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

Accurately recording non-taxable income is crucial for maintaining precise financial records and ensuring tax compliance. Whether you’re using QuickBooks Desktop or QuickBooks Online, understanding how to properly record non-taxable income can help keep your accounts in order and your financial statements accurate. This blog post will guide you through the steps needed to record non-taxable income in QuickBooks both versions.

What is Non-Taxable Income?

Non-taxable income includes earnings that are exempt from income tax. Common examples are certain grants, gifts, or specific types of reimbursements. Properly categorizing these transactions ensures your financial statements reflect accurate figures and that your tax filings remain compliant with IRS guidelines.

How to Record Non-Taxable Income in QuickBooks Desktop?

1. Create a Non-Taxable Income Account

To accurately record a non-taxable income in QuickBooks Desktop, start by creating a dedicated income account:

• Open QuickBooks Desktop and go to the Chart of Accounts.
• Click on Account at the bottom left and select New.
• Choose Income as the account type and click Continue.
• Name the account (e.g., “Non-Taxable Income”) and select Other Income as the detail type.
• Click Save & Close.

2. Record Non-Taxable Income

Once you’ve set up the account, you can record the non-taxable income:

• Go to the Banking menu and select Make Deposits.
• If prompted, choose the account where the deposit will be made and click OK.
• In the Received From column, enter the source of the income.
• In the From Account column, select the non-taxable income account you created.
• Enter the amount of non-taxable income received.
• Add any necessary notes in the Memo field.
• Click Save & Close to complete the transaction.

How to Record Non-Taxable Income in QuickBooks Online?

1. Create a Non-Taxable Income Account

To record non-taxable income in QuickBooks Online, begin by setting up an income account:

• Log in to your QuickBooks Online account.
• Click on the Accounting tab on the left sidebar, then select Chart of Accounts.
• Click on the New button to create a new account.
• Choose Income for the account type and Other Income for the detail type.
• Name the account (e.g., “Non-Taxable Income”) and click Save and Close.

2. Record Non-Taxable Income

With your account created, you can now record the income:

• Click on the + New button in the left sidebar.
• Under the Other column, select Bank Deposit.
• Choose the bank account where the deposit will be made.
• In the Add funds to this deposit section, fill in the following:
  • Received From: Enter the source of the income.
  • Account: Select the non-taxable income account you created.
  • Amount: Enter the amount of non-taxable income received.
  • Description: Optionally, add a description for clarity.
• Click Save and Close to finalize the deposit.

Important Considerations

• Consult with a Tax Professional: It’s essential to consult with a tax professional to ensure that your categorization of non-taxable income aligns with IRS guidelines and your specific financial situation.
• Regularly Review Accounts: Periodically review your income accounts to ensure all entries are accurate and properly categorized.
• Use Reports for Clarity: Utilize QuickBooks reporting features to analyze your non-taxable income and confirm it is correctly reflected in your financial statements.

Conclusion!

Understanding how to record non-taxable income in QuickBooks Desktop or Online is vital for maintaining clear and compliant financial records. By following these steps, you can ensure your non-taxable income is accurately categorized, leading to precise reporting and tax compliance. For further assistance or questions, don’t hesitate to reach out to a QuickBooks professional or your accountant for expert guidance.