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Posted by John Gregory on April 16, 2006, 1:19 pm
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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?
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Posted by danbrown on April 16, 2006, 2:39 pm
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1) It's my understanding that individuals are, for themselves, ALWAYS
on a cash basis ... or does this your message refer to a business?
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
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Posted by John Gregory on April 17, 2006, 8:29 am
Please log in for more thread options 1) I've just toyed with a few things as a retiree. Set up an LLC but never
really activated it. I'm deciding how serious I want to be. If I do get
serious, I'll have to go the accrual route.
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?
> 1) It's my understanding that individuals are, for themselves, ALWAYS
> on a cash basis ... or does this your message refer to a business?
>
> 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
>
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Posted by danbrown on April 17, 2006, 11:28 am
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John Gregory wrote:
> 1) I've just toyed with a few things as a retiree. Set up an LLC but never
> really activated it. I'm deciding how serious I want to be. If I do get
> serious, I'll have to go the accrual route.
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.
>
> 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.
This group can, in most cases, assist with Quicken issues. You'll most
definately need an local accountant to deal with accrual issues.
>
> 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.
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.
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Posted by R. C. White on April 17, 2006, 2:07 pm
Please log in for more thread options 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.)
> I'm on a cash basis.
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.
> 1) I've just toyed with a few things as a retiree. Set up an LLC but never
> really activated it. I'm deciding how serious I want to be. If I do get
> serious, I'll have to go the accrual route.
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.
> I deposited a tax refund for a prior year
What kind of tax? Federal income tax? State income tax? Sales tax,
property tax, gift tax...
> I deposited a tax refund for a prior year into an account this year.
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.
> The refund is to appear in my 2005 tax return (form 1099G).
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. :>(
> 3) ... the 2005 1099G is for a 2003 State refund that I deposited in the
> bank in 2006.
Aha! We guessed right!
> 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.
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.
> 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.
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.
> 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.
Yep!
> I
> suppose this wouldn't have happened if I were on an accrual basis... or
> would it?
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
--
R. C. White, CPA
(Retired - no longer licensed to practice)
San Marcos, TX
rc@grandecom.net
> 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?
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