written by David Geller
What a year 2020 was, right? There’s lot to look at in QuickBooks as you probably get ready for preparing your tax return for the store. What’s different for this tax return?
Well probably the most important is the “tax free money” you received from the Small business Administration. Actually, there are two monies you probably received. One was from the government itself called “EIDL”. At the onset it was designed to be a free gift of $10,000 (you might have been lucky to get that) then Congress immediately changed it to be $1000 per each employee.
The second was PPP loan, this 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. But as everything from the government things keep changing.
(Note: I’m writing this article the first week of December 2020 and the PPL loan pay back guidelines keep changing.)
As of today, the SBA (which guarantees your PPP loan you received) will forgive up to $50,000 of this PPP with few strings attached. 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, just like any other loan 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.
As of today, there is scuttle but from Washington that they might raise the $50,000 number higher, but we will wait and see. Your CPA would be well schooled on this.
If you received BOTH the EIDL money from SBA and the PPP money your bank, the bank is required to subtract the EDIL from your forgivable amount and you just might have to repay a portion of this “$50,00” loan (or whatever amount you borrowed).
Many jewelers finished off 2020 with a phenomenal year-sales skyrockets! Couldn’t travel or eat in restaurants; so, let’s buy JEWELRY! Good chance you just might have made a good profit and will owe some taxes.
Of course, in QuickBooks lots of cleanup to get ready for CPA and a lot depends upon if you have a point of sale program to track and capture sales. So many ways jewelers do their accounting in QuickBooks but if you have a separate POS you have to count inventory at year 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 actual (this is fraud btw). So how to reduce tax bite with inventory legitimately?
Simple. Lower inventory but do it for two reasons
- Increases cost of goods (thus lower taxes)
- But also get cash (lower taxes and getting cash is better than just lowering taxes)
Scrap the inventory. Actually, remove it from inventory and your POS system by scrapping it; don’t leave it in the store, actually send to a refiner or a dealer and get CASH.
This might be odd to you but you and I both know what kind of inventory you need to get rid of-Inventory that’s old; 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. Put this money aside. Who knows what 2021 will bring or if we have another pandemic? Cash is king.
Other things to get right in QuickBooks
- Reconcile/balance the checkbooks
- Enter payments to credit card companies by what you bought, not just one lump number as “credit card payment”. It’s accurate and most are expenses which lowers income tax.
- This also might be the year to farm out doing payroll to an outside service or use (like I do) QuickBooks payroll service on the web.
Here’s to keeping 2021 a strong year for jewelers.
QuickBooks Pro Adviser
(David can be reached if you need some tips on this or help: email@example.com)