QuickBooks Tips And Tricks: 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.

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.

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)

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.

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.

15 handy QuickBooks tips

Here is an interesting article on some essential QuickBooks tips.

http://www.journalofaccountancy.com/Issues/2011/Dec/20114555.htm

Big GAAP vs. Little GAAP

Many private companies have minimal statutory reporting requirements other than the filing of their required tax returns. Nevertheless, a significant number of these private companies must prepare financial statements in accordance with Generally Accepted Accounting Principles (GAAP) for lenders, investors, and other users of their financial statements. GAAP requirements are often driven by issues that primarily relate to publicly held companies. The needs for users of private company financial statements are often very different from those of public companies. As a result, private companies are forced to comply with many provisions of GAAP that are not useful to the readers of their financial statements. Additionally, most private companies preparing GAAP financial statements do not have the accounting resources that public companies have. Consequently, the increasing complexities of compliance with GAAP requirements are eroding the cost benefit of producing GAAP financial statements for many private companies.

Examples of current GAAP requirements that are not relevant to private company financial statements include, but are not limited to:

1) Goodwill Impairment – Current GAAP requires companies involved in business combinations to perform an annual evaluation to determine if the carrying value of goodwill has been impaired. An evaluation of goodwill impairment often requires an appraisal report and complicated fair value estimates. This increases the cost for the company to produce GAAP financial statements while the additional information is of little use to users. Many users of private company financial statements ignore goodwill.
2) Variable Interest Entities – ASC 810 (formerly known as FIN 46(R)) was enacted to close loopholes in the old consolidation standards that some public companies used to avoid including unfavorable results in their consolidated financial statements. Private companies generally do not have the same incentive to hide negative results from investors, as they are often managed by their owners. This standard has required many private companies to prepare consolidated financial statements for certain entities under common control that may have been created for tax purposes and should be evaluated as stand-alone entities.
3) Uncertainty in Income Taxes – ASC 740 (formerly known as FIN 48) was created to analyze the technical merits of the tax positions taken by a company and determine the likelihood that the positions taken would be sustained if the company was audited by a taxing authority. Tax positions to be considered include, but are not limited to: the decision not to file a tax return in a certain state, allocation of income between tax jurisdictions, inventory capitalization, international transfer pricing, research & development credits taken, and other positions that may be uncertain. Tax positions for most private companies are more certain and most users of their financial statements do not find this information useful.

The increased cost to provide information that many find irrelevant has led many users to accept financial statements with departures from GAAP. This weakens GAAP and calls into question what really is “generally accepted.”

In January of 2011, a Blue Ribbon Panel on Private Company Financial Reporting, established by representatives from the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Foundation (FAF) which is the parent organization of the Financial Accounting Standards Board (FASB), and the National Association of State Boards of Accountancy (NASBA) recommended the following changes to better meet the needs of users of private company financial statements:

1) Create a separate private company accounting standards board under the oversight of the FAF that would have the authority to make modification to U.S. GAAP for private companies.
2) Modify existing and future GAAP to recognize the needs of uses of private company financial statements.

FASB had noted that factors such as: types of users, access to management, investment strategies, ownership structure, accounting resources, and education differentiate the financial reporting concerns of private companies from public companies. Many users of private company financial statements believe the recommendations of the Blue Ribbon Panel are needed to improve the usefulness and reduce the cost of financial reporting for private companies.

The FAF is currently seeking input from stakeholders, including CPA’s, private company owners, and their financial statement users to help in the development of this new framework. The FASB is holding two meetings in October to address accounting standard setting for privately owned companies and gather input. Stay tuned for further developments.

Use the following links to find out more detailed information about this topic:
http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/PCFR/DownloadableDocuments/Blue_Ribbon_Panel_Report.pdf , AICPA Advocacy: Private Company Financial Reporting , FASB Meetings to Address Private Company Accounting Issues

About the author:
Michael A. Stair, CPA is an Associate at Mellen, Smith & Pivoz, a full service accounting, consulting and tax services firm. He has experience servicing clients of all sizes and across numerous industries. You can contact Michael at (248) 642-2803 or via email at mstair@mspcpa.com.

