Q&A: Self Employment Taxes

Q: I have started a small business. How do I report (tax purposes) payments to me as the owner? Is that considered income for self-employment or is the net profit from the business used for self-employment taxes?

A: For tax purposes, if you are a sole proprietor, the net profit of the business is used to figure out your self – employment taxes. Other types of organizations have different rules, but most use the amount actually paid to you to figure self-employment tax upon. This can vary from one geographic area to another.

However, no matter what business structure you have, corporation, LLC, partnership, or sole proprietorship, you should accurately track amounts that the business pays directly to you or to others for your personal items as these are paid out. Create an equity type account, use your name & the word “draws” as the account name (example: “Joyce Washington – Draws”), record these payments in this account.

In the long run, it helps to keep better track of how your business is performing if you input the payments as they are paid. Then when it comes time to figuring out your self-employment tax, you will have everything you need to determine the tax amount in one easy location.

 

Q&A: Exporting Lists From Quickbooks

Exporting a list of Donors and their addresses

Q: I have QB Pro 07. I am trying to find an efficient way to create a report or list that includes donors AND their addresses to export for a mail merge for a donor letter.

The main problem that I can see is that when I “modify report” in my donor report, I do not have the option of adding address columns as I can in a customer contact list. However, in a customer contact list I cannot find the filters that I need, such as “amount” and “item.”

A: Based on my assumption that you are using customers for donors, export your customer list with addresses. To do this go to chose:

  1. FILE-> UTILITIES -> EXPORT -> ADDRESSES TO TEXT FILE.
  2. In the dialogue box, select the category of names you want to export, click OK.
  3. In the “Save Address Date File” dialog box, select a folder & type the filename, click SAVE

FYI, your file will have a “.txt” extension. You should be able to utilize this list for the mail merge in Word or whatever word processing software you use.

Hope this helps.

 

Another Reason Recessions are a Good Time to Start a Business

I have a similar blog post in December, 2008. Enjoy ~ Joyce

Excerpt: Throughout the 2008-2009 recession we have seen a rash of articles about why it’s a good time to start a business. Sometimes I feel those articles are more a matter of the writer trying to convince himself or herself that it’s a good time to start a business, than convince anyone else! After all, some people lose their jobs and then become unwilling entrepreneurs.

Still, it’s true that a recession can be a rare opportunity to start a business. One reason: competitors (especially large corporations) are distracted by their own market challenges.

That can be good for you if you are thinking of starting — or expanding — your business. It means others in the marketplace are not minding the store. It could provide just enough of an opening in the market to get a toehold to scale new heights.

If you’d like to read more – Another Reason Recessions are a Good Time to Start a Business

 

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Bookkeeping Versus Accounting: What’s The Difference?

Before I provide a distinction, you should be aware that if you don’t know the difference, you are not alone. Some people use the words interchangeably mostly because they don’t know that there is a difference. And although professionals within the industry know that there is a difference, many have a hard time articulating and explaining that difference to others. It is important that when you, the small business owner, decide to take the leap and hire a bookkeeper and/or accountant that you know the difference. What position/functions are you really to fill?

Generally speaking, a bookkeeper is a person without a college degree in accounting who performs much of the data entry tasks. This includes entering the bills from vendors, paying bills, processing payroll data, preparing sales invoices, mailing statements to customers, etc.

Given the “definition” of a bookkeeper, an accountant is likely to have a college degree with a major in accounting and typically takes over where the bookkeeper leaves off. The accountant will prepare adjusting journal entries to record prepaid expenses (expenses that have been paid for that are future services) and/or accrued expenses (expenses that have not yet been paid for but services have already been rendered). Other adjustments to accounts include the calculation and recording of depreciation/amortization, establishing allowances for uncollectible accounts, etc. After making the adjusting entries, the accountant prepares and reviews the company’s financial statements (income statement, balance sheet, statement of cash flows.) The accountant also assists the company’s management to understand the financial impact of its past and future decisions.

With the every changing accounting software, the distinction between accountant and bookkeeper and their roles keep evolving. But simplistically, what it boils down to is data entry (bookkeeper) or analysis (accountant)… or both. Remember that it is important that you (the small business owner) know the difference. What functions/positions are you really looking to fill? data entry (bookkeeper) or analysis/consultant (accountant)?

Good luck in your endeavors! ~Joyce

 

How Hiring A Professional Costs Less Than DIY

If you own a business and are doing your own accounting then you are costing your company money. Too many owners think they are cutting costs but keeping accounting internal but the price they are paying is actually higher than hiring an outsourced accountant/accounting department.

Procedures & Professionalism

If accounting were nothing but addition and subtraction, then it wouldn’t be necessary of accountants to attend college to learn the ins and outs. Since accounting is a framework of smart business practices that ensures financial records are current and complete, it’s clear to see that it is more than just a sophisticated system of tracking cashflow.

Professional bookkeepers are not trained in accounting practices. This is one reason to hire an outsourced accounting department rather than a bookkeeper. Outsourcing to an accountant will bring needed discipline to financial operations to “close your books”.

Taxes: Laws, Breaks & Incentives

Few business owners understand the tax laws as they apply to their businesses. Payroll tax, sales tax, unemployment tax, Social Security tax, etc… they all have to be calculated correctly and paid on time. Then as soon as you learn the rules of the game, they change.

Business owners have more important things to do than pour over IRS regulations. An outsource accountant gives the owners access to an expert who is familiar with the tax laws and filing requirements.

In addition to making sure your business is compliant, accountants often have insight into tax breaks that business owners may not be aware of. Some of these can amount to significant tax savings to the company’s bottom line, savings that are more than the cost to hire an outsourced accounting department costs.

Analysis & Advice

Professional accountants can provide a level of analysis of a company’s finances well beyond what a layman could. Reports can show patterns in revenues and expenditures that a superficial examination may not have revealed. With detailed information and review, the owner can focus and develop strategic plans that will bring future prosperity.

A business owner can ask the outsourced accounting department for advice. Ranging from basic business practices that can cut expenses and increase revenue to evaluations of major expenditures, this could be huge for a small business ventures prospects of survival and growth.

The value of an outsourced accounting department is difficult to measure but almost always exceeds the cost of the operation.

Summary

In short, as a business owner, you can’t do it all. By outsourcing your accounting, payroll and tax needs to a virtual accounting department, you get back that time to use on other things… like building and growing your business.

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