In this presentation we will discuss methods for tracking personal tax deductions within our business QuickBooks file, we're going to be covering two methods that we will discuss in more detail as we go for tracking those personal deductions within our business QuickBooks file. First, we want to discuss the conventional wisdom when it comes to our personal records and our business records and that conventional wisdom which is good is that the personal records should be kept completely separate from the business records. And the way we typically advise to do that is to have completely separate bank accounts this being the bank for the personal side and the business side and don't have the to intermingle as much as possible. And then we can track on the personal side all of our information into QuickBooks, and on the business side have a whole different QuickBooks account where we track just the business items.

Now this is great because it separates as much as possible business interest From personal information in as a general rule, that's the best thing to do so that we can better organize our lives from the business side and the personal side. However, business owners often have a problem with this method in that what they're trying to do with the business, especially sole proprietors, small business owners is often to be in compliance and being able to put together information that they need to be in compliance with things like tax regulations at the end of the year. So they tend to have this component that business related components done well and tracking them, well, well enough, at least to be able to comply and fill out the documentation and do the taxes at the end of the year. But on the personal side, this is going to take a whole other realm of things that are going to be included in personal, some of them are still going to be things that we need to track more closely for things such as tax preparation, and other of them we don't need to track as closely and they're all grouped together in this one group.

Most people Don't have a QuickBooks file as well, for the personal side. So therefore, they're not tracking and grouping and categorizing everything they're spending in the same type of way, they don't have the double entry accounting system to help with those items as is being done and forced to do if we're entering our data into the QuickBooks system on the business side of things. So there's a few things on the personal side, that we may want to track more in depth more closely as we do with the with the business side of things, and we may want to use QuickBooks to do so if we're not entering all of our personal data into a QuickBooks file, then it may even be possible to pick out some of those important things that we want to track more closely that we need to comply with regulations on and add them in some way to our business file without messing up the ability to print a profit and loss and track the business information that we need to in order to assess our how well we're doing within the business and Be able to comply with business regulations such as business taxes.

So then the picture would look something like this. On the personal side, we are dependent basically on the bank statement and our personal records, meaning most people don't have a QuickBooks file for their personal information. If you do, I recommend trying to set one up, it would be beneficial to do that oftentimes, but oftentimes, on the personal side, business owners don't have the QuickBooks information set up and therefore are reliant on more traditional methods such as just tracking the bank statement on the personal side and making sure that they have an understanding and reconciliation of their bank account as opposed to on the business side, where we are entering the data into QuickBooks where we are reconciling the bank account. And therefore, use the QuickBooks file to do the business information, track that information, get the get what we need from it, and we're going to add this specific personal items, typically tax relief Added items that we would then need to track more closely so that at the end of the year, it's not like here's the, we don't have to give them the information for the bookkeeping, that's done very well on our on our business side.

And then all this other stuff we have to put together and we just kind of do the best we can and don't have any real assurance that we've we've done that properly. So how can we get a system to do that? Well, we can be more efficient by trying to add some of these items that we know we need to track into QuickBooks, that's going to be our idea here, that's going to be the goal. We're going to discuss methods. Now, of course, for doing that, a couple things that we might want to track, just from a tax standpoint, we might have to track personal related things that are still deductible. And these are typically things not on we would say a Schedule C or business related expenses, but are still possibly deductible.

And these would just be things that we know about because when we do our taxes at the end of the year, we know we've had to gather this information up and it takes time to do Do that. And we might want to put that in a system in place that we have more assurity about these items. Things like charitable deductions are things that we know we have to gather up that a lot of times aren't part of the business type deduction. But our outside childcare deductions are often something if we have daycare or things like that, possibly something that we need to track. And we might want to put a system so we'd have to dig that up at the end of the year and try to figure out what that might be like a retirement plan is another area that that might be prescription drugs, any kind of prescription drugs could be depending on our circumstances, something that we would want to track as well as medical insurance costs.

Again, some of these, this isn't tax planning here. Some of this stuff may be included in the business may not depending on our circumstances, what type of organization we are and whatnot. Our goal here isn't to go into tax planning and say what should be included in the business or not? Our goal here is to determine that once we know things that we Need to gather that are not in the business expense? How can we then put a system together to track them more easily be more prepared at the end of the year and just be able to fly through this stuff at the end of the year and comply both on the on the business information necessary and on any kind of personal things that we have to put together? How can we do that more efficiently using QuickBooks.