TAXATION ACROSS BORDERS: U.S. REPORTING OF MULTI-NATIONAL TRANSACTIONS

The United States has long been called the Land of Opportunity. For centuries the country has been built by individuals and businesses that left their birthplace and sought out a new life in America. Upon moving to the U.S., people are normally concerned about learning a new language, pursuing their career ambitions, or starting a family. Rarely are they concerned about tax and reporting pitfalls that they became subject to upon relocating to their newfound homeland. Items such as worldwide income reporting, foreign bank account reporting disclosures, and foreign company ownership disclosures can create severe compliance problems for new U.S. residents, and severe penalties for failure to comply.

Two of the biggest reporting burden’s placed upon individuals and businesses with activities both inside and outside the U.S. are forms 5471 and 5472. Form 5471, titled Information Return of U.S. Persons with Respect to Certain Foreign Corporations is required to be filed by certain individuals and businesses that meet specific ownership requirements with respect to a non-U.S. company. Form 5472, titled Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business is required to be filed by any Corporation required to file a U.S. tax return with at least 25% non-U.S. ownership. The penalties for failing to timely file these forms can be up to $10,000 per incidence per year.

Form 5471, requires several levels of information be provided to the U.S. government. Some items, such as name, address, and country of incorporation of the foreign subsidiary are generally readily available and somewhat easily translated into English. However, the 5471 also requires that an income statement and balance sheet be completed in U.S. dollars in accordance with U.S. accounting principles. This can create a substantial burden upon taxpayers, especially for individuals who might be required to include this form with their individual income tax return. In addition, form 5471 requires that earnings and profits be maintained in accordance with U.S. tax accounting standards in an attempt to determine earnings upon which dividends and foreign tax credits might be calculated.

Transactions between certain foreign corporations and their shareholders are also required to be reported on Schedule M of the 5471. Certain transactions that the foreign corporation undertakes could create a tax liability for the U.S. shareholder, even if the shareholder did not receive anything directly from the foreign company. This type of income, termed Subpart F income (for the subpart of the Internal Revenue Code which governs it), can be triggered by a number of things including cross-collateralization of debt, an investment in a U.S. company or real estate by the foreign subsidiary, or even certain loan transactions. Proper tracking of these transactions, foreign taxes paid, and earnings and profits are essential to ensuring that income is properly recognized and all items of deduction and credit are also accounted for.

Form 5472 is less complex than the more voluminous form 5471, but no less important. A U.S. Corporation which has at least 25% foreign ownership uses form 5472 to disclose the ownership relationship and report any transactions between the U.S. company and its foreign parent and/or affiliates. Just like form 5471, a separate form 5472 must be completed for each separate company being disclosed. For example, a foreign owned U.S. Corporation which conducts business with six foreign subsidiaries of its parent company would be required to file seven separate forms 5472, one for its parent company and one for each of the six subsidiaries.

The record keeping requirements necessary to comply with this reporting regime can appear daunting. However, with the proper planning and forethought, keeping current on your U.S./International reporting obligations is an attainable goal. If you have any questions about your reporting obligations or how we might assist you in meeting those obligations, please give us a call.

About the author:
Jason Pivoz, MST, CPA is the Tax Manager at Mellen, Smith & Pivoz PLC, a full service accounting, consulting and tax services firm. He has experience servicing clients of all sizes and across numerous industries. He also has worked with businesses that operate across both state and international borders. You can contact Jason at 248-642-2803 or via e-mail at jpivoz@mspcpa.com.

IRS Audit Risk

Being selected for an IRS audit can be a scary proposition, even for individuals and companies who maintain immaculate records and follow all of the applicable tax laws. I recently came across an article entitled IRS Audit Red Flags: The Dirty Dozen written by Joy Taylor and released by Kiplinger at http://kiplinger.com/features/archives/12-audit-red-flags-the-irs-looks-for.html, which talks about twelve factors that the IRS looks at which can increase the chances of any given return being selected for audit.

