Using QuickBooks - Categorizing with Classes

If you need to classify by categories your income and expenses in QuickBooks, the solution is using classes. Classes help you track financial results by categories such as business unit, location, etc. This is a way to identify related data. Classes are used in transactions. Classes let you organize transactions into any categories you want. Classes also come in handy for tracking the allocation of functional expenses that nonprofit organizations have to show on financial statements. You can have a subclass of each class that you create.

Before you can assign classes, you have to turn on QuickBooks' class-tracking feature. In the QuickBooks Pro, you can turn it on: Edit - Preferences - Accounting, and then click the Company Preference tab. 

You can create two classes in QuickBooks for your business: location 1 and location 2. Each time you enter a transaction, it will assign one of two classes. Another example is if you have two or more vehicles in your company and you would like to know how costs for repairs, fuel, and so on. You need to set up a class for each vehicle and apply those classes to your QuickBooks transaction entries for repair, fuel, etc.

QuickBooks comes with reports specially designed for tracking class-based transactions such as Profit & Loss by Class, it  can be found in the Reports menu, under Company & Financial. You can find more reports on Report Center.

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W-4 - What is the Correct Amount of Tax Withholding?

Form W-4 allows you a degree of control over how much of your income you want to subject to those federal taxes by controlling the amount of withholding allowances you can claim on your paycheck. Without a W-4 on file, an employer is required to withhold at the highest rate - as if you are single and claim zero allowances. The more allowances you claim, the less your employer will tax from your paycheck. The number of exemptions you should claim varies and is based on a number of factors, such as marital status, job status, earned wages, filing status and child or dependent care expenses. 
If you are exempt on your W-4, that means you are telling your employer that you do not want any money withheld from your paycheck for federal taxes. You must meet the following two criteria to file as exempt:

1. You were refunded all of your withholding in the previous year because you had no tax liability;
2. You expect to have no tax liability in the current year.

Remember, if another person can claim you as dependent on his or her tax return, you cannot claim exemption from withholding if your income exceeds $1,050 and includes more than $350 of unearned income.
W-4 includes three worksheets to help you determine the correct number of allowances.
 
You can use the withholding calculator to help you figure out how many extra allowances you should be claiming on your W-4.  Withholding Calculator

You can adjust your withholding at any time during your employment.

The Form W-4 and instructions for 2016 can be downloaded here:  Form W-4 (2016)

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FATCA - Foreing Account Tax Compliance - Who must file?

The Foreign Account Tax Compliance Act (FACTA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The legislation created new self-reporting requirements and increased penalties for failure to comply fully with complex reporting rules. The regulation imposes on all foreign financial institutions a vast new legal mandate to determine who among their clients are "U.S. Persons" and report directly to the IRS information on those clients' accounts. Usually, a withholding agent is required to withhold 30% on a withholdable payment made to a Foreign Financial Institution (FFI) or to a Non Financial Foreign Entity (NFFE), unless the FFI or NFFE meets certain requirements.

In general, federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. 

Generally U.S citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad).

Specified individuals, which include U.S. citizens, resident aliens, and certain nonresident aliens that have an interest in specified foreign financial assets and meet the reporting threshold must file Form 8938.

Form 8938 is due with your annual income tax return and filed with the applicable IRS service center.

There is a penalty up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply.

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What is Backup Withholding and How to Prevent It

Backup withholding is a specified percentage (currently 28%) withheld by the taxpayers to be paid to the IRS on some transactions reported on variants of Form 1099 for tax purposes. 
Backup withholding is required in certain situations. These include:

• Interest payments;
• Dividends;
• Patronage dividends, but only if at least half of the payment is in cash;
• Rents, profits, or other income;
• Commissions, fees, or other payments for work performed as an independent contractor;
• Payments by brokers and barter exchange transactions;
• Payments by fishing boat operators, but only the part that is in cash and that represents a share of the proceeds of the catch;
• Payment Card and Third-Party Network Transactions; and
• Royalty payments

 Backup withholding also may apply to gambling winnings, if the winnings are not subject to regular gambling withholding.

US citizens and resident aliens will be exempt from backup withholding if:

• You properly report your name and Social Security number to the payer using form W-9, and that information matches the IRS records, and
• You have not been notified by the IRS that you are subject to mandatory backup withholding.

 If you receive a "B" notice from payer, notifying you that the TIN you gave is incorrect, you usually can prevent backup withholding from starting or stop backup withholding once it has begun by giving the payer your correct name and TIN. If you receive a second "B" notice from that payer, you will need to provide the payer with verification of your TIN from SSA - Social Security Administration or the IRS.
If you have been notified that you underreported interest or dividends, you must request and receive a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun.
If the IRS determines that backup withholding should stop, it will provide you with certification and will notify the payers who were sent notices earlier.

