Is there any difference tax-wise between these two methods of recording income for invoices that contain expenses (parts) for which I’ve already paid?
1. Record the price I paid for the part as an expense and then record the payment from the customer as income.
2. Record the price of the part as an expense, then when “reimbursed“ from the customer’s paid invoice, split the transaction to 1) credit my expenses with the price of the part (thus zeroing out the original expense) and then 2) record any additional markup as income.
These two method of recording your income has the same result. What you'll want to make sure of is to exclude the reimbursed amount so it won't double the transaction in the system. Furthermore, reimbursements doesn't affect your estimated taxes.
Click Transactions on the left pane.
Locate the expense transaction.
Press the arrow icon to open the transaction details.
Check the Exclude this transaction (this is for duplicate, reimbursements, customer refunds, and returned purchases) box.
Thank you. I thought they were the same but wanted to double-check.
Follow-up question about excluding the transaction.
If I pay $5 for materials and supplies and invoice a customer for $20 ($5 for the materials and supplies and $15 labor), do I still need to exclude the transaction? I’ve been splitting the deposit from the payment as $5 materials and supplies (and $15 income) thinking that the materials and supplies credit would zero out the original expense. Am I doing that incorrectly? Thanks again for your help, I really appreciate it.
The first scenario you mentioned will cause your reports to have a data like this:
Expenses are increasing.
Income are also increasing.
Meanwhile, the second one will zero out your expenses as the income increases. Though both scenarios are doable, either of them are affecting your estimated sales tax calculations. It's up to you which process you'll take.
If you follow the first scenario, there is no need to exclude the expense transaction.
Following the second scenario doesn't also require excluding of transactions.
We are only going to exclude the expense transaction if you're going to categorize the reimbursable amount as Transfer. You can use this link for reference: Transfers - Owner's Deposit.
Our answers are based on how the program works when recording your transactions. It is always best to seek legal advice from your accountant regarding this matter.
Please don't hesitate to get back to us if you need anything else.