Why It Pays To Hire Your Kids

Hiring your children not only prepares them for their future and allows you to spend more time with them, but it also offers significant tax advantages.

Having your kids as employees will be most beneficial if they are under the age of 18. The government assumes that you will take care of your underage children if they lose their jobs, so you will not be required to pay unemployment insurance premiums. For similar reasons, the federal government will not require you to pay taxes for Social Security or Medicare.

If your child works for you, you can also open an Individual Retirement Account on his or her behalf. Opening a traditional IRA allows your child to earn a larger income without paying taxes. Conversely, opening a Roth IRA allows your child to put money away into account that can be tapped without penalties in the future.

In order to claim any of these financial benefits, you must follow certain rules when you take your children on as employees. First of all, any work your children perform must be reasonable and necessary for the business. If you would usually pay someone else to perform a task your child is doing, the IRS will most likely consider it to be a valid job. Jobs must also be appropriate for your child's age. For example, you probably shouldn't hire your eight-year-old to program the computers in your office.

In order to hire your children legally, you must also pay them a wage that is consistent with the wage you would pay another employee to do the same work, and you must treat them like all other employees in your company. Make sure that you keep good records in case you are chosen for an audit.

Hiring your kids isn't always the right decision, but it can be rewarding if done correctly. Acting as your child's employer allows you to teach the child financial responsibility while simultaneously reaping tax benefits for your business.

QuickBooks Tip: Classes or Types? When to Use Them

QuickBooks' standard reports are critical to understanding your company's past, present, and future. But the program also offers innovative tools that can make them significantly more insightful and comprehensive.

QuickBooks offers two simple conventions that let you identify related data: classes and types. Classes are used in transactions. Types are assigned to individual customers, vendors, and jobs.

You might use classes to, for example, separate transactions that relate to different departments or locations or types of business. A construction company might want to track classes using New Construction, Remodel, and Overhead. Your customer types might help you isolate groups by characteristics like Industry or Geographical Location.

Creating Classes

First, make sure that QuickBooks is set up to use classes. Go to Edit | Preferences | Accounting | Company Preferences. Make sure that Use class tracking is checked. If you want to be prompted for a class designation in transactions, check that box, too. QuickBooks already contains a Type field in customer, vendor, and job records.

It's easy to build lists of options for both. To define classes, go to Lists | Class List. In the bottom left corner of the screen, click on Class, then select New from the menu. You'll see this:

Figure 1: To create a class, just give it a name and click OK.

Let's say that you're a contractor and you want to separate remodeling jobs into room types, like Bathroom or Kitchen. Go through the above steps again. Enter "Bathroom" in the Class Name field and click the box next to Subclass of. Open the list and choose "Remodel." Click OK.

Tip: If your class list grows lengthy and you want to tidy it up, you can make classes that you're not currently using inactive by checking the box in this window. It will remain in your QuickBooks records and can be reactivated again.

Putting Classes to Work

Now you can use classes in transactions. Open a blank invoice and select a customer. The Class field will be next to the customer name. If the entire invoice will be assigned to the same class, click the drop-down list and select it. You can also assign separate classes to individual line items:

Figure 2: You can assign different classes to individual line items in transactions.

Not all invoice templates include a column for classes. You can add this by selecting the invoice form you want to modify and clicking Customize in the toolbar.

QuickBooks comes with two reports specially designed for tracking class-based transactions: Profit & Loss by Class and Balance Sheet by Class (both can be found in the Reports menu, under Company & Financial). Of course, you can filter other reports to include a class column. You can also create a QuickReport for individual classes. Go to Lists | Class List and select a report or graph.

QuickBooks Tip: Customer Refunds...Are You Doing Them Right?

Refunds. You probably wince at the word. Some - like customer refunds for returns - are fairly uncomplicated, thanks to QuickBooks' tools. Others, not so much. You may find yourself unable to balance your accounts receivable. 

There are numerous scenarios that necessitate the use of credit memos, including overpayment, order cancellations and bad debt write-off. It's critical that these are entered correctly. If they aren't, you may lose a lot of the time that QuickBooks helped you save as you try to chase down a few dollars.

