How to record client reimbursed expenses?

"When I bill my clients I record these items as "reimbursable" expenses and understand this is "income""

The Expense is whatever you Bought and paid for: Meals, Travel, Office Supplies, Postage, etc; Even though you intend to Charge that to the customer = Selling it to them, to be Reimbursed, that doesn't change the Details for what you incurred.

"reimbursements may in some cases overstate your income - particularly for Meals.  For eg. if I have $3000 peryear in reimburseable meals, IRS let's me deduct 50% i.e. $1500 but I get $3000 back from the client. So now I have $1500 in additional taxable income when its really not income."

No. That isn't Overstating anything.

We seem to be confusing Gross and Net.

Gross = what you incur, in full; and what you are Paid by others, in Full.

Net = the difference. If I pay $500 for Stamps for you, and charge that to you, I have $500 Postage Expense and $500 Income to report. I have a Net of 0.

And the tax regulations and provisions have Nothing to do with this tracking. You track it, because you Need it for reporting. You report it, based on what the Tax regulations allow.

So, yes, you incur a $100 meal, and the IRS only allows you to take 50% as Expense, because we all need to eat, so that is not all Business. Meanwhile, you "sell" it to the customer for $100.

Yes, you just made $50 in Taxable Income, in that part of the expense is Not Reportable.

That isn't an overstated condition. That is Reality.

"So how do we record those say travel expenses"

Start with How you Paid for it. s Expense from Checking (or on debit card) or as Credit Card charge.

"and keep track of to whom we must bill them?"

You split the details and assign Customer Name in the detail lines. Example:

Lodging split to 3 different Clients; as billable or not.

"For example, may I call the Vendor the Customer name"

No. That makes no sense. Example:

Postage from USPS is split as "postage reimbursed expense" by using your Service or noninventory product, listing that three times, so that you can allocate how much goes to each Customer name. USPS is your Payee name.

"and mark all costs as Reimbursable Expenses?  Is there a better way to record and track what I must bill each customer for?"

You enter something as Billable, to the customer, because you intend to Bill them for it. The same is true for Billable time, from timesheets.

What if part of your business is incurring expenses for the client. For instance, we get paid to buy things for our customers. We get paid a fee for this, not a markup on the stuff we buy. So we may get paid $1,000 to buy $30,000 of goods for the customer and most of the time we get a deposit that we use the for the buying. Our bank account then looks like us getting paid $20,000 then we spent $30,000 and then we get paid $11,000. But if we mark the $30,000 as an expense, a cost of goods sold expense for instance, then all $31,000 as income, it is going to make our profit margin seem terrible. When in reality we made $1,000 for a service. In this case wouldn't it be best to debit the purchases to an income account and then have an offsetting account right next that gets credited for the "reimbursement"?

Marking up or not marking up doesn't change the reality. What you buy is Expense, or Cost of Goods Sold (for products you bought to sell, such as inventory). What you "get reimbursed" simply is the Sales Price, as revenue or income. Your reporting shows the difference = the Net Income, which is part of taxes. Examples:

I buy $100 of Stamps to use for your project, and I charge you $100 for that cost, at Cost. That means I have $100 gross Postage expense and $100 Gross Sales Revenue and I net $0 for Profit, and if that sale item is subject to sales taxes, I was supposed to assess you for that, as well.

Reimbursement is a Process, not the Expense Account reason. Reimbursement related to customer activities is Sales, not washing away your expense.

Yes, if you get a prepayment, and are a Cash Basis Entity, you just got Income. That is what the IRS considers it when someone gives you Funds.

Don't examine Banking. You examine the reasons the funds move. You would not post your purchases as negative income; they are your expenditure. They are not the Income event, but the expense event.

Do this Right; not with some imagined offset method. Meet with your own CPA to learn how to manage Gross, see Net, and manage Banking events.

To clarify...

For example: I provide a service that requires me to dine at a establishment, pay the bill out of pocket and get reimbursed a set amount plus a minimal fee. Say I have lunch at it costs $30... but I will be getting reimbursed for $20 plus a $2 fee. How would I enter this into quickbooks online?

Using the word "reimbursed" is what people get wrong. You incur something and you Charge something. That isn't Reimbursed. That is Sales.

Example: I buy a Large envelope for mailing your stuff to you, along with some binders and other presentation materials. That is my Office Supplies expense. I charge it to you at cost or not, does not matter. The amount you pay me is my Sales revenue. If sales of material goods is subject to sales taxes, then you also see that I added the sales tax amount to the total you owe me.

