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The Top 15 Things People Do Wrong
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The Top 15 Things People Do Wrong

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Learn the top 15 things Small Business Owners and Entrepreneurs do wrong

Learn the top 15 things Small Business Owners and Entrepreneurs do wrong

Published in: Business, Economy & Finance
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  • Orientation - Exam Taking Techniques 06/10/09 © 2007 Eva Rosenberg, EA and TaxMama’s EA Exam Review Class
  • Transcript

    • 1. Today’s Topic: The Top 15 Things People Do Wrong in Their Bookkeeping Welcome to TaxMama’s Place Home of the 06/10/09 © www.TaxMama.com 2009
    • 2. Table of Contents
      • What is your entity?
      • Understand the Accounting Equation
      • Don’t overlook your online bank accounts – like PayPal
      • Credit Card payments are not a lump sum amount
      • Your contributions and loans to your business are not Income
      • Your draws from the business are not expenses
      • Should you be on payroll?
      06/10/09 © www.TaxMama.com 2009
      • Your inventory purchases are not expenses
      • Recording asset purchases
      • Recording loan payments
      • Why Auto expense detail is important
      • Not all insurance is deductible
      • There is no such account as Miscellaneous or Other
      • Do not lump all your business expenses together
      • Split your hotel bills between meals, entertainment and lodging
    • 3. 1. What is your entity?
      • Sole Proprietorship – just you and your wife
      • Partnership – you and a partner – or your wife
      • LLC – which means…you still need to decide
      • C Corporation
      • S Corporation
      • Trust
      • Exempt organization – non-profit
      06/10/09 © www.TaxMama.com 2009
    • 4. 1.1 What Form will you File?
      • Schedule C - For Sole Proprietors
      • Schedule E - Rental Properties and Royalties
      • Schedule F - Farms and Ranches
      • Form 1065 - Partnerships and joint ventures
      • Form 1120 – C Corporations
      • Form 1120S – S Corporations
      • Form 1041 – Estates and Trusts
      • Form 990 - Exempt Orgs
      • Other …
      06/10/09 © www.TaxMama.com 2009
    • 5. 2. Understand the Accounting Equation
      • Assets = Liabilities + Capital
      • Assets - all the things you own
      • Liabilities - all the things you owe
      • Capital - your equity in the business
      06/10/09 © www.TaxMama.com 2009
    • 6.
      • Paypal
      • Google Checkout
      • Amazon Marketplace account
      • Etc.
      06/10/09 © www.TaxMama.com 2009 3. online bank accounts and wallets
    • 7. 4. Credit Card payments are not a lump sum amount
      • How do you record your credit payments on QuickBooks?
        • Enter the check amount in the check register and charge it to …
        • Office Expense, or Travel, or Supplies, or…?
      • QuickBooks allows you to SPLIT check entries.
      • Do it with every credit card payment.
      06/10/09 © www.TaxMama.com 2009
    • 8. 4.1 Splitting Checks 06/10/09 © www.TaxMama.com 2009
    • 9. 4.2 Paying Mixed Bills
      • Credit card bills that include personal charges
      • Checks written to one vendor for office supplies and inventory or capital assets
      • Buying something that is used for both personal and business
      06/10/09 © www.TaxMama.com 2009
    • 10. 5. Your contributions and loans to your business are not Income
      • Look at your own Profit and Loss Statement – in Quicken or QuickBooks.
      • Under Income, see –
        • Deposits from Owner (or similar term)?
        • Loan from Owner
      • Notice how that increases your overall income – and your ‘taxable’ profits?
      • How should you enter them on your books?
      06/10/09 © www.TaxMama.com 2009
    • 11. 5.1 Booking Your Own Money
      • For Loans:
      • In your deposit receipt, enter the deposit amount. The account to record the loan is – LOAN FROM OWNER ( or officer, partner or…)
      • And write up a loan document with interest rates etc. Have the business pay the interest!
      • For Contributions to the company:
      • In your deposit receipt, enter the deposit amount. The account to record the money is – Capital Contribution ( or stock purchase or…)
      06/10/09 © www.TaxMama.com 2009
    • 12. 6. Draws are not expenses
      • Look at your own Profit and Loss Statement – in Quicken or QuickBooks.
      • Under Expenses, see –
        • Owner Draws (or similar term)?
        • Loan to Owner
      • Do you notice how that falsely reduces your overall income – and your ‘taxable’ profits – and often turns it into a loss?
      • How should you enter them on your books?
      06/10/09 © www.TaxMama.com 2009
    • 13. 6.1 Booking your own Draws
      • For Loans from your business:
      • In your check record, enter the loan amount. The account to record the loan is – LOAN TO OWNER ( or officer, partner or…)
      • And write up a loan document with interest rates etc. Pay the interest to your business!
      • For Draws from the company:
      • In your check record, enter the draw amount. The account to record the money is – Capital – Draws (name)
      • Note: You may not take draws from a corporation or S corporation.
      • In a partnership, your draws may need to disclosed to the other partners or equalized with their draws…or…
      06/10/09 © www.TaxMama.com 2009
    • 14. 7. Should you be on payroll?
      • Speaking of draws….
      • When your business is a Corporation or S Corporation, if there is enough money for you to be getting ‘draws’, you should be on payroll.
      • Officers must take reasonable wages or compensation – with all the payroll tax trimmings.
      • Note: Sole proprietorships and partnerships may not pay owners or partners on payroll.
      06/10/09 © www.TaxMama.com 2009
    • 15. 8. Your inventory purchases are not expenses
      • Look at your own Profit and Loss Statement – in Quicken or QuickBooks.
