I'm on a cash basis. I deposited a tax refund for a prior year into an account this year. The refund is to appear in my 2005 tax return (form
1099G). IS there some why to get this into the 2005 file so it will transfer properly to TurboTax or will this have to be handled manually? I suppose this wouldn't have happened if I were on an accrual basis... or would it?2) Accrual basis is a royal pain in the patootie. Make awfully sure you understand all of the accrual twists and turns before you make that decision.
3) I assume that the refund you refer to is a STATE tax refund (Federal refunds don't appear anywhere on the next year's 1040). To record the refund in Quicken, set up a category "Prior Year Taxes" with a sub-cat "State Tax Refunds". Assign to the sub-cat the tax line "1099-G, State and local refunds". Edit the deposit to assign it to this new sub-cat. Imports into TTAX just fine. (Other sub-cats are "Fed Taxes" and "State Taxes").QED
2) Rest assured... I'll have studied the pitfalls. But I'm sure I'll be back here asking for guidance from time to time.
3) I have such a category which works well for the prior year. Problem is... the 2005 1099G is for a 2003 State refund that I deposited in the bank in 2006. How do I get a "prior year tax refund" entry this year into the prior year? It's not going to be a 2006 issue. My 2005 Quicken to TurboTax excluded the entry. The only way I can include it is to back date it ... and through off my bank account. Or just add it manually to TurboTax for 2005 and remember to exclude it for 2006 when it gets transferred to tax software fro Quicken next year.Is there a simply or more formal way?
Double check that. You MAY be able to use cash basis for the LLC. The rules are complicated, but accrual is NOT absolutely mandated. It usually depends upon what the LLC is doing, rather than just being an LLC.
This group can, in most cases, assist with Quicken issues. You'll most definately need an local accountant to deal with accrual issues.
If you received the check in 2005, then it should (in most cases) be reported on your 2005 return. Primary exception is if you didn't deduct income taxes on (in this case) 2003 tax return -- thus you would have received no tax benefit from originally making the overpayment that resulted in the refund.
2 options available: 1) post manually into TTAX. 2) Create a "Receivables" (name isn't signigicant, that it's an ASSET is) account in Quicken and record the refund owed to you in the Receivables account with a category of "Prior Year Tax". Then, when you deposit the check, use "Receivables" as the category instead of Prior Year. It's date of RECEIPT of check, not deposit, that's significant.Hi, John.
Wow! You've packed a lot of issues into a short paragraph. The answers will take a lot longer. (I've also read your second post, and some of this refers to what you told us in that message, and on Dan Brown's replies.)
Almost all of us are. We made the cash-or-accrual election - probably unconsciously - way back when we filed our first income tax return as a teenager flipping burgers, or whatever. Now, to switch to accrual we would need to get permission from the Commissioner (of the IRS) by filing a form and stating a reason. A very few taxpayers are on the accrual basis for their individual returns; in my 30-year active career, I had only one client who was.
If you have a proprietorship business, though, you can use the accrual basis just for it. Again, the election was made on the FIRST return that included that Schedule C and, again, you'll need the Commissioner's permission to change. Unless you made an illegal election in the first place; a business that sells merchandise MUST use the accrual basis, at least for computing inventory and cost of goods sold. If you have multiple proprietorships, you must made a separate cash-or-accrual election for each of them - and report consistently, year after year, for each. A corporation must keep books and records, but the accrual basis is not mandatory except for inventories, as above. The rules get more complicated; that's enough for now.
LLCs (Limited Liability Companies) were just getting popular when I retired about 15 years ago, before I learned very much about them. My mindset still deals with the rules for partnerships (both general and limited partnerships) and corporations (including Subchapter S corporations). Any advice I might give on LLCs would be out of date and probably wrong. But a partnership or a corporation may elect cash or accrual basis - on its first return, of course. A corporation is a separate taxpayer, even if all its shares are owned by one individual. As Dan Brown said, what goes on inside the LLC is far more important than its mere existence.
What kind of tax? Federal income tax? State income tax? Sales tax, property tax, gift tax...
What you did with the refund (deposited it, spent it, lost it, applied it to next year) doesn't matter, so long as you got it.
OK. Here's a clue to the kind of tax refund. Like Dan, I'm guessing that it's a refund of your prior year's state income tax. And this gets into a whole new batch of complications. :>(
Aha! We guessed right!
It IS a 2006 cash issue, but the bank account side of the entry is easily handled. In accountant-speak, just debit Cash in Bank; in Quicken-speak, let it increase the Bank Account. The question is how to handle the "where did it come from" side.
If we could ignore the federal (and state) income tax implications, the answer would be simple: either create a "State Income Tax Refunds" income category, or credit the refund back to the "State Income Tax" expense category. And that probably is how you should handle it in Quicken.
On your federal income tax return, the web is more tangled. We have to ask the questions that Dan brought up, plus a few others. :>(
We could ask you how the refund got reported (by the state) in 2005 but deposited in your bank in 2006. Did the state mail the check in late December and you receive it in January? Or is it more complicated than that? But, unless you want to argue with the IRS, you probably should just accept the state's version and report it as a 2005 event.
Did you deduct state income taxes paid on your 2003 federal income tax return? Did the deduction reduce your federal tax? If you didn't deduct it, or if you did but it didn't reduce your federal tax, then you should be able to ignore it when you file your 2005 return. (It should not affect either your 2004 or 2006 return, if you accept the state's date.)
If you deducted state income tax paid on your 2003 federal return and got a benefit from it, you will need to recalculate your 2003 federal tax with and without the deduction. Determine how much of the deduction you used and benefited from. Note: that is NOT the amount of your federal tax savings, but the amount of state tax that reduced your taxable income. Then, if the original deduction did benefit you, recalculate again using the corrected amount of your state income tax for 2003. When you finally determine how much of the original deduction saved you federal tax, you can include that much of the refund (or all of it, if less) on your 2005 federal return. The Help file in TurboTax includes a worksheet for this.
My memory on this subject is waaay out of date, so be sure to carefully read the current instructions. In 1990, I moved to Texas, which does not have a state income tax, so I haven't even had to think about this in more than a decade.
As a young accountant, I tried hard to make my clients' books reflect everything on the tax returns. But it can't be done - and shouldn't be done. Congressmen (and women) are not accountants and many of the rules they enact into law do not fit accounting theory at all. Some concepts - the standard deduction and the personal exemption are two glaring examples - simply can't be recorded in the books in a way that makes sense. We just have to accept that "the books" will differ from the tax return in some ways. And your tax refund falls into the same class of transactions. Just keep notes in your tax file to explain the differences.
It would probably be even more complicated on the accrual basis.
As Dan recommended, you should consult with your own CPA to be sure that you understand the current rules for all of these questions.
RC
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