Food is a different issue; all humans need to eat. "Food" you eat is not 100% business expense and the rules changed with the Dec 2017 tax regulation updates. No one on the QB peer user forum can give anyone the specific tax regulation guidance for what applies to your business; you need to meet with your own CPA to review which of your operations is treated in which manner, per those tax regulations.

I am no expert, but I think the original question is how to avoid overstating the Meals and Entertainment expense, which is normally deductible at 50%. The IRS allows full deduction of customer-reimbursed Meals and Entertainment (assuming they're reasonable and customary business expenses) since these pass-through and net to zero. 

For example, a business with $1000 in service sales, $100 in billable Meal expenses, and $100 in other non-billable expenses, bills its client for $1,100.  Its sales should be $1,000, the Meal expense should zero out, and taxable income should be $900 ($1,000 - $100.)  If you treat Meals as any other expense, sales would be $1,100, DEDUCTIBLE expenses would be $150 (50% of the Meals plus $100 other expenses), and taxable income would be $950. 

Am I missing something here?

If you record as travel expense at the time it is incurred and later received as reimbursement, you can record it as income.  yes, you can create a category called reimbursement income and record under that head

Suba k

SMD Financial Group LLC

Here is a simpler explanation: If your client is reimbursing you for your expenses, you record the expenses as billable expenses when they occur. With Quickbooks Online, here is how you do that: (Quickbooks Online Plus/Advanced required): First, you make sure billable expenses are turned on in your settings (under Your Company, Account and Settings, Expenses, then turn on the settings to track expenses and items by customer. 

Next, When entering the expense transaction, by each line of the expense, you can check the billable box, choose the customer name that it is billable to, and calculate the amount of markup you are charging the customer on the expense.  

Once you have recorded billable expenses in this way, when you invoice your customer that has an unbilled billable expense, you can add the billable expense to the invoice.  Sadly, at this time Quickbooks does not let you add these to sales receipts.

So, per the above instructions, I figured out that I should've had a box ticked that treated the expenses as income. Instead, all year, as I've incurred expenses and written invoices in QB (desktop 2018) it's been grouping them as Reimbursable Expenses, which is messing up my P+L on the expenses side of things.

I need to figure out how to fix this, first, and second, how to deal with the meals, per @Jack2019's above message about not wanting to be taxed on something that shouldn't be. 

As to the first concern: how should I go about this? I cannot seem to simply delete the Reimb Group from an invoice--it removes the expenses altogether, and then they're not selectable again under Time&Costs. Any ideas on how to fix a slew of invoices without doing hours of tedious work??

As for the second concern: perhaps I should create an Item called Meals, that's linked to the expense account for meals? That way, instead of showing up as income on my P+L, it's actually just a negative expense? Although then I have a mismatch between my P+L and the 1099 I get from this particular client... In which case, does anybody have any clever solutions??

Thank you!

When you take cash from your client and hold the cash for your client to spend on expenses for which your client reimburses you for, that cash is a liability. It's not income.

When you spend on costs for which your client should reimburse you, that money your client owes you in an asset. It's not an expense.

So the real question is how do we record the above in Quickbooks online so that it doesn't show as income or expense on your reports. 

Can someone please tell us?

I am delighted to have you here, @blackwdc.

You can make a retainer deposit to track the cash you’ve received from your client. Then you can record the money you spend in which your clients reimbursed you as a reimbursable expense transaction.

Here’s how:

1. Go to the Vendors menu.
2. Choose Vendor Center.
3. Open the bill then, go to the Items tab.
4. From the Amount column, enter the item and the amount.
5. Click Save & Close.

Once completed, let’s create an invoice and link the billable expense. Here’s how: 

1. Go to the Customers menu.
2. Pick Create Invoices.
3. Select the Customer on the Customer: job drop-down.
4. On the Billable Time/Costs pop up, pick Select the outstanding billable time and costs to add to these invoices, then OK.
5. Go to the Items tab, then put a checkmark on beside the date, then OK.
6. Click Save & Close. 

You can check out this article on how retainer works in QuickBooks Desktop: Manage upfront deposits or retainers.

Also, here some articles that you can use as a reference in managing the receivables and payables in QuickBooks: 

• Accounts Receivable workflows in QuickBooks Desktop
• Accounts Payable workflows in QuickBooks Desktop

I’ll be around to help if there’s anything else you need. Just leave a reply below, and we’ll take it from there. Have a lovely day!

