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Super Explorer *

Chart of Accounts to match Schedule C

Please share pros and cons of setting up a COA that matches Schedule C - line for line?

 

One potential drawback I can think of is if a client changes to a Corp, then historical Sched C accounts might not make sense.

 

What do you think?

Solved
Best answer 07-30-2018

Accepted Solutions
Super Explorer *

Re: Chart of Accounts to match Schedule C

That is great - thank you.

8 Comments
ProAdvisor

Re: Chart of Accounts to match Schedule C

@George-  I actually think it’s a great idea.  Especially if you want a more robust program than QB self employed which is designed around schedule C.  

 

Dont forget if the client does incorporate, you will need to start a new file (subscription) anyway. 

 

Lynda

Super Explorer *

Re: Chart of Accounts to match Schedule C

Thank you Lynda. 

Can you clarify the need for a new subscription if my client incorporates?  I use QBO right now, my client is a small manufacturing LLC, but is considering incorporating as he grows.  Why would I need to start a new subscription?

ProAdvisor

Re: Chart of Accounts to match Schedule C

If the entity changes, ie, S corp, the file needs to be started as that type when the entity changes. 

 

For example, I used to own RI Bookkeeping.  I was a sole proprietor (schedule C).  On July 1 (1999 - OMG!), I incorporated and became an S-corp.   I had to start a whole new file 7/1-12/31/1999 that business was an S-corp.  Jan-June 30, 1999 was filed as a sole proprietorship.  I had two tax business returns that year due my incorporating my business.  Different chart of accts. Too.

Super Explorer *

Re: Chart of Accounts to match Schedule C

Thank you Lynda - I did not realize that.

E1
Frequent Explorer **

Re: Chart of Accounts to match Schedule C

George,

 

I would advise against this as there are other more important considerations. 

 

Your company’s chart of accounts design should be driven primarily by your desire to record financial information that supports sound decision making.  The reporting requirements of your company, including tax reporting, are secondary considerations.  Companies will typically design chart of accounts to capture information to support management decisions, regulatory reporting, loan covenants, etc.  The key consideration should always be the support for sound management decisions.

 

While Schedule C reporting is important, it should never be the driver and, it is more advisable to combine account groups to align with IRS forms, including Schedule C.

 

Pro

  1. Simple
  2. Supports tax filing

 

Con

  1. Might not report/present information is a form that supports effective management
  2. Might not support other reporting requirements
  3. Business form might change

 

Best of luck!

Super Explorer *

Re: Chart of Accounts to match Schedule C

Thank you - I appreciate the perspective.

 

I am new to this business, do you know if most tax software programs automatically map the accounts to Schedule C buckets for you anyway?  If that is the case, it seems like it solves the problem.

E1
Frequent Explorer **

Re: Chart of Accounts to match Schedule C

George,

 

All of the ones that I'm familiar with do.  Best of luck!

Super Explorer *

Re: Chart of Accounts to match Schedule C

That is great - thank you.