Regardless of whether you claimed the home-buyer tax credit, a home office deduction, or have a potential hobby loss, there are certain things that every taxpayer should do to assist them with limiting their risk if they are unlucky enough to be selected for audit. These include:

1) Maintaining good books and records – this includes supporting documentation such as receipts that could be provided to your tax professional to assist with the defense of an audit.
2) Including all of your income on your return – the IRS has become very proficient at reviewing 1099s, W-2s and other informational returns and matching those up with bank records to discover previously undisclosed income.
3) Keeping an auto log – If you take a deduction for business miles it is imperative that you keep a log of business travel. Remember that commuting to and from work generally does not constitute business mileage for deduction purposes.
4) Double checking your return before filing – Even thorough and diligent tax professionals can make mistakes (we are only human after all). Occasionally, a mistake can make it through a firm’s quality controls and find its way onto a finished tax return. Remember that ultimately the IRS views the tax return as the responsibility of the taxpayer, so take a moment before signing your return to review the document and ask questions of your preparer if things don’t seem correct.

Individuals which fall into any of “The Dirty Dozen” indicated in the Kiplinger article should be extra careful. Remember, if you are legally entitled to a deduction, then take it; even if it is a deduction which the IRS considers higher risk. However, it is a very good idea to consult with your tax advisor about the potential risk of being selected for audit and about what specific documentation you should maintain to support your deduction.

Being selected for audit doesn’t have to be the end of the world, but half the battle is coming in prepared.

About the author:
Jason Pivoz, MST, CPA is the Tax Manager at Mellen, Smith & Pivoz PLC, a full service accounting, consulting and tax services firm. He has experience servicing clients of all sizes and across numerous industries. He also has worked with businesses that operate across both state and international borders. You can contact Jason at 248-642-2803 or via e-mail at jpivoz@mspcpa.com.

Michigan Corporate Income Tax

Michigan Corporate Income Tax

As of Thursday, May 12th, both chambers of the Michigan Legislature passed concurrent bills which will enact Governor Snyder’s budget proposals relating to repealing the Michigan Business Tax and replacing it with a 6% Corporate Income Tax. Taxpayers who have received certain approved credits (such as the MEGA) will be able to elect to continue to file and pay under the Michigan Business Tax structure until their credits expire.

This legislation will also make some controversial revenue raising changes to the taxation of pension and retirement plan income on Michigan Individual Income Tax returns.

To find out more about the legislation, please contact our office @ 248-642-2803.

About the author:

Jason Pivoz, MST, CPA is the Tax Manager at Mellen, Smith & Pivoz PLC, a full service accounting, consulting and tax services firm. He has experience servicing clients of all sizes and across numerous industries. He also has worked with businesses that operate across both state and international borders. You can contact Jason at 248-642-2803 or via e-mail at jpivoz@mspcpa.com.

Expanded Form 1099 Reporting Requirements Repeal Passed by Senate – President Expected to Sign Law

Tuesday April 5, 2011 – The United States Senate today passed H.R. 4, a bill that originated in the House of Representatives which will repeal the increased 1099 reporting requirements mandated by the health care reform law. President Obama is expected the sign the repeal into law.

Under the Patient Protection and Affordable Care Act (Pub. L. 111-148), businesses would be required to file Form 1099 for all payments to vendors which total $600 or more during a single year. In the past, businesses have only been required to file Form 1099 for transactions such as payments to unincorporated service providers and attorneys. The increased reporting requirements would have expanded that requirement to all vendors and encompass both services and property transactions. House lawmakers passed the repeal on March 3, 2011, and it is expected that the President will sign it into law.

About the author:

Jason Pivoz, MST, CPA is the Tax Manager at Mellen, Smith & Pivoz PLC, a full service accounting, consulting and tax services firm. He has experience servicing clients of all sizes and across numerous industries. He also has worked with businesses that operate across both state and international borders. You can contact Jason at 248-642-2803 or via e-mail at jpivoz@mspcpa.com.

Michigan Corporate Income Tax: A Good Idea or Bad? You Decide

While on the campaign trail, Michigan Governor Rick Snyder promised to repeal what he termed an “overly complicated” Michigan Business Tax and replace it with a corporate income tax.  Last month, the governor put forth a sweeping budget proposal which would repeal the Michigan Business Tax, replace it with a new Michigan Corporate Income Tax, freeze the Michigan Individual Income Tax rate at 4.25%, broaden the individual income tax base, and cut spending essentially across the board while reducing or eliminating funding for programs such as the film industry tax credits and the Michigan Economic Growth Authority Credit.  Is this a good idea?  Well, that greatly depends upon your specific situation.

