[GNC] Recovery vs. reimbursement

[Patrick James]

I have discussed that financial accounting records are not required to align with tax records. Not always, but sometimes, the decision will be made to align the financial records with tax records. It is often possible to do so, but there are times when doing so does not present the financial accounting records in a "proper" way, where "proper" is a management decision.

This US-based discussion about probate and pre-paid medical expenses that were previously deducted because they met a 7.5% threshold, and, furthermore, that expense itemization was above the standard deduction... This must have an audience of about 1, and it might be the case that the rules change tomorrow, either by court decision or Congressional action.

My bet, and I don't have the numbers, is that this is a "de minimis" situation where the difference in total tax liability is close to zero, and thus the personal representative/executor would have minimal liability unless tax evasion could be proved.

> On 05/30/2026 6:36 PM PDT Adam H. Kerman <ahk at chinet.com> wrote:
> 
>  
> 7:01pm -0000 05/30/26 Steve Butler <stephen.m.butler51 at gmail.com> wrote:
> 
> >Shouldn't this be a question for the state's CPA?
> 
> I'm preparing the tax return, or at least a draft. Even if a CPA were to be 
> engaged, I still want to present him with a decent set of books.
> 
> >Not sure how this pertains to setting up the transaction in GnC.
> 
> Because if one is making sure that accounts in the books are mapped to lines 
> on a tax return, the accounts must be characterized the same way on both.
> 
> One must properly characterize whether the reimbursement or refund is a 
> recovery. If it's not a recovery, it's a contra expense and entered into the 
> same expense account as the initial transaction. If it's a recvery, then 
> it's entered into an income account. I have "includible" and "excludable" 
> subaccounts under the recovery account.
> 
> If it weren't for the anamolous manner in which reimbursements and refunds 
> are treated depending on when received and the extent to which there was a 
> tax benefit for the initial expense, it would simply be booked as a contra 
> expense. But that's not the way tax compliance works.
> 
> Every subscriber has knowledge of bookkeeping principles and may offer a 
> good suggestion or, under a similar set of circumstances, do it the way I 
> figured it out.