Correctly Allocating Income

Hello there, SSteffel.

I want to make sure you'll be using a proper account and be able to handle the income in your book correctly. With that, I'd highly recommend consulting your tax advisor or accountant to handle them properly. They can help you keep your books accurate.

You'll want to check out these articles to learn more about managing transactions:

• Custom categories in QuickBooks Self-Employed.
• Categorise transactions in QuickBooks Self-Employed.

I'll be here if you have other QuickBooks concerns, SSteffel. Stay safe and have a good one.

Hi SarahannC,

Thank you for your reply. Perhaps the words mortgage and contract are complicating things in my efforts to figure out to ask my question. 

Please replace the word "mortgage" with the word "product". For instance, 

Scenario 2: Purchase and Resale

We purchase a "product" for $25,000 (send $25,000 to the seller) and then we sell the "product" to a buyer for $30,000 (buyer sends us $30,000). *Currently this is shown as us earning a $30,000 income, is that correct?

How should we account for income in the above scenarios? In scenario 2, should we split the income and only allocate $5,000 as income and the remaining $25,000 as excluded, or do something else?

Should the purchase of the product at $25,000 be an expense and the sale at $30,000 be 100% be considered income? If so, what category should the $25,000 expense be under? This seems somewhat logical however net income is only $5,000. 

Also, what are the tax implications for both scenarios or the way we account for them?

@SSteffel 

Mortage-backed securities are not products, they are securities, and are held as assets, not booked as expenses.  The IRS differentiates between investors, dealers, and traders and has different reporting requirements for each.  Get with a good CPA that can guide you on this.  IRS Topic No. 429 is a great place to start if you haven't already:

https://www.irs.gov/taxtopics/tc429

Thank you Rainflurry!

It looks like we might be categorized as a "Dealer" and not an "investor" or "Trader" in that publication but I will double-check with my CPA. I'm actually in the process of gathering info and insights so I have good questions to best choose the right and appropriate long-term CPA for our business.

Out of curiosity, if the items purchased were just "products" how would one classify or account for those transactions? 

Hello there, @SSteffel. 

I want to ensure that you'll be utilizing the correct account and that you'll be able to properly manage your money in your book. With that, I'd highly recommend consulting your tax advisor or accountant to handle them properly. They can help you keep your books accurate.

You'll want to check out these articles to learn more about managing transactions:

• Custom categories in QuickBooks Self-Employed.
• Categorize transactions in QuickBooks Self-Employed. 

Keep me posted if you have further questions. I'll be here to help. Wishing you the best.