Hey Rustler, 

How do we address the issue of overstating Gross Income?

These are pass through expenses, and a direct cost only generated when a sale is made, so shouldn't they reduce gross margin?

thanks!

Ok - but who should be responsible for the "other 50%" that the IRS says is not deductible - MY  company (i.e. ME as a 1 man band) or the CLIENT company....

My situation is this.  I work from home, using conf calls to work on behalf of the client. They have a local office and if I travel in their, I don't charge expenses. However they also have offices in other parts of the country and they sometimes ask me to travel their to help them, and I fly out and stay in a hotel for a few days  and of course that means I eat out too. 

The reimbursement of those meals then counts as income, but only 50% of that is deductible, so my income is inflated by that extra 50% as stated elsewhere in this thread. 

Surely in this case - they fair thing would be for me to pass through 100% of the expenses to client and categorize them as 100% deductible  (to offset the apparent income from those expenses) and then the client can deal with the 50% thing because they are ultimately the company who are ultimately responsible for those meal expenses which are 50% personal and 50% business under IRS rules.   

Did anyone come up with the answer of how to avoid overstating the income. I get that only 50% is deductible since humans have to eat so its 50% personal. However, eating out costs a lot more than eating at home, and if my client asks me to travel on their behalf and stay in a hotel, I am forced to eat out, I am incurring that extra expense on their behalf. 

How do I set up QB so I pass this through, but treat it as 100% deductible as just a pass thru charge? In other words, I am saying the client should be the one to do the 50% tap dance with teh IRS as they are the one authorizing and paying for my meals - not MY Company for which its just a pass thru? 

This article seems to differ with this "solution." Employees have reimbursable expenses, but so do companies. The client of your company should treat your expenses as their expenses, for tax purposes, and your company should not. These seems to specifically apply to meals, where what you spend and what you can deduct differ. The client should claim 50% of your reimbursed meals as expenses to them, but you should received 100% of the reimbursement and NOT have that count as taxable income.

https://bizfluent.com/info-11399744-reimbursable-expenses-vs-taxable-income.html

Now the question is, how do you accurately show that in Quickbooks. And in my particular situation, if my employee paid for that expense out of their own pocket, then how do I subsequently pass that on to THEM as a reimbursement.

Hello, @momoprobs.

You can create a payroll item to include the reimbursement in their payroll.

Here's how:

1. From the home screen, click Workers in the left navigation bar.

2. Make sure Employees is selected at the top of the page.

3. Choose the employee that needs to be reimbursed from the list.

4. Select the small pencil icon beside of Pay.

5. In the third section, click the blue link labelled Add additional pay types.

6. Place a check in the box for Reimbursement.

7. Click Done.

8. Click Done once more to exit the employee's profile.

When you're ready to pay your employee:

1. Click Run payroll in the top right corner of the employee page.

2. There will now be a Reimbursement column and field for the specific employee. This is where you'll enter the amount.

3. If you have additional employees, you can uncheck the boxes to the left of their names so only the person to receive the payment is selected.

4. Click Preview payroll > Submit payroll > and lastly, Finish payroll.

Always feel free to leave a comment below if you have other questions. I'm always here to help.

Hi @IamjuViel,

I've successfully been able to PAY my employee the reimbursement, per the steps you wrote out, but I don't know how to document that the money is really a pass-through reimbursement from my client, without that showing up as additional income and expenses for my business, which results in improper reporting.

The answer to the 50% meals deduction is this: you record all your client meals, and make sure your tax professional knows 100% of the meals were recorded. Your tax professional then makes the 50% calculation. (You may already know the following, but I have seen it too often with my small business clients.) Just be sure not to put any personal meals in there: all your personal expenses should be paid from a personal account rather than a business account to keep them separate, which is also for your protection in the event of an audit, as well as saving you bookkeeping hours that you might have to pay out.  Unless the client is ACTUALLY REIMBURSING you for the meals, or you are actually putting them on your invoices to the client, they are NOT a billable expense. 

Hi @ltsburien-bk ,

This entire thread is discussing the situation where your client is reimbursing you. The title of the thread is: "How to record client reimbursed expenses?"

Thanks.

Hi @momoprobs did you receive a resolution for this?  The account I'm working on also has overstated their revenue due to pass through expenses.  These should be on the balance sheet as a payable (liability).  I can't figure out how to reclassify these (there are 100's) line items from the P&L to the BS.  The reclassify option in QBO doesn't work for revenue line items.