If income tax has been withheld under the backup withholding rule, you should take credit for it on your tax return for the year in which you received the income. It will be reported to you and to the IRS using the appropriate form 1099.

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Cash and Accrual Method - Tax Implications

Regardless of whether method of accounting you use, you need to check which option allows you for deferring taxable income to a subsequent tax year and accelerating deductions to the current year.
The cash basis of accounting recognizes revenues when cash is received, and expenses when they are paid. With the cash basis of accounting method, you record income when you actually receive payment from customers and have the cash in hand. Similarly, you record expenses when you write a check and the cash leaves your bank account. This method does not recognize accounts receivable or accounts payable.  Many small business prefer to use the cash basis of accounting because it is simple to maintain. 
In the accrual accounting, expenses and revenue are matched, providing a company with a better idea of how much it is spending to operate each month and how much profit it is making.With the accrual method, income and expense are recorded when they are obligated to be paid. So, if you make a sale, you record it as income on the date of the sale, not when you actually pay for it. And you record an expense the day you incur the expense, even if you don't actually pay for it until a later date.By calculating accounts receivable and accounts payable, you'll have a clearer picture of profits for any given period.
Of course, you will have to pay taxes during one year or the next, but you can strategize to the best of your ability to decrease your liability as much as you can.

We can help you to figure out which method is best for you.

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Using Quickbooks - Setting Up Items

Whether your business does, you'll probably use items in QuickBooks to represent the products and services you buy and sell. But to QuickBooks, things like discount, subtotals and sales tax are items too. In fact, everything that appears in the body of a QuickBooks form (such as an invoice) it is an item.
Items save time and increase consistency on sales and purchase forms. When you create an item, you describe what the items is, how much you pay for it, how much you sell it for, and the accounts to which you post the corresponding income, expense, cost of goods sold, and asset value. You also create items for other stuff you add to sales forms, like discounts, shipping charges, and subtotals.
If you do not use invoices, sales receipts, inventory and estimates, you do not need to use items. 
Planning your Item List can save you lots of frustration. By deciding how to name and organize your items before you create them in QuickBooks. Since QuickBooks Pro and Premier can not hold more than 14,500 items and once you use an item in a transaction, you can not delete that item, you need to plan how specific your items will be.
The best time to create items is after you've created your accounts but before you start purchasing goods from vendors or invoicing customers.

 

We can help you to set up items in QuickBooks

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Accountable Plan - Tax savings

You can have significant tax saving for both the company and employees when you use an accountable plan in your business for certain expenditures.

How you deduct a business expense under a reimbursement or allowance arrangement depends on whether you have: 

• An accountable plan, or 
• A nonaccountable plan. 

If you make the payment under an accountable plan, deduct it in the category of the expense paid. For example, if you pay an employee for travel expenses incurred on your behalf, deduct this payment as a travel expense. If you make the payment under a nonaccountable plan, deduct it as wages and include it in the employee's Form W­2. 

An accountable plan requires your employees to meet all of the following requirements. Each employee must: 

1. Have paid or incurred deductible expenses while performing services as your employee, 
2. Adequately account to you for these expenses within a reasonable period of time, and
3. Return any excess reimbursement or allowance within a reasonable period of time. An arrangement under which you advance money to employees is treated as meeting (3) above only if the following requirements are also met. 

An accountable plan is a reimbursement arrangement adopted by the company that requires employees to substantiate their business-related expenses to the company within a reasonable time (no more than 60 days from the date of the expense) and to refund to the company any excess advances within a reasonable period (no more than 120 days from the date of incurring or paying the expense); no advances can be made more than 30 days prior to the time of the expense.

With an accountable plan, reimbursements are not reported as income so the employer avoids payroll taxes and W-2 reporting. The employer deducts the business expenses. The employee does not have any income to report and does not have any expenses to claim as miscellaneous itemized deductions. Not having additional income means that adjusted gross income is minimized; this in turn may increase eligibility for certain tax breaks and/or avoid triggering certain phase-outs or additional taxes.

There is no IRS form used to adopt an accountable plan. The law does not even require that an accountable plan be in writing. However, formalities count when it comes to accountable plans. It’s wise to put the terms of the plan in writing. Corporations should add the adoption of accountable plans in their minutes. It is most important to operate an accountable plan in accordance with its terms.

We can help you to set up your accountable plan

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