Figure 1: QuickBooks helps you identify refunds quickly.

Sending money back

Let's say a customer pays for an order but cancels before it ships. You could:

• Apply the balance to an existing invoice
• Keep it as an available credit 
• Issue a refund 

Click Customers | Create Credit Memos/Refunds. Select the correct customer and job (and A/R account, if you have more than one). Enter the items just as they appear on the invoice. When you're finished, click Save & New.  The Available Credit window opens, displaying your options:

Figure 2: The Available Credit window displays your credit balance options.

You would select Give a refund and click OK. The Issue a Refund window opens and should already be filled in. If everything is correct, click OK. The refund check has now been entered in the checking register, ready to be processed.

WARNING: If the invoice was paid with a credit card, it gets complicated. Your instructions will depend on whether you are using Intuit Merchant Service for QuickBooks or another merchant account service. You'll also have to deal with transaction fees. We can help you deal with this.

Other refund options

If the customer has open invoices, you may want to choose Apply to an invoice in the Available Credit window. A list opens;  just select the correct invoice. Or if you want to have those extra funds available for other invoices but don't want to apply them immediately, click Retain as an available credit.  When you want to use them, click the Apply Credits button in the lower right corner of the invoice. 

Figure 3: When issuing a refund, QuickBooks can hold those funds to be applied to invoices later.

Sometimes, customers overpay an invoice or statement charge, or make a down payment for which there is no invoice. This is easy to fix. Open the Customer Payment screen (Customer Center | Transactions | Received Payments) and double-click the related payment. In the screen's lower left corner, you'll see this:

Figure 4: Click the correct option here.

Click the correct button, then Save & Close. The Issue a Refund window opens; you'd treat it the same way you did when you dispatched a return refund.

Another use

You can also use credit memos to write off bad debt if you are using the accrual method of accounting. 

If you don't already have a Bad Debt item in your item list, set up a new item as an Other Charge. Name it "Bad Debt" and match it to the correct account.

Open the Credit Memo window and select the customer, then select Bad Debt as the item. You'll get a message saying that the item is associated with an expense account; click OK. Enter the write-off amount minus sales tax if taxable (be sure the Tax column is correct) and click Save & Close. 

WARNING: Enter two lines on the credit memo if it combines both taxable and non-taxable items (both charged to the Bad Debt account), one for each type. Be sure that the Tax Columns are correct.

The Available Credit window opens. Select Apply to an invoice. Put a check mark next to the correct one and click Done.

Make refunds make sense

It seemed easier in the days when you just wrote a check for a refund or made an entry in a paper ledger, didn't it? Using QuickBooks credit memos, though, helps you maintain records that follow standard accounting procedures and simplifies our understanding of your files. We'll be glad to help you make sure that this sometimes-complex task is done right from the start.

QuickBooks Tip: Make it Yours

No matter which version of QuickBooks you're using, there are always ways to make your workday easier. As with any software, we tend to learn the features we need and not much more. But small changes in the way you operate can add up to significant time savings and more accurate files. If you jumped into QuickBooks without a thorough introduction, consider these tips. 

Use the Open Window list

Spend some time in Preferences, and you'll be surprised to learn that you have more flexibility than you knew. QuickBooks is designed to work for a tremendously wide variety of businesses, so it comes with some features activated but many dormant. 

The Open Window list is a good example. Do you tire of closing windows to find a screen that you used several tasks ago? Make sure that you're in one-window view (View | One Window), and then click View | Open Window List. Click on any entry to move to that page.

Figure 1: The Open Windows list lets you easily move among active screens.

Make account assignment mandatory

QuickBooks lets you enter transactions without assigning them to accounts. So your Chart of Accounts has two accounts labeled Uncategorized Income and Uncategorized Expenses that serve as repositories for these transactions. This means that when you run reports or prepare for taxes, you may have a hard time remembering the circumstances of those transactions and will find it difficult to assign them to accounts.

Do yourself a favor. Set up QuickBooks so that you must assign an account to every transaction. This will take extra time upfront, but not as much as if you try to recall the transaction three months from now. Go to Edit | Preferences | Accounting | Company Preferences and make sure that Require Accounts is checked. If you have questions on this, please call or email us.