For those who have not had the “pleasure” of paying the Michigan Business Tax (MBT), it is actually made up of five different taxes.  Financial institutions and insurance companies have their own franchise and gross premiums taxes to contend with, while traditional businesses have to calculate and pay a business income tax at a rate of 4.95%, a gross receipts tax at a rate of .8%, and a surcharge that tacks on an additional 21.99% to the sum of the other two taxes.  In addition to that, the MBT requires companies with common ownership and control to file a combined, or unitary, tax return.  Then, the MBT allows for several dozen credits which range from a credit for compensation paid to Michigan employees to credits for operating a motor speedway or large scale entertainment complex.  This complexity has caused critics of the MBT to claim that it is a “job killing tax” and further complain that the legislature has been unduly influenced by specific lobbyist groups and subsequently picked winners and losers.

Manufacturing companies appeared to have made out pretty well under the MBT.  They are able to deduct the entirety of their inventory and equipment purchases from the gross receipts tax base, take a credit for their wages paid, the equipment that they acquired, and the personal property taxes that they have paid.  While service companies appeared to have made out extremely poorly under MBT due to their lack of ability to take deductions from their gross receipts tax base, and their limited credit availability.

The Michigan Corporate Income Tax (CIT) would change all of that.  If you are not taxed as a C Corporation for Federal tax purposes, then the Michigan Corporate Income Tax does not apply to you.  Period.  If you are taxed as a C Corporation then the CIT provides for a 6% tax on your net income.  There would be a credit allowed for small businesses, those with gross receipts and business income below specified levels as well as officer or owner compensation that is also below certain levels.  Let me provide an example to illustrate the difference:

Let’s assume for a moment that you own a service business taxed as a C Corporation (this could be a CPA firm, a law firm, an insurance or financial planning firm, a consulting firm and so on).  Your sales last year were $1,000,000.  You took a $200,000 salary and you paid your employees another $400,000.  Your business broke even.  Your tax under the Michigan Business Tax would be approximately $8,000 based upon your gross receipts tax, the surcharge, and a compensation credit.  Under the Michigan Corporate Income Tax your tax would be zero. 

This is one isolated example; however the difference in tax dollars paid could be staggering.  Is the Michigan Corporate Income Tax a good idea or a bad idea?  You decide.

About the author:

Jason Pivoz, MST, CPA is the Tax Manager at Mellen, Smith & Pivoz PLC, a full service accounting, consulting and tax services firm.  He has experience servicing clients of all sizes and across numerous industries.  He also has worked with businesses that operate across both state and international borders.  You can contact Jason at 248-642-2803 or via e-mail at jpivoz@mspcpa.com.

Interesting Article about Michigan Single Member LLC’s and creditor protection

See the link below for some interesting cirucumstances as they relate to Single Member LLC’s

Single-Member LLCs v The Member’s Judgment Creditor:

 

How Strong is the Shield?

 http://www.michbar.org/business/BLJ/Spring2009/willis.pdf

A little update about the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

At the end of 2010, Congress passed the Reauthorization and Job Creation Act of 2010, a few little notes to remember:

• 2010 tax rates were extended across all types of income and all income levels through the end of 2012 (including capital gains).
• The social security tax rate for employees would be lowered to 4.2% for 2011 only.  This includes a break for self-employed individuals.
• Adjustments were made to AMT to lessen its impact on taxpayers (as has been done several times in the past).
  • This will be done retroactively back to the beginning of 2010 and the patch would be extended through 2011.
• The estate tax is back for 2011 and 2012 with a $5 million exemption and a 35% tax rate (with an option for it to be applied to 2010 estates) and the lifetime gift exclusion of $5,000,000 for gifts made after 2010.
• There is a 100% write-off for equipment for purchases made between September 9^th, 2010 and December 31, 2011 (bonus depreciation).
• The child tax credit was extended and expanded and the American Opportunity Credit (formerly the lifetime learning credit) was also extended.
• Extension of the R&D credit retroactively back to 2010 and into 2011.
• Unemployment insurance was extended for another 13 months.
• There is also an extension or expansion of items such as the Child Tax Credit, Earned Income Credit, Adoption Credit, Dependent Care Credit, Residential Energy Credits, and direct charitable contributions of IRA proceeds among other benefits.

For further discussion and analysis of how these changes will impact your business for 2011 and beyond, please contact our office and our team of professionals will be happy to assist you.