So if you go through like this is the Schedule A, of the tax return? These are the types of things that people may need to track that aren't on the schedule, see, the business related items that would be for sole proprietor if there's a different type of entity, they report the business in some other form, but same kind of idea. So medical and dental, this doesn't apply to everyone. Again, this is just some ideas of types of things that may be necessary on for ourselves or for clients that they need may need to track or have some use for tracking outside of just the normal business expenses. So medical and rental taxes, often times property taxes, but maybe DMV taxes, any other type of state taxes would be deductible oftentimes to the federal return, and therefore worth tracking interest, we're usually talking about mortgage interest. Also other types of interest, but usually mortgage we don't need to track that typically, because you're going to get a statement from the bank.

So that's one that we probably don't need, because we're going to get documentation for it. Anyways, gifts however, and charitable gifts, often things that we may want to track in some way. So we have a nice list of, of what we actually paid, and then casually doesn't really theft doesn't really apply here, but we might want to, we could track that if we had some fifth job expenses. Obviously, if we have a small business if we're a business owner that that if it's a business expense, it goes on our business, but if we have personal expenses like a W two business or even our spouse has a W two business possibly that we need to kind of figure out what is being spent on on this That information. And that might be something that would go here. And we might want to track those things, we'd have to make sure that we're separating them as we put them in the system.

We'll talk about how to do that. But that might be something we want to track in some way. And then other miscellaneous. Also, this is going to be the front page 1040. So this is the front page of the 10th floor, just a couple things that that you may want to consider for a system like this. self employment, health insurance items, depending on the type of business we are IRA deductions retirement plans.

Again, it depends on the type of system we might have something in our bookkeeping system that we have a retirement plan or in our business, a 401k or an IRA of some kind, but still, we might want to track the IRA for our spouse or someone else in family and or we may not have an IRA in our business and just depends on the circumstance, ideas. And him. This is tuition and fees. Those could be deducted or put on various places on the tax return, if we're continuing our education in some way, so some ideas that we might want to track in some way. So note that those things are not business related. But they are things we want, we may need at the end of the year.

And so that's what QuickBooks can help us out with two methods. To do that, we're going to look into ones I'm going to call an equity draws method. And the other is going to utilize what QuickBooks provides in terms of classes. And these two methods could be more applicable depending on what our specific needs are. And they could be, we might want to decide between them just in terms of what we intuitively think, rings best to us in the specific needs for what we have, for example, we might be using classes in some other way. So maybe classes is something we can't use because we're using or we don't want to complicate things by using classes in another kind of format.

So we might then use the equity method or we might might feel that the equity method reports things a little bit more easily or that the classes method makes certain things a little bit easier to to use. So we'll do the the objectives will be the same. But we'll do these two methods. And then we'll compare and contrast these two methods. And in so doing, will get an idea of how to how to do these two methods. And we'll learn how to use classes as we go within QuickBooks.

And we'll get a better idea of the relationship between the income statement and the balance sheet, and what the equity section is doing on the balance sheet. What's the difference between for example, a draws equity accounts and like an owner's equity account, how are those things related? How is the income statement related to the balance sheet when we think about these items, those those types of concepts will be something that will practice as well. Just a quick note, what we will not be doing is we're not going to be doing the tax line mapping. You might think that if we're doing that we the QuickBooks should have a nice CC thing where and there, they do have an item to assign each line to a tax item. But it's not something that we can totally use your we can, we can try to use components of it.

But the main purpose of that is to have the business information that we can then flow into a specific tax software, and therefore be able to just kind of link up our QuickBooks to the tax software and therefore, reduce the data entry. And for that purpose, it could be good but if we're going to a tax preparer, that that isn't using the same software, then that use isn't going to be helpful because they're still going to need just the documentation. And in terms of just grouping, the the documents you can run a report using this method, but it's really still mainly business focus related meaning they don't set it up designed to put in things that are like individual tax deductions like schedule a type tax deductions, in They're so those line items for schedule a tax deductions and things like that aren't really included. And therefore we can't really use you can't use those tax line item mappings to track these items in the same format that we're proposing here.

So this tax line mapping may have a use, it does. If you set up everything pretty much perfectly meaning you're using Intuit, the owner of QuickBooks software to enter into QuickBooks, and you're using the related Intuit tax preparation software. And then you've assigned all line items in order for it to reduce the data entry into the tax software at the end of the year for the business related items. Typically, the Schedule E, main Schedule C related items, and it could help for that. But for most people, it's probably focusing in on these tax line items. For most small business owners is probably more complicated than it's worth because you guys have some idea of schedule schedule each schedule sees and you need to have some more idea of line items than is typically needed.

And you might be doing work that you that's not going to help you because if you go to a tax professional, they just may not use that function at all. So unless you're going to print that report, to give the tax professional may not be useful and a standard Profit and Loss report is probably something that the text permission professionals most of them are more familiar with, than a report that would be printed out by by tax line item. So we won't be using that. Well, we'll be going that's why we'll be going to these these other uses the methods using the equity accounts and using classes.