Use the Account Prefill fields

Speaking of accounts, here's a little time-saving tip. If you have vendors that are always assigned to the same account(s), you can establish this constant in the vendor record. Simply open the Edit Vendor window for a client and click the Account Prefill tab. Select the appropriate selection(s) from the drop-down lists. If a payment is sometimes split between multiple accounts, you'll handle this division when you add transactions. 

Figure 2: Designate vendor accounts to save time when creating transactions.

Use "Pending Sales"

Invoices, sales receipts and credit memos can be earmarked as "pending." These sales do not show up in registers or reports (except for the Pending Sales report) and can't be used for transactions where payment has already been applied. Create the transaction and click  Edit | Mark [form name] As Pending. To finalize it, open the form and click Edit | Mark [form name] As Final.

This action can be useful in multiple situations, including:

• Backordered items
• Draft approvals
• Estimates
• Time-tracking for jobs
• Profit and loss reports that show the impact of pending sales (choose Either as the posting status [Non-posting or Posting] under Filters)

Figure 3: You can mark a payment as "pending" in several situations.

Be kind to your accountant: Set a closing date 

Once we've worked with your QuickBooks file up to a certain date, entering, editing or deleting transactions prior to that date wreaks havoc with the balance of your books. To be safe, your administrator should password-protect the ability to do this, so that no one does this intentionally or unintentionally. Go to Edit | Preferences | Accounting | Company Preferences and enter a closing date and password. We will change the date each time we complete our work.

Figure 4: Password-protect closed periods to preserve the accuracy of your books.

These are just a few examples of ways you can customize QuickBooks to make your workdays more productive and your record-keeping safer and more reflective of your business. We can help you further tailor the software to make it a better fit.

If you have questions on this or any other QuickBooks feature, call or email us. We're your partner and we're here to make your business better.

QuickBooks 7-Point Inspection

Did you know most QuickBooks users only use about 40% of the features QuickBooks offers? Failing to take advantage of these features can drain your productivity, which can drain your wallet!

Here at Rikard & Neal CPAs, PLLC we have a solution to help you get the most out of QuickBooks. For a limited time, we are offering a free QuickBooks 7-Point Inspection.

A free QuickBooks 7-Point Inspection can help:

• Identify problem areas.
• Identify QuickBooks features that may be beneficial for your business to implement.
• Identify potential security issues.
• Identify time-wasters.
• Identify the reports to help you make sense of your finances.
• Identify areas where performance could be lagging.
• Make year-end tax planning much smoother.
• Save you money!

Please contact us today at 901-685-9411 for your free QuickBooks 7-Point Inspection.

QuickBooks Tip: Finding the Report You Need

For many busy business owners, QuickBooks is the go-to accounting software. QuickBooks has made entering invoices, bills, and all kinds of financial transactions as easy as can be, but how does a business owner analyze and make sense of all this data? If you know where to look in QuickBooks, you can find the report you need to answer the questions you have.

  

QuickBooks provides many preset reports that focus on all aspects of your business finances. These reports can answer many of your business questions, such as:

1. How much do my customers owe me?
2. How much do I owe my vendors?
3. Do I have enough cash?
4. Which parts of my business are profitable, and which are not?
5. And most importantly…Am I making money or am I losing money?

While QuickBooks preset reports can answer the questions mentioned above and so much more, how can you find the reports that are tailored to the needs of managing your business? The easiest way to find the report you need is to use the Report Center. In the Report Center, you can:

1. Browse through report categories and the related reports for each category.
2. View sample report images and report descriptions.
3. Create and access a list of your favorite reports.
4. Quickly access recently reviewed reports.
5. Search for reports based on words found in its title or description.

The Report Center is a central location for all your reports. From here, you can easily run reports that show all Open Invoices, Sales by Customer, or Sales by Rep, for example. You can even print several different reports all at once!

What is your favorite report? Post a comment and share it with everyone – thanks!

14 Ways to Improve Profit and Cash Flow

#1) Bank Accounts over $250K?   Sweep Accounts?, etc.                                           

Does your business have any bank accounts with an excess of $250K? Any sweep accounts being used? Bank accounts are only protected by the FDIC of up to $250K.     

