Re-Imbursement for a prior year expense- Cash Basis Taxpayer
US QuickBooks Premier : 2009: Accountant
Cash basis taxpayer receives re-imbursement for a prior year expense. This will be included in income for the current year, correct?
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02/04/10 1:40pm PST
Viewed by asker 03/01/10 1:46pm PST
Viewed by asker 03/01/10 1:46pm PST
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raywhite28
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02/04/10 1:44pm PST
Technically yes. IRS does have a rule about matching income with expense which would make it last year. However, they will get a 1099 from this client for funds paid in 2010.
I'd make it this year but ask your accountant.
Hope this helps. If so please mark solved, if not please ask more questions. Thanks!
02/04/10 1:48pm PST
Well it's reimbursement of marketing expenses. These expenses were paid in 2009 and the re-imbursement of the expenses occurred in 2010. Would I still book this re-imbursement in 2010?
RekaUjj
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02/04/10 5:15pm PST
You should book it as an Other Income. You don't really want to show it among your regular sales and you don't want to reduce your 2010 marketing expenses. The best solution is to book it as Other Income.
Reka
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02/07/10 12:41pm PST
But, wouldn't the re-imbursement of these expenses reduce the 2009 expense that would be subject to the 50% limitation?
02/07/10 12:42pm PST
I apologize, I meant to say that this was a re -imbursement of ENTERTAINMENT expenses
RekaUjj
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02/09/10 8:18pm PST
You cannot match perfectly the tax return with your QB records. All of the entertainment expenses were recorded as expenses last year (though only half of them were deducted on your tax return). I would suggest to record the whole reimbursement as other income but definitely put some notes on it or even make up a new account for it to let your tax professional know what is this reimbursement.
Reka
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02/10/10 7:35am PST
Reka,
So, this re-imbursement should be included on 2009 tax return and not 2010?
RekaUjj
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02/10/10 11:38am PST
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The solution
If you received it in 2010, it should be included on the 2010 tax return. Just only 50 % should appear as income because last year you deducted only 50% of the expenses you paid. In QuickBooks you need to show the whole deposit (the total amount of reimbursement received) as you showed the total amount paid for entertainment expenses in 2009. Whoever is doing your tax return will need to put the reimbursement to the tax return the correct way. As the entertainment expenses need to be put on the tax return that only the half of those would be deducted as expenses.
Am I clear even a little bit? I know that this is not an easy situation. I think no bookkeeper should deal with this kind of question other than record the whole reimbursement in QuickBooks and type a note on it that last year's entertainment expenses were reimbursed. Your tax professional should handle the rest of it.
Reka
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