Expense classification
HuskyLogic
Member Posts: 15
I'm looking for help with end of the year reports. We use Turbo Tax to do our taxes, and many of my CPA friends swear by Quickbooks. The main reason is because QBO can automaticly classify your transactions into categories that fits in line with the questions asked on the schedule C. I questioned whether I could do that in wave as well, herein lies the question.
I have things like my website hosting, domain registration, email, and a program to track my mileage. Those are paid yearly and are for the business itself. Not anything I resell to clients. I also have software licenses I buy and resell to customers that I pay for monthly. Can somebody help me determine what category of expense each of these falls under , in a way that would be in line with the questions that are asked on the schedule C ? For example website hosting , would that be office supplies, advertising, or some other type of expense category?
I have things like my website hosting, domain registration, email, and a program to track my mileage. Those are paid yearly and are for the business itself. Not anything I resell to clients. I also have software licenses I buy and resell to customers that I pay for monthly. Can somebody help me determine what category of expense each of these falls under , in a way that would be in line with the questions that are asked on the schedule C ? For example website hosting , would that be office supplies, advertising, or some other type of expense category?
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Comments
@HuskyLogic This sounds like territory for a professional accountant! @Mikeg Would you like to weigh in on this?
HuskyLogic and @ckeen_1244
Breaking down expense categories comes down to personal preference. Any expense that is identified on the form such as Schedule C should be included on your chart of accounts. Any expense directly associated with that, should be categorized there. How does one determine a category? From my perspective I look at significance of the expense and frequency. An example would be a monthly franchise fee that is 5% of sales. I would have an expense called Royalties or Franchise fees. On the other hand, postage could go under office unless it meets the significance criteria i.e. online retailer.
Anything that you pay for monthly or annually could be called Subscriptions. You mentioned above web hosting, software licenses.
There is no hard and fast rules other than all business expenses must meet the definition under IRC 162 to be deductible. I wouldn't get all worked up about splitting hairs. If you have something specific feel free to post back.
Please help me understand why the "Default" set of Wave Business Expense Categores don't "Precisely Align" with Schedule C? I understand you can categorize at-will, but in order to file taxes, one has to map everything to the Schedule C categories, so why wouldn't every USA-based-and -serving software start with that? What am I missing? It would seem logical to start with that, and then, personally, I would possibly add subcategories (but I wouldn't stray from it, or I'm making busy-work for myself at tax time.)
@LarryZdanis,
Keep in mind that accounting and taxes are 2 separate animals and have 2 different goals. Wave (and other like programs) is designed as an accounting platform. Accounting is used for the reporting of financial activity of a business. The financial activity reported is used as a financial management tool to assist owners in making business decisions. Specific accounts can be created to track financial activity. Those accounts can be used to make decisions about where the business is spending money. Although accounting is used to report for taxes, it is not the ultimate goal.