The Bookkeeping Corner

4 Reasons to Check Your QuickBooks Set-Up and Preferences

4 Reasons to check your QuickBooks Set-Up and Preferences

You’ve had QuickBooks setup on your laptop or computer for some time now.  Perhaps you didn’t initially install it and set it up.  Whether you actually installed it or someone else installed it, when was the last time you checked your Company Preferences. Sometimes you can discover or re-discover certain features in QuickBooks that initially didn’t apply to your business.  However, because your business has changed, it may now be time to either incorporate some of those un-used features into your business’ operations or update your company information.

1. Your business has changed

You may now be selling products in addition to services, which could mean you have to collect sales tax. To properly track a sales tax liability you should check your preferences to turn-on this feature.

You could have changed the way you are generating invoices – instead of sending invoices through the mail, you decided to go paperless.  You can take advantage of the QuickBooks E-mail feature that allows you to email invoices and statements from within QuickBooks.

2. You have multiple bank accounts

Some business owners use multiple bank accounts for different purposes.  For example, you may have an operating bank account to pay bills and a separate bank account to receive payments from customers. In QuickBooks, you can select default bank accounts to use for specific activities.

3. Your report requirements changed

If you were on the cash basis of accounting and changed to the accrual basis of accounting, it is a time saver to set the preference in QuickBooks to have reports automatically generated on an accrual basis.

4. You have employees now

QuickBooks can calculate payroll and payroll taxes and process quarterly payroll tax returns.  You can set your employees up for direct deposit.  You can also pay your payroll taxes and file your payroll tax returns electronically.  This feature of QuickBooks is not totally free – you will have to sign up for the service and pay for a subscription. 

4 Best Practices to Separate Business vs Personal Expenses

Some business owners view their business as an extension of themselves, which can create an environment for mixing of business and personal finances.  Once the boundaries are crossed and overlapped, it can be a headache trying to separate the two, especially at tax time. 

The IRS views a business expense as a cost of carrying on a trade or business, which is deductible if the business is operated to make a profit. In addition, a business expense must be ordinary and necessary in order to deduct it.  As you cannot deduct personal and living expenses, you want to make certain you do not have personal expenses flowing through your business – it becomes difficult trying to convince the IRS which expenses are for the business and which are your personal expenses.

It is not uncommon for a new business owner to start a business with personal funds.  However, you need to make sure you keep your business transactions separate from your personal transactions.  You also need to keep track of whatever personal money you put into the business.  You don’t want to count a personal loan as income, ultimately paying taxes on it.  The following are four best practices to help keep your business expenses separate from your personal expenses:

1. Open a business bank account and business credit card or line of credit.
2. Loan the business a set amount of money and use it to make business purchases
3. Keep track of business expenses paid out of pocket and reimburse yourself. You can create an expense reimbursement form which lists all expenses for which you are being reimbursed.  Attach receipts to the expense report as back-up for substantiation.
4. Take a monthly draw or salary to cover your personal expenses. Depending on how your business is structured (corporation, s-corporation, etc.), you may be required to take a salary.

Keeping your business finances separate from your personal finances will keep you straight at tax time.

Self-Employed Business Owners and Estimated Taxes

Self-Employed Business Owners and Estimated Taxes

I’ve worked with a number of self-employed business owners who don’t realize how their tax liability can increase when they become a sole proprietor. Taxes for self employed individuals are not new and have been around a number of years.  It can save you a lot of stress at tax time if you understand how

As a sole proprietor, you are now responsible for paying self-employment taxes in addition to the taxes you would normally be liable for as an individual tax payer.  Self-employment taxes are really the social security and medicare taxes that an employer would pay for your benefit if you were an employee.  One you become your own employer, you are now responsible for paying the tax.

If you don’t make estimated tax payments throughout the year, you could be faced with a huge tax liability, interest and penalties at tax time.

How to pay taxes when you are self employed?

Estimated taxes are due April 15^th, June 15^th, September 15^th and January 15^th. Making estimated tax payments throughout the year helps to ease the tax burden and reduces penalties.

The IRS and some state agencies will enable you to pay your taxes online.

You can pay your federal estimated taxes electronically through the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service that allows taxpayers to pay their taxes electronically (www.eftps.com) 7 days a week, 24 hours a day.  With EFTPS, you can schedule your taxes to be deducted from your bank account on regular basis or one-time basis.  Scheduling your taxes to meet the quarterly deadlines will prevent you from forgetting the deadline.  In order to use EFTPS you’ll need to enroll, which can be done online.

Want to learn more about estimating your tax liability for 2010? Contact The Financial Boutique for a free consultation!

Internal Controls for Small Business

Establishing an internal control system does not have to be difficult or high-tech.  Depending on the business, it can be as simple as looking at your bank statement and cancelled checks each month to review all the transactions that come in and go out of your bank account.

What is an internal control system?

An internal control system is a system of accounting procedures designed to prevent fraud and minimize the potential for errors.  It helps to safeguard a business’s assets, which is often Cash, against misuse, theft or loss.

When should you implement an internal control system?

It depends on the size of your organization.  If you are a one-person shop, handling all your bookkeeping tasks, then it would not be a high priority. However, you should always pay attention to your bank and/or credit card statements as a matter of practice.  If you have individuals working in your business, who have access to your finances, it is time to evaluate your internal controls and establish an internal control system. 

