WHAT A YEAR 2020 was, right? There’s lots to look at in QuickBooks as you get ready to prepare your tax return for the store. What’s different for this tax return?
Probably the most important are the two “tax-free monies” you may have received from the Small Business Administration. One was a loan from the government called the Economic Injury Disaster Loan (EIDL). At the onset, it was designed to be a free gift of $10,000, then Congress immediately changed it to be $1,000 per employee.
The second was the Paycheck Protection Program (PPP) loan, which you received as a loan from a banking institution. The amount was based upon payroll expenses along with a few other expenses. It was designed to be “free, non-taxed” money, depending upon a few caveats.
As of this writing, the SBA (which guarantees your PPP loan) will forgive up to $50,000 of this PPP with few strings attached. It’s so simple it can be filled out with a one-page form. Once forgiven, this amount moves away from being a loan on the books to “other income,” tax free. The SBA requires some information to prevent fraud.
If you received a loan for more than $50,000, the difference is what you would owe the lending institution, and you’d have up to 30 years at an incredibly low interest rate to pay this back. This remains on your balance sheet as a loan.
If you received both the EIDL money from SBA and the PPP money, the bank is required to subtract the EIDL from your forgivable amount, and you just might have to repay a portion of this $50,000 loan (or whatever amount you borrowed).
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Of course, in QuickBooks, there’s lots of cleanup to get ready for your CPA, and a lot depends on whether you have a point-of-sale program to track and capture sales. There are so many ways jewelers do their accounting in QuickBooks, but if you have a separate POS, you have to count inventory at year’s end and possibly reflect that in QuickBooks.
People often ask me, “David, can you help me reduce my tax burden?” Many jewelers might just “write off some old inventory,” which increases cost of goods and lowers taxes. They tell the CPA a lower number than the truth (this is fraud, by the way). I don’t advise it. So how can one legitimately reduce tax bite?
Scrap the inventory. Don’t leave it in the store; actually send it to a refiner or a dealer and get cash. You and I both know what kind of inventory you need to get rid of: inventory that’s over a year old. If it hasn’t sold in years, why do you think it would sell in 2021? Take it off the books and out of the store. It’s legal and it also gives you cash.
Other things to get right in QuickBooks:
- Reconcile/balance the checkbooks.
- Enter payments to credit card companies according to what you bought, not just one lump number as “credit card payment”. Most are considered expenses, which lowers income tax.
- Farm out payroll to an outside service or use (like I do) the QuickBooks payroll service on the web.
