Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Today’s Topic:   The Top 15 Things People Do Wrong in  Their Bookkeeping Welcome to TaxMama’s Place  Home of the  06/10/09...
Table of Contents <ul><li>What is your entity? </li></ul><ul><li>Understand the Accounting Equation </li></ul><ul><li>Don’...
1. What is your entity? <ul><li>Sole Proprietorship – just you and your wife </li></ul><ul><li>Partnership – you and a par...
1.1 What Form will you File? <ul><li>Schedule C - For Sole Proprietors </li></ul><ul><li>Schedule E - Rental Properties an...
2. Understand the  Accounting Equation <ul><li>Assets = Liabilities + Capital   </li></ul><ul><li>Assets  - all the things...
<ul><li>Paypal </li></ul><ul><li>Google Checkout </li></ul><ul><li>Amazon Marketplace account </li></ul><ul><li>Etc. </li>...
4. Credit Card payments are not a lump sum amount <ul><li>How do you record your credit payments on QuickBooks?  </li></ul...
4.1 Splitting Checks  06/10/09 © www.TaxMama.com 2009
4.2 Paying Mixed Bills <ul><li>Credit card bills that include personal charges </li></ul><ul><li>Checks written to one ven...
5. Your contributions and loans to your business are not Income <ul><li>Look at your own Profit and Loss Statement – in Qu...
5.1 Booking Your Own Money  <ul><li>For Loans: </li></ul><ul><li>In your deposit receipt, enter the deposit amount. The ac...
6. Draws are not expenses <ul><li>Look at your own Profit and Loss Statement – in Quicken or  QuickBooks.  </li></ul><ul><...
6.1 Booking your own Draws <ul><li>For Loans from your business: </li></ul><ul><li>In your check record, enter the loan am...
7. Should you be on payroll? <ul><li>Speaking of draws…. </li></ul><ul><li>When your business is a Corporation or S Corpor...
8.  Your inventory purchases are not expenses <ul><li>Look at your own Profit and Loss Statement – in Quicken or  QuickBoo...
8.1 Entering Inventory <ul><li>In your check record, enter the purchase amount. The account to record the money is an Asse...
9.  Recording asset purchases   <ul><li>Look at your own Profit and Loss Statement – in Quicken or  QuickBooks.  </li></ul...
9.1 Booking Assets <ul><li>In your check record, enter the purchase amount. The account to record the money is a Fixed Ass...
10. Booking Loans <ul><li>Often, people just book the payments, for instance, Dell $136.50 per month. That’s silly. This i...
10.1 Booking Loan Payments <ul><li>By definition, loans charge interest. </li></ul><ul><li>When booking a loan payment, sp...
11.  Why Auto expense detail  is important <ul><li>Remember Point 9 – about booking assets. </li></ul><ul><li>Auto expense...
12.  Not all insurance is deductible <ul><li>Non-Deductible Insurance </li></ul><ul><li>All life insurance on owners </li>...
13. N o Miscellaneous or Other   <ul><li>MAJOR RED FLAG! </li></ul><ul><li>It’s common sense.  </li></ul><ul><li>You see a...
14.  Do not lump all your  business expenses together <ul><li>You probably don’t do this, but… </li></ul><ul><li>More comm...
15.  Split hotel bills between meals, entertainment and lodging <ul><li>Lodging, travel and transportation are fully deduc...
Getting it Right! <ul><li>You’ll be better able to compute your correct Estimated Tax Payments </li></ul><ul><li>And </li>...
Upcoming SlideShare
Loading in …5
×

The Top 15 Things People Do Wrong

5,910 views

Published on

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

Published in: Business, Economy & Finance
  • Be the first to comment

The Top 15 Things People Do Wrong

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

×