I briefly touched on this previously, but I thought this was so clever that it needed its own post.
For the most part, handling taxes is simple, especially in a full bookkeeping app like QuickBooks. You simply enter the total expense, choose the tax rate, and the software does the rest for you.
Meals, on the other hand, are an entirely different beast. You can only claim 50% of the expense as a tax deduction. As such, you can also only claim 50% of the GST, but you paid for 100% of the bill with your business’ money, right? You still have to account for that money.
There are different ways of handling this. When I was younger, I was taught to just leave it, and let the accountant make the proper adjustments at year end. I’m sure part of that was make things easier on the bookkeeper, and part to give the accountant more billable hours. Either way, there’s no reason not to do it properly. The other way is to just manually calculate 50% of the GST each time, and make a separate line on the entry to account for this. There’s nothing wrong with doing it that way, it’s just time consuming. If you or your client take a lot of lunch meetings, this will waste a lot of your time.
The folks over at Intuit posted up a great tutorial on how to set this up in QuickBooks. Let’s go through the videos they have posted up to step you through the process.
1. Create a Tax Vendor
httpv://www.youtube.com/watch?v=Wg-MzyCZ4jY
One note with this video. When you’re creating the tax expense, be sure to make it a sub-account of your Meals & Entertainment expense. This is what it looks like on my system.
2. Create 2 Sales Tax Items
httpv://www.youtube.com/watch?v=q5vaSQ8x5Tk
3. Create a Sales Tax Group
httpv://www.youtube.com/watch?v=7H4XDvJY4mU&feature=related
4. Create a Sales Tax Code
httpv://www.youtube.com/watch?v=1rtqq8b4YlM&feature=related
5. Assign the Sales Tax Code to your Meals & Entertainment Expense Account
Now that this new code is complete, it’s time to assign it to your expense account.
- Go to your Chart of Accounts (List –> Chart of Accounts or Ctrl+A)
- Find your Meals & Entertainment expense
- Edit it by either right-clicking and choosing Edit Account or highlight it and press Ctrl+E
- The image above shows the edit screen. From Sales Tax Code, select the tax code you created. In my case, I called is MST.
- Click Save & Close, and you’re done.
Now, whenever you enter a bill or a cheque for Meals, QuickBooks will automatically select your new tax code, and split up the allocation properly.
I know this takes a bit of time, but knowing that your calculations are correct at the end of the year makes it all worth it.
Do you have a good tip to make bookkeeping easier? Please share it in the comments.