Meal expense, while the US IRS only permits 50% of eligible meals to be deducted as a business expense. So I have two related questions:

1) Is there a way to adjust the % deducted for a type of expense, e.g., 50% for Meals & Entertainment?

2) Am I on the wrong track? Is there a different way to approach this?

Thanks!

Kirk

@GeneSVB I see two ways of handling this:

1. You can set up two separate accounts: a) meals and entertainment (deductible portion) and b) meals and entertainment (non-deductible portion). Now, let's say you have lunch with a business associates and the expense shows up on your credit card for $40...you would use Wave's "split transaction" function to split the amount into two $20 amounts. One you'd apply to your deductible line item, and the second to the non-deductible. Now when you print your income statement, it properly shows the allowable amount for you or your accountant to include in your tax return, and you have a proper paper trail.
   The downside here is that our auto-categorization won't be able to autocat these transactions for you so each one will be manual.

2. The second option is that you can put everything into meals and entertainment and then at the end of the year you'll need to take that item on your income statement and divide it by two for your return. This is how I used to do it with my accountant. The benefit here is that for a lot of these expenses Wave's auto-categorization will autocat these transactions for you automatically.

I hope this helps.

GeneSVB

@Kirk

Thanks, this is exactly what I needed to know.

paulpat

Is Kirk's #2 suggestion correct? Not only does the expense have to be divided by two, but so does the ITC associated with that expense, and that's not very easy to figure out because the tax is aggregated separately to the expense category.

So what's the option here? If I knew how much tax I had paid on M&E, I could just divide that by 2 at tax time, but Wave doesn't tell me that.

Restaurant bills almost always need to be manually corrected anyway to deal with the tip. It's a fairly massive endeavor to make this work in Wave if your business has a lot of travel and therefore a lot of meals and entertainment bills.

What about this: create a special meal tax, give it a meaningless default value since you have to manually type it in with every receipt anyhow. Then at tax time, divide M&E tax by two along with the M&E itself.

AlexL

Hey @paulpat , Kirk's suggestion here definitely works, but as you said there are other complications that can come into play. The way you described makes sense to me as well and should work for the reasons that you outlined.

Parham

Is there a better and more simpler way too address this issue without having to manually calculate the number entries?

For example is it possible to add another field in the software next to each expense where you can enter a percentage to be applied? For example if it's a meal expense, we know that CRA requires that to be at 50% when it comes to deductions, however for vehicle expenses we won't know until the end of the year when we calculate the mileage used for business vs personal. So at the end of the year we can go back and bulk apply to all vehicle transaction the percentage of eligible vehicle related expenses, and automatically calculates the % split for the taxes as well. Same scenario with office expenses and other similar expenses.

This will allow asked to enter the full amount of the transaction expense so that there is a clear record of the original amount (and taxes) and instead the software performs the calculation automatically based on the percentage that we enter next to the transaction. And at the end of the year the exported report reflects the eligible expenses after % deductions.

Hope that makes sense.