                                  

#2) Increase Collections                                     

Start tracking your receivables very closely. See who pays on time, who pays inconsistently, and who pays late (consistently). Be proactive and contact the inconsistent and late payers before the invoice becomes overdue, and then steadily keep the pressure on. This takes time, but the pay-off is in improved cash flow and ultimately, improved profit maximization.

#3) Reduce Expenses

Stop spending money on things that don't add to the bottom line.

#4) Manage and Calculate Cash Flow

Look for ways to reduce cash outflow, while increasing cash inflow. While the Statement of Cash Flows is usually part of the monthly process of analyzing financial statements, if cash is tight maintain a daily cash flow chart or projection spreadsheet. When you manage your money that tightly, you will spend less and look for ways to increase income more (and focus on profit maximization).

#5) Invoicing Clients

If you invoice your clients, then it is wise to do your invoicing daily.                   

If your work is spread out over time, send a progress bill. By using either method, you can receive a more consistent cash flow.                

#6) Consider Reducing Inventory                      

Reducing inventory will help reduce cash outflows, but do not reduce inventory to the level that it will hurt sales. Develop more favorable terms with suppliers (for example, the supplier holds your inventory on their floor or they give you extended payment terms) to lower the cash drain that inventory can cost. Consider streamlining the supply chain to improve your inventory turn cycles.               

#7) Negotiate Better Deals                    

In a weak economy when many businesses are struggling, anything can be negotiable. From business loans to leases and everything in between, lower payments, extended terms, and better rates can be negotiated.                  

#8) Take a Closer Look at your Business Debt.                                               

Can you consolidate loans (credit cards, equipment loans, line of credit, etc.)? Can you negotiate better rates?                                      

#9) Don't Pay your Payables Too Early                                     

If your supplier's terms are net 30 days, pay your bill in 30 days. Even if you have the cash to pay, don't pay - keep the money in an interest account until you have to pay the bill.                                             

#10) Consider Consolidating Suppliers                                        

By consolidating suppliers, you may receive a better price and/or payment terms.   

                                           

#11) Sell More to Existing Customers                                         

Acquiring new customers can be expensive. Consider focusing on increasing revenue from existing customers and you'll cut promotional expenses and increase profits at the same time.                                          

#12) Consider Outsourcing

This can help you focus on the key elements of your business and reduce personnel costs by outsourcing some of your back-office functions, such as human resources or technology services.

#13) Go Open Source

Free and open-source software can be far less expensive to obtain and maintain for a small business owner. For example, you could spend hundreds on programs like QuickBooks, Microsoft Office, and Photoshop, or you could get Gnu Cash or Open Office absolutely free of charge. The interfaces are generally of great quality, and will contain all or most of the familiar tools you're used to using in industry-standard, professional software. In all likelihood, you clients will never know the difference, and you'll save hundreds or even thousands of dollars in software licensing fees.

#14) Return Slow-Moving Inventories

Identify inventories that aren't turning over, and ask the suppliers to take back some of these supplies or products at cost. Getting these materials off your books will put cash back into your account.

Can an S Corp Owner Receive Reimbursements for Section 179 Deductions?

   IRS regulation 1.62-2(d)(1) permits your S corporation to reimburse you for your employee expenses. The regulation identifies expenses suitable for reimbursement as those found in Part VI, Subchapter B, Chapter 1 of the Internal Revenue Code. Section 179 expensing is one of the many expenses in this section of the law that is identified as appropriate for reimbursement.

   So How Does This Work?

   For example, you purchase a used vehicle for $10,000. Your business cost is $8,000 based on your mileage log. You personally own the vehicle, but you want the corporation to claim Section 179 expensing on it.

   To make this work, you submit an expense report to your S corporation requesting reimbursement for your business expenses, this includes the amount of section 179 expensing. You must also submit to your corporation a mileage log that supports your business use of this vehicle. You must also submit a mileage log for each of the next 5 years, because this is the time during which your corporation could suffer Section 179 recapture if business use of the vehicle were to drop to 50% or less.

   The expense report and mileage log combination creates a tax-defined “accountable plan” that allows your corporation to deduct the expenses, and makes the reimbursements to you not taxable.