While it may be easier and cost effective to have one person handle multiple tasks, as a business owner you should still be aware of what is going on within your organization.  Here are a few examples, which will help you to determine when you need to establish an internal control system:

• If you have one person who prepares invoices and receives payment from your customers.
• If you have one person who receives bills and writes checks to your vendors.
• If you have a signature stamp that you gave to someone else to use in your absence

Internal Controls are an integral part of a business’s accounting procedures.  Without it, you are increasing the risk of being subject to potential fraud and loss of one of your most valuable resource - cash.

10 Best Practices for New Employee Hiring & Payroll

If you are planning to hire employees, here are some things you should consider:

1. Do you have a federal tax identification number?  You can apply for one via the IRS's website or Form SS-4.
2. Do you have a state withholding ID number? You'll need to apply for one via your state's taxation & revenue department
3. Are you registered for your state's unemployment insurance? You will need to register with your state for an unemployment account and id number. Some states won't assign you a number until you've actually paid an employee.
4. Get a Form W-4 and your state's equivalent Form W-4 completed by all employees.  Keep the original signed forms in your employee's file.
5. If you will be utilizing direct deposit, make sure you have a direct deposit authorization form and voided check from each employee who elects to receive their paycheck via direct deposit.
6. How will you track employees' time? Will your employees be billable? Depending on the number of employees you have or how you bill them, it may be more efficient to have a web-based or some type of computer based time tracking software.  If you have very few employees, a simple spreadsheet or Excel template can be used as well.
7. Consider the frequency at which you want to pay your employees (weekly, bi-weekly, semi-monthly, etc.). If you're using a payroll service ask about the  pricing for each type of payroll frequency.
8. Consider the pay period ending. Will you pay your employees based on a one-week lag?
9. Will you offer employee benefits?  If you want to share the cost of health insurance coverage, you should consider establishing a cafeteria plan.  In addition, some employee benefits affect the amount of payroll taxes to be withheld and paid by the employer.
10. If offered to your employees, consider how vacation or sick time will be accrued and tracked.

If you plan on preparing payroll yourself, sign up for an EFTPS account.  It is a free service by the IRS that will allow you to pay your federal payroll taxes electronically. Many states offer a similar service - check your state's revenue department.

Want to learn more about setting up an EFTPS account?  Receive a free 10 minute consultation from The Financial Boutique!

Outsourced Bookkeeping Services

When a task gets to be too much sometimes you have to hire someone to get the job done. When you're just starting a business, the bookkeeping tasks may be small and few. As your business grows, so does your need for a professional bookkeeper. You may not need to hire a bookkeeper as a full-time employee. Instead, you should consider outsourcing your bookkeeping to a qualified bookkeeper.

A qualified bookkeeper can help you with the day-to-day financial operations of your business. He or she can become an integral part of your business, helping you to achieve your business goals. It's ok to start off by delegating smaller tasks to your newly found bookkeeper.

Whenever you delegate a task to someone else you lose some level of control. For some, it can be a level of comfort that is lost as well. However, if you make the right choice in using a professional bookkeeper who is qualified and trustworthy, your level of discomfort will soon disappear.

Outsourcing Benefits

Outsourcing bookkeeping services will enable a business to focus on its core business capabilities and minimize its operating costs. Outsourcing your bookkeeping service can help you:
• Establish an accounting system that can be customized to your business
• Reduce operating and overhead costs
• Focus time on running and growing your business
• Reduce year-end work
• Get your tax return prepared more timely

Cash vs. Accrual Accounting

You probably heard these terms from your CPA or tax preparer. But what is it? And, how can one be more of a benefit than the other? When you are a business owner, it is important to understand how your revenue flows and your expenses are incurred.

In simple terms, cash basis of accounting is recognizing revenue when it is received and expenses when paid. Even if you pay the expense with a credit card, you can still recognize it in the year it was paid.

Accrual basis of accounting is recognizing revenue when it is earned and expenses when they are incurred regardless of whether you actually received the payment from the customer or paid the expense with cash.

Is one basis better than the other? It depends on your business. If you have a service-based business then the cash accounting might be the better way to go. You pay tax on what you've actually received, which can be beneficial at tax time, when you have a slow paying customer.

Accrual basis may also be the right choice. You get to recognize revenue and expenses in the year they occur whether you actually receive the cash or paid the expense or not. Regardless of the option you choose, a professional bookkeeper will keep your books up to date making it easier for you and your tax advisor to select the best option for you and your business.

 

Hire a Bookkeeper

At what point should a business hire a bookkeeper.

You should hire a bookkeeper when the responsibility of maintaining the financial operations of the business becomes too time-consuming and too frustrating for you to manage it alone. Letting your bookkeeping fall behind should not be an option, when you are trying to establish and grow your business.

As a new or existing business it is crucial your books are kept up to date and your business is in tax compliance.  Handling your own bookkeeping after a full work day can be exhausting and time consuming.  Instead, delegate to a professional who has the expertise to get the job done right the first time.

There are a number of ways you can choose the right bookkeeper for your business.  You can hire a virtual bookkeeper (also known as a remote bookkeeper or online bookkeeper).  You can hire a full-time bookkeeper as an employee. You can hire a part-time bookkeeper who comes in to do your weekly bookkeeping or monthly bookkeeping.  You can hire a bookkeeper who can do a combination of on-site bookkeeping and off-site bookkeeping.

Whichever type of bookkeeper you choose, make sure you have a qualified bookkeeper.  You want a bookkeeper who has experience in bookkeeping.  There is a big difference between a data entry person and an experienced bookkeeper. 

While it would be ideal to have a bookkeeper familiar with your industry, it is not a deal-breaker.  An experienced bookkeeper should be able to work with your business.