      • Under Expenses, see –
        • Purchases (or some similar term)
      • Notice how that hugely decreases your overall income – and your ‘taxable’ profits?
      • How should you enter them on your books?
      06/10/09 © www.TaxMama.com 2009
    • 16. 8.1 Entering Inventory
      • In your check record, enter the purchase amount. The account to record the money is an Asset Account – Inventory
      • At the end of each year, you need to take a count of your inventory and make a journal entry to reconcile your inventory to amount to the year-end balance.
          • Debit Purchases (Expense account)
          • Credit Inventory (Asset account)
      • If you’re using QuickBooks’ Point of Sale system, you can enter the purchases into the specific inventory category. (Books – Nancy Drew – Hardcover, etc.)
        • Handled properly, you should not need to make a journal entry at the end of the year. Or a minor one for adjustments.
      06/10/09 © www.TaxMama.com 2009
    • 17. 9. Recording asset purchases
      • Look at your own Profit and Loss Statement – in Quicken or QuickBooks.
      • Under Expenses, see –
        • Office Expenses
        • Auto Expenses
        • Supplies
      • Are the total expenses for any of these categories unreasonably high? You probably expensed an equipment purchase, or a down payment on a car or…
      • How should you enter them on your books?
      06/10/09 © www.TaxMama.com 2009
    • 18. 9.1 Booking Assets
      • In your check record, enter the purchase amount. The account to record the money is a Fixed Asset Account – Equipment, or Office Equipment, or Vehicle, or…
      • Yes, you may be able to write the whole expense off in the year of purchase using IRC Section 179 depreciation.
      • At the end of each year (or each month), record depreciation
          • Debit Depreciation Expense (Expense account)
          • Credit Accumulated Depreciation (Fixed Asset account)
      06/10/09 © www.TaxMama.com 2009
    • 19. 10. Booking Loans
      • Often, people just book the payments, for instance, Dell $136.50 per month. That’s silly. This isn’t a lease!
      • You must enter the full price of the Asset purchased in your check register, using the SPLIT function. Split the entry as follows:
      • Debit Credit
      • Fixed Asset – Computer $1,000
      • Loan – Dell Computer -$1,000
      06/10/09 © www.TaxMama.com 2009
    • 20. 10.1 Booking Loan Payments
      • By definition, loans charge interest.
      • When booking a loan payment, split the check and record the interest and principal, as follows:
      • Enter payment amount in the check register $275.00
      • Debit Credit
      • Loan – Dell Computer $200.
      • Interest expense:Loans $ 25.
      • Either the statement provides the breakdown, or print out a loan amortization schedule for yourself at the beginning.
      • http://www.amortization-calc.com/
      06/10/09 © www.TaxMama.com 2009
    • 21. 11. Why Auto expense detail is important
      • Remember Point 9 – about booking assets.
      • Auto expense detail often contains:
      • Down payments
      • Personal expenses – fuel, insurance, fuzzy dice
      • The occasional surprise
      • Keep BOTH detail and mileage data.
      • At the end of the year, you might be able use whichever is higher. (or not…)
      • Certainly, for the year of purchase, you’ll want actual expenses, since the depreciation can be generous
      06/10/09 © www.TaxMama.com 2009
    • 22. 12. Not all insurance is deductible
      • Non-Deductible Insurance
      • All life insurance on owners
      • Premiums on all life insurance in excess of $50,000 on employees or corporate officer/employees
      • Health Insurance (on Schedule C)
      • Certain health insurance on other entity returns (must have written plan)
        • Note: insurance on family members who do not work for the business, or are not covered by spouse on Sec 125 plan
      • Personal portion of homeowners insurance, auto insurance
      • NEVER deduct disability insurance premiums. That way benefits are not taxable, when it’s time to collect.
      06/10/09 © www.TaxMama.com 2009
    • 23. 13. N o Miscellaneous or Other
      • MAJOR RED FLAG!
      • It’s common sense.
      • You see a large number on a return for an account called Miscellaneous or Other.
      • Wouldn’t YOU want to know what’s in there? So does IRS.
      • Take everything out of those accounts and put them somewhere!
      06/10/09 © www.TaxMama.com 2009
    • 24. 14. Do not lump all your business expenses together
      • You probably don’t do this, but…
      • More common sense – The smaller you can make the total in most expense categories, the less likely it is to attract audit.
      • Break up expenses into more detail. For instance:
        • Supplies could be:
        • Office Supplies
        • Marketing Supplies
        • Technology supplies (toner, cables, etc.)
      • Certain expenses should be large – like advertising.
      06/10/09 © www.TaxMama.com 2009
    • 25. 15. Split hotel bills between meals, entertainment and lodging
      • Lodging, travel and transportation are fully deductible.
      • Meals and entertainment are reduced by 50%
      • When IRS sees big travel expenses and small meals numbers – they know the travel includes meals expenses.
      • Note: Remember, hotel room bills often have room service, or client entertainment costs (meetings – banquet service). Save the hotel printout and use the SPLIT feature in QuickBooks to enter the detail when entering credit card charges (or checks or cash payments).
      • Note 2: Tips – include them with the appropriate expense – bellhops and valet with Hotel; waiters and room service with meals, etc.
      06/10/09 © www.TaxMama.com 2009
    • 26. Getting it Right!
      • You’ll be better able to compute your correct Estimated Tax Payments
      • And
      • You’ll save a fortune!
      06/10/09 © www.TaxMama.com 2009

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