   Say you give your corporation a separate expense report just for the $8,000 Section 179 expense. Based on this request and the information from your mileage logs, the corporation writes a check to you for $8,000. The corporation deducts the $8,000 as a Section 179 expense as if it had purchased the vehicle itself, subject to the rules that apply to the corporation for its expensing.

   In general, your agreement with the S corporation will be for the corporation to reimburse all your actual vehicle expenses. If recapture should occur, your agreement could require you to reimburse the corporation for the recapture amount. Requiring the reimbursement is the easy way to handle this.

It's a Whole Lot Easier to Keep Track of Mileage

If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses and mileage, you may be able to write-off a larger percentage of your business-related automobile costs.

Whether you buy or lease your vehicles, if you drive them for both personal-use and business-use, the IRS requires you to select ONE of the following 2 recordkeeping methods to write off the business-use portion of your vehicles. Each vehicle may individually use either of these 2 methods:

The “STANDARD MILEAGE METHOD” with 2 tracking options:

1) Track mileage daily all year = your annual totals
2) Track any average “90-day period” x 4 = annual totals

The “ACTUAL EXPENSE METHOD” by recording all vehicle operating expenses all year, then multiplying those totals by the mileage “business-use percentage” Actual expenses include: gas, oil, tires, repairs, maintenance, insurance, interest, registration fees, licenses, parking fees, tolls, and depreciation.

Listed below are a few ways to simplify the burden of logging your automobile expenses for tax purposes.

#1 ENVELOPE METHOD. The Envelope Method can help you keep track of both MILEAGE and EXPENSES at the same time. Keep in mind, however, that only one method may be used on your return at tax time. Here’s how it works: Keep an envelope for each month of the year in the vehicle that you use for business. No matter who is driving the vehicle, they can record accurate mileage or expenses and put the receipts in the envelope pocket for documentation. On the front of the envelope, make columns with these headings: Date, Destination, Purpose of Trip, and Trip Mileage. Each year you are required to record the odometer reading for each business vehicle on January 1st and December 31st. These numbers can be recorded on the first and last envelopes used each year for each vehicle.

If you want easy documentation for BOTH of these odometer readings, simply get your oil changed on December 31st each year. The sales receipt will record your Ending Odometer reading on the last day of the year, which can also serve as the Beginning Odometer reading for the first day of the New Year.

#2 THERE’S AN APP FOR THAT. There are several mileage tracker apps that have recently been released for all kinds of smartphones. A new app for the iPhone, automilez™, now generates mileage logs for you after each trip. It’s a GPS mileage logging and online log management service, so it measures your mileage for you; you just have to say what it’s for. If you use the pre-selected categories, it will even calculate the total tax deduction for the trip. The app will even email you the data. If you think this might be for you, it is available at no charge in the Apple store.

Another app that is available for the iPhone, as well as Google Android smartphones, is called MileBug. While Milebug isn’t free like automilez™, the app costs $1.99, it does have a solid following of 120,000 users. Milebug features include detailed reporting that shows totals by business and vehicle. Users can e-mail HTML and Excel-compatible reports. The mileage tracker is able to keep tabs on mileage for multiple businesses and multiple vehicles, and keep a running total of deductions with each addition to the user’s trip log.

#3 ON THE WEB. If you want more functionality, or you don’t have a smartphone, you can keep track of your mileage online using Logbook. Logbook is a web application that allows you to track and store mileage online. Logbook often has 30-day free trials, but it is currently available for $36 a year. http://www.automilez.com/logbook.htm

#4 VEHICLE GPS SYSTEMS. There are many vehicle GPS systems, such as ones by Garmin, that try to minimize the hassle of recordkeeping. All you simply have to do is turn on your GPS when you drive. These systems are then connected to your PC where your mileage logbook will automatically be downloaded. Many of these systems take the log file and turn it into a complete overview of your driven routes. They can calculate reimbursements, give you a PDF formatted mileage logbook, complete with driven miles, start and stop destinations, dates, and other information you need for proper documentation.

***Please note that you must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this is a minimum of 3 years from the date you file your return.***