Matching WAVEAPP retained earning & Net Profit with IRS 1120 due to 50% Nondeductible Meals Expense

UnifyRealtyUnifyRealty Member Posts: 5

Hello. I can't seem to find a clear answer to this question from historical search. I am using TurboTax Business 2020 version and using WAVEApps for bookkeeping. My retained earning on book is exactly $559 lower than my TurboTax Retained earning amount. $559 is the 50% of nondeductible meals and entertainment for the 2020 tax year expense. Additionally, my book Profit & Loss shows a net profit that is $559 less than TurboTax net income (taxable income), which is also due to the 50% nondeductible meals and entertainment portion. I would greatly appreciate anyone who can guide me through a proper journal entry with debit coming from which account class (equity, liability, asset, etc.) and credit from which account class so that the book amount matches with TurboTax amount. I tried doing a journal entry with $559 credit into Owner's Equity and $559 debit out of Operating Expense > Nondeductible Meals & entertainment category....I suspect this is not the correct path and indeed doing so did not balance my book as I intended. Please help! Thank you in advance.

Comments

  • MikegMikeg Member Posts: 936 ✭✭✭

    @UnifyRealty,
    Your retained earnings on the balance sheet of the tax return (and M-2) should agree back to Wave (prior+current income) without any special entries needed. Wave has meals and entertainment at full expense and the computation of retained earnings on the balance sheet also includes a full deduction for meals. This is done through the M-1. Line 1 of the M-1 is book income (should agree to Wave income) and then works to line 10 to arrive at taxable income. Taxable income would have the 50% adjustment. The M-2 then starts with beginning retained earnings and adds the book income computed from M-1 (line 1).

    edited May 20, 2021
  • UnifyRealtyUnifyRealty Member Posts: 5

    @Mikeg
    Thanks Mike. After several rounds with TurboTax support, it turned out to be a software missed on their end and now my 1120 tax form is matching 100% to my WAVE book.

    However, I did find a new issue with WaveApps that I will contact you offline for consultation. Thanks!

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