From a Client:

Kerry;
 
I am almost ready to send our personal tax info but I have one question. I never know how to classify what items are corporation and which are personal classifications.  I guess I don't really understand the classification purpose. Can you help me out so I have it right when I send it to you?
 
Thank-you;

My Reply:

The reason the use of Classes is important is for you to be sure to properly identify the deductible business type expenses from the non-deductible personal ones.  Ideally, I like to run a P&L report with the columns sorted by Class and then reconcile each column to its schedule on the tax return.  In your case, there would be a Class for each of the Schedule E columns on your tax return, Corporate Royalties and Asset Leases.  Any other Schedule C, E or F business would also have its own class.  Income received from each of these operations would be coded with that Class, as would any expenses applicable to them.

It's fine to leave the class off and let it show up in the report in the  Unclassified column.  The problem with this is that I don't have the time to hunt through all of those entries searching for deductible things that should belong in one of the business classes.  I rely on you to do that kind of sorting & identification.   

I hope this helps you understand this issue a little better.  I have more info on  this on my website.

Let me know if you have any other questions.

Kerry

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/02/2006 01:28:00 PM Send this post: