QuickBooks…Use It at Your Own Risk!

In a recent issue of an accounting publication I subscribe to was a poll about readers’ experiences with QuickBooks (QB). It was actually an ad for a software vendor, but it was set up as a poll, to get accounting professionals to go to their website. I thought the premise of the “poll” was interesting, and prompted me to write this article. The poll question was whether QB has been a boon or a bane to accounting professionals.

On the boon side are the people who have found QB to be a revenue stream for them, for the (billable) time it’s generated for cleaning up all the mistakes that clients have made while attempting to use QB. On the bane side are the people who have had the same experience, but aren’t billing for it (i.e. eating the time). By the end of this article, you’ll probably be able to tell how I’d answer the question.

In my 3/27/11 article “Can You Review My Tax Return?” I railed against TurboTax, which is made by Intuit, the same people who make QB and Quicken. If Intuit had their way, all people on this planet would be using QB, Quicken, and TurboTax. The problem with this is that a lot of non-accountants I’ve encountered over the years really don’t have a clue how to use these programs, and unfortunately this is a textbook case of ‘a little knowledge is dangerous’.

I’ve been using QB ever since it came out, which (if I recall correctly) was about fifteen years ago. In the years that I’ve used it, I’ve lost track of how many client created messes I’ve cleaned up. Intuit is great at convincing the public that all you need to do is install QB and you too can be a bookkeeper. The problem is, that ain’t true!

I don’t want to confuse my readers with a longwinded discussion about debits and credits, but the point is, if you don’t understand debits and credits, your QB can become FUBAR (I’ve used this reference before…Google it if you don’t know what it means) before you can say FUBAR. One of my classic QB stories has to do with a client I had back in NY. At the end of the year, she gave me a back up of her QB data. I restored it on my computer, and opened a Profit & Loss statement for the year end; it was blank. It turned out that when she set up her chart of accounts, she set up all of her income and expense accounts as assets and liabilities, so her entire P&L wound up on the balance sheet! O.K., if you don’t know a P&L from a balance sheet (or an asset from a liability), and don’t know what a chart of accounts is, then don’t use QB, or you’ll become FUBAR too!

So have you figured out whether my answer to the poll was boon or bane? It’s really been a little of both. I’ve been known to eat a little bit of time while trying to clean up a client’s FUBAR’ed QB, but if I’m racking up a lot of time with clean up, the client will pay.

The moral of this story is, if you are not comfortable with numbers, debits and credits, or accounting in general, stay away from QB and leave it up to the professionals (bookkeepers and CPAs) to take care of your accounting. It’ll cost you less in the long run to have it done correctly from the get go.

Do you have any good QB stories? Please share with my readers. And let me know if you have any particular subject you’d like to see me write about.

Miscellaneous Tax Stuff

Those of you who know me personally are aware that I’ve been in the throes of rehearsals for a play that I’m currently performing in. While performing in community theater is something I love to do (my favorite ‘extra-curricular activity’), I have to admit that it takes up a lot of time, especially the week before opening (commonly referred to as ‘hell week’). Now that this has passed, I find myself scrambling for something to write about, to keep to my self-imposed Monday posting deadline. I decided to write some brief notes about ‘miscellaneous tax stuff’, gleaned from recent IRS e-newsletters. It’ll be the equivalent of a series of mega-tweets!

Cell Phones-o.k., show of hands…how many of you knew about IRS’s recordkeeping requirements for employer-provided cell phones? None of you? Well that’s fine, since the Small Business Jobs Act of 2010 removed those requirements. A few days ago, IRS issued guidance on the treatment of employer-provided cell phones, to clarify the tax and recordkeeping treatment.

2010 Estates-the other day IRS announced that ‘large estates’ (normally those over $5M) will have until Jan 17, 2012 to file Form 8939, which is a special carryover basis form. This form was previously due Nov 15, 2011. IRS had been slow getting this form out to the public, so is granting the extra time for filing it.

2012 IRS Tax Forums-for anybody who just can’t get enough of the IRS and taxes, the 2012 Tax Forum series has been announced (woo hoo!). There will be forums in Orlando, San Diego, Chicago, Atlanta, Las Vegas, and New York City, so make your reservations now!

Energy Credit-IRS is reminding taxpayers that a credit of up to $1500 is allowed for energy efficient purchases made in 2010. So if your tax return is on extension, don’t forget the credit, if you made the purchases.

IRS Videos on Collections-IRS has a video about understanding IRS Collection Efforts, as well as videos about a broad range of topics, including home office deductions, reporting tips, outsourcing payroll, and others. Check out http://www.irsvideos.gov/individual/payingtaxes

Use of Electronic Accounting Software Records-FAQs-IRS has answered questions about the use of electronic accounting software (such as QuickBooks) vs. using traditional paper books and records. Check out http://www.irs.gov/businesses/small/article/0%2c%2cid%3d238525%2c00.html

List of Organizations with Revoked Tax-Exempt Status-IRS is updating their list of revoked tax-exempt organizations on a monthly basis. To see a list of organizations that have had their tax-exempt status revoked, check out http://www.irs.gov/charities/article/0%2c%2cid%3d240099%2c00.html

I hope you’ve found this ‘stuff’ helpful. Let me know if you have any questions or comments, and let me know what you’d like to see me write about in the coming weeks. Until next time, practice “safe tax”!

Keep Your Eye on the (Tax Deadline) Target

The general public may not know it, but for CPAs, life revolves around deadlines. Not a month goes by when there isn’t one deadline or another for filing a tax return for something. Here’s a brief reminder of some upcoming deadlines.

September 15-the following calendar year entities (i.e. year ended 12/31/10) that filed an extension by March 15 will have their extension end on 9/15/11, so any returns filed after this date will be delinquent:
-corporations (either “C” or “S”)
-LLCs (either single-member or multi-member) that filed an election to be recognized as an “S” corporation
-partnerships or multi-member LLCs that have not filed an election to be recognized as an “S” corporation. Note that these returns had original due dates of April 18, but the extension only runs for five months (compared to six months, for a corporation)

For all of these returns, remember that although they are all “pass-through” entities, and don’t pay any tax (with the exception of a “C” corporation), there are still penalties that can be levied for filing late returns.

October 15-this is the final deadline for all individual returns for which an extension was filed by April 18. There are a couple of things to remember; first, some states may have a different final extended due date, so check your state’s requirements. Second, although October 15 is the extended deadline for filing the federal individual income tax return, any tax paid after the original due date (April 18) will incur late payment penalties and interest. So if you’re just wrapping up your personal return now, and have a balance due, there will be additional charges to pay.

November 15-if you are a responsible person for a calendar year tax exempt organization, the original due date for filing Form 990 was May 15, and two three-month extensions are allowed, bringing the final due date to November 15. There are three different 990 “series” returns that can be filed (990 long form, 990-EZ short form, and 990-N ‘e-postcard’), and all tax exempt organizations must file at least one (as determined by the annual revenue). As with pass-through entities, even though tax exempt organizations by nature don’t pay tax, there are penalties for filing a late return.

So keep your eye on the target, and please pass along this information to anybody who may need a reminder. Let me know your thoughts about the impending deadlines, or else let me know what you’d like me to write about in future articles.

Starting a Business?

Over the years I’ve had many people ask to sit down with me to discuss what they need to do when starting a new business. I think that’s a smart thing, that is, to be proactive and plan things out, prior to starting. I’ve seen all too often what happens when people start a business, and then come to me after the fact, when the books are already FUBAR (Google this term, if you don’t already know what it means!), and taxes haven’t been paid. As with so many tax and accounting related matters, it always takes a lot longer (and costs more in CPA fees) to figure out and clean up messes, than it takes to do things correctly from the get-go. This is a very brief discussion of a few things to keep in mind when starting a business.

Form of entity

There are legal and tax implications to the decision of what type of entity to operate under (i.e. sole proprietor, partnership, LLC, corporation). I’ll leave the legal/liability discussion to the attorneys. From a tax perspective, very simply, if you’re anticipating a net income for your business, you need to think about the taxes you’re going to owe on that business. Regardless of the type of entity, the income tax needs to be paid in, in one format or another (estimates, withholdings, etc).

Accounting records

Every business needs to maintain some sort of accounting records, for at least two purposes; preparing a tax return, or for an audit. There must be a system to account for (and summarize) all the income and expenses of the business. The accounting records can be as simple as a worksheet (for example, in Excel), or as complex as a program containing multiple modules for such things as point-of-sale, inventory, accounts receivable, and accounts payable. For a small business, Peachtree or QuickBooks (QB) has been the software of choice. Warning; using accounting software does not turn a person into a bookkeeper. My reference to FUBAR earlier has to do with just this thing. I’ve met way too many people who are not accounting literate or aren’t really comfortable with numbers, and as a result, the QB file has practically had to be completely redone, wasting a lot of time (mine) and money (the clients). My final comment on this subject is to have a bookkeeper maintain the accounting records, if you’re not sure about doing it yourself. It’ll be one of the best investments you can make.

Taxes

As a CPA, how could I not mention taxes in an article about starting a business? I already briefly mentioned this above, but wanted to say a little more about the subject. If you set up your entity as an ‘unincorporated’ business (any of the above choices, other than corporation), the taxes on your net income will be paid in via personal quarterly estimated tax payments. If you’re a “C” corporation, the corporation will pay its own estimated tax payments on the corporate net income, and you will have taxes withheld on the salary you get from the business. If the corporation pays a dividend to you, you will owe tax on that too. If you’re an “S” corporation, you’ll withhold tax on your salary, and will also owe tax on any net income that passes through to you.

This just scratches the surface of what you need to think about when starting a business. As I’ve done in other articles, I highly recommend that you assemble your team of professionals (starting with an attorney and a CPA) and map out the legal, accounting, and tax plan before you start operations. It’ll be time well spent.

What experiences (accounting or tax) have you had when starting your business? Please share with everybody else, and as always, let me know if there’s a subject you’d like to see me write about.