How to Record a Non-Taxable Income in QuickBooks Desktop/Online?

Even if the incoming funds are only flowing through your company and are offset by equal expenses, they are considered as income. Neither the revenue nor the expense are deductible. At the time of tax, your accountant will take care of it.

Your accountant has to Invoice the other renters for the rental income which will pass-through and create an income account for it.

Create two expenditure accounts in your data one for your personal rent expenses which is called as rental expense tax deductible and the another one for rental expense pass-through. You can split the amounts on the expense entry into two lines: one for the pass-through amount and another for the amount that is tax deductible on your own.

About Non-Taxable Income in QuickBooks

Businesses should ensure that Non-Taxable Income is entered into QuickBooks. It is simple to keep track of various income streams in QuickBooks without having an impact on taxable income because the program has a dedicated section for non-taxable income.

Items which comes under Non Taxable items by IRS

• Payments for child support
• Bequests, gifts, and inheritances
• Payments of alimony (for divorce decrees finalized subsequent to 2018)
• Cash back incentives on products which you buy from a dealer, manufacturer, or retailer
• Most of the health benefits
• Payments for welfare
• Reimbursement money from approved adoptions

Accurate recording of non-taxable revenue guarantees compliance with tax laws and accounting regulations, as well as accurate representation of the company’s financial situation in the financial statements.

How to Record Non-Taxable Income in QuickBooks Desktop?

Step 1: Setting up of Non-taxable Income Account

First you have to Navigate to the Chart of Accounts.

• Navigate to the top menu and then Lists option.
• From the selection that drops down, select Chart of Accounts.

Make a New Account

• On the Chart of Accounts window, select the Account button located at the lower left corner.
• Select New to establish a fresh account.

Choose the Account Type.

• Select the account type of Income in the Add New Account window.
• To proceed, click Continue.

Enter Account Information

• To make it easier to find, give the account a name like Non-Taxable Income.
• If required, include a description.
• For the account which is to be created you have to click on the Save & Close button.

Step 2: Recording of Non-taxable Income Transaction

Click the Generate Sales Receipts button.

• Select Customers from the menu at the top.
• From the drop-down option, select Generate Sales Receipts.

Provide Contact Details

• Either select the current customer or establish a new one to get the non-taxable income.
• Enter the client’s information.

Choose the Non-Taxable Income Account.

• Select Add New option which is located in the Item column.
• After choosing Service as the item type, click Continue.
• Give name to the item.
• Select the account you created for Non-Taxable Income from the drop-down menu.
• To save the item, select OK.

Enter the transaction information

• Enter the amount in the Amount column that was received as non-taxable income.
• Add any other information which you would like to share.

Save the Transaction.

• Make sure everything you entered is accurate.
• To document the transaction, click Save & Close.

Step 3: Reviewing and Reporting of the Non-Taxable Income

Make a Profit and Loss Report

• Select Reports from the menu at the top.
• After selecting Company & Financial, select Profit & Loss Standard.

Make Report Customizations

• Date range will be chosen for the period in which you wish to review.
• To make any necessary adjustments, click Customize Report.
• Make sure that the Report includes the account for Non-Taxable Income.

Examine the Summary

• Now start generating the report and then click OK.
• Verify the Report to make sure that the non-taxable income is accurately shown and documented.

Print or Save the Report

• Click the Excel option to export the report in Excel and save it.
• Press the Print button to print.

How to Record Non-Taxable Income in QuickBooks Online?

Processing of Invoices as a non-taxable income

Since you are aware that an invoice which you send to a customer is revenue that you have earned, it is seen as income. According to this theory, revenue is recognized as soon as it is earned rather than as soon as it is received. The item, product, or service can be excluded, and the renter should likewise be excluded, to guarantee that the invoice is not taxed.

After nontaxable revenue the making of a bank deposit that impacts accounts receivable comes. You can apply the invoice with the help of this deposit. You will then have to complete control over your financial transactions if you match the bank feeds in the deposit that you generated.

Steps of Recording Non-taxable Income in QuickBooks Online

Step 1: Setting up an undeposited fund account.

In order to deposit funds into the undeposited funds account, you must enter each transaction. Before you record a deposit each and every detail is required by you.

Navigate to the chart of accounts and set the asset account

• Click on the Chart of Accounts.
• Choose New by clicking on it.
• Select Assets.
• Select the Other Current Assets menu item on the display.

Identify the account.

• Optionally choose Undeposited Funds by dragging down the Tax Form section.
• Type the name of the account.
• Press the Save button.

Step 2: Accessing of Your Transactions from Banks and Credit Cards

First, Classify the transaction that was downloaded.

• Ensure that all of the credit card and bank transactions have been downloaded.
• Sort the transactions by items/services or dates.

Add transactions to the Undeposited Funds account in step two.

• On the screen, select add New option.
• Decide whether to accept payment or not.
• From the drop-down menu, select the Customer.
• To receive payments for an invoice, check the corresponding checkbox.
• Select Undeposited Money by using the Deposit dropdown menu.

Examine the deal

• On the screen, Enter the necessary data.
• You can choose to save and send, save and close, or save and create.

Step 3: Combining of Transaction

First, Input the Transaction.

• Choose Bank Deposit by clicking on add New.
• The Account dropdown box allows you to select the account into which you want to deposit the funds.
• To consolidate transactions, tick the box next to each transaction.

Note: Verify that your deposit slip and the sum of the chosen transactions match. Make reference to your deposit slip.

Keep the transaction safe.

• Click either Save and close or Save and new (to proceed it further).

Methods of Creating Non-Taxable Sales Report

Step 1: Customizing of Data as Per Details of Taxable Sales

First, Select the Taxable Sales option.

• Press the Reports button.
• Enter Taxable Sales Detail and choose it from the search area.

Tailor the information

• Select the screen’s Customize option.
• Select the time frame from the General menu.

Step 2: Creating of Sales Report

First, Select the Filter option.

• From the filter dropdown menu, pick the checkboxes.
• Enumerate every client with sales that are not taxed.
• Choose All Income/Expense Accounts from the dropdown menu in the Distribution Account to make the A/R Source line on the report disappear.
• To run the Non-Taxable Sales Report and see the report as Taxable Sales Detail, choose Non-Taxable from the dropdown menu under Product/Service Taxable.

Go over the Report

• Examine the report in detail.
• Click Run Report once you are satisfied.

Conclusion

To ensure accuracy of financial records and adherence to accounting rules, non-taxable income needs to be put into QuickBooks. Businesses can improve their decision-making and understanding of their financial health by appropriately identifying these transactions.

Accounting processes can be streamlined and financial management and strategic planning made easier with QuickBooks when non-taxable income is handled well. These benefits all contribute to the overall growth and success of the business.

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