Adjust tax accounting for partial personal use

When you use tax codes, Manager automatically calculates the tax amount based on the tax rate. But when an expense involves partial personal use, you may need to adjust tax accounting, because a portion of the expense is not a legitimate business expense. Therefore, a portion of the tax Manager would normally calculate is not attributable to the business and cannot be used to offset amounts owed to your tax authority, as reported in your tax liability account.

To properly adjust tax accounting, split a line item partially for personal use into two lines on the purchase-related transaction form. This can be done on:

  • Payments (when making non-credit purchases)
  • Purchase invoices
  • Expense claims

Apportion the Unit price by the percentage of business versus personal use. Apply the tax code only to the line for the business portion. Post the non-business portion to Owner’s equity or Capital accounts (as a draw), depending on your form of organization. Include the applicable portion of tax paid on the personal-use line, but do not apply a tax code, since tax paid for personal use is not a business expense.

John Smith, a partner in a business, spends $100 on fuel and oil for a business vehicle. The transaction is subject to a 10% goods and services tax, for a total of $110. John pays from a petty cash fund and would normally record the transaction like this:

$100 would be added to the Motor vehicle expenses account and $10 would be subtracted from the company’s tax liability account.

But 50% of this expense is for John’s personal use of the company’s car, so he can’t claim the full $110 as having been paid by the business on Motor vehicle expenses. He can only claim half. John splits the transaction using the Add line button like this:

In the Tax Summary, this transaction is reported like this:

And John’s Capital accounts balance is reduced by $55, just as though he had received a payment from the company from his share of profits.

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