The Home Office Deduction

Posted by Bruce Mc on Dec 7, 2010 in Accounting, Form 1040 Information, Information, Tax Planning | 0 comments

The tax break has been expanded, but make sure you know the rules.

The Taxpayer Relief Act of 1997 included a modification of the IRS’s definition of “principal place of business” that will permit a larger number of taxpayers to qualify for the home-office deduction. For tax years beginning after 1998, the deduction will be available for home offices that are used for administrative or management activities related to the taxpayer’s business (for example, billing, maintaining records, ordering supplies, scheduling appointments, creating reports).

Business/Personal Boundaries Home-based businesses, by their very nature, often have less structure. While many consider this to be an advantage, working at home can be a double-edged sword. The lack of structure tends to result in home-based workers putting in more hours than when they did not work at home. Having set office hours and “closing up” at the end of the day will help you balance business and personal matters.

Under the amended rules, a taxpayer is allowed to deduct expenses of a home office that is used for business purposes only if the space is used “exclusively” on a “regular basis” as:

The principal place of business carried on by the taxpayer,

1. A place for meeting with clients or customers in the ordinary course of business, or
2. A place for the taxpayer to perform administrative or management activities associated with the business, provided there is no other fixed location from which the taxpayer conducts a substantial amount of such administrative or management activities.

The Taxpayer Relief Act of 1997 added this third provision to the definition of principal place of business.

The exclusive-use test will be satisfied if a specific portion of the taxpayer’s home is used solely for business purposes or inventory storage. The regular-basis test is satisfied if the space is used on a continuing basis for business purposes (that is, incidental business use will not qualify.)

In determining the principal place of business (first provision under the definition of principal place of business, above), the IRS considers two factors: Does the taxpayer spend more business-related time in the home office than anywhere else? Are the most significant revenue-generating activities performed in the home office? Both of these factors must be considered when determining the principal place of business.

Employees
To qualify for the home-office deduction, an employee must satisfy two additional criteria. First, the use of the home office must be for the convenience of the employer (for example, the employer does not provide a space for the employee to do his/her job). Second, the taxpayer does not rent all or part of the home to the employer. Employees who telecommute may be able to satisfy the requirements for the home-office deduction.

Expenses
Home office expenses are classified into three categories:

Direct Business Expenses relate only to the taxpayer’s business activity (for example, supplies, salaries). Expenditures for additional phone lines, long-distance calls, and optional phone services for the business may be deductible as direct business expenses. However, basic local telephone service charges (that is, monthly access charges) for the first phone line in the residence generally do not qualify for the deduction.

Permissible Expenses are expenditures that could be included as itemized deductions in the individual’s tax return (for example, mortgage interest, real estate taxes, and casualty losses).

Previously Non-deductible Expenses would not be deductible if not for the home office deduction (for example, insurance, utilities, and depreciation).

Limitation
Home office deductions are limited to the gross income from the business activity. Previously non-deductible expenses cannot create or increase a net loss from a business activity. However, a carryover to future years is available for unused, allowable home-office expenses.

Sale of Residence
Tax rules generally permit a $500,000 (married filing jointly) or $250,000 (single or married filing separately) exclusion on the gain from the sale of a primary residence. If part of the home is used for business purposes, the gain is divided into two parts — personal-use portion (the exclusion applies) and business-use portion (exclusion does not apply). For example, a taxpayer who qualifies for the exclusion, but has used 25 percent of the home for business purposes during the during past five years, will only be able to apply the exclusion against 75 percent of any gain recognized on the sale of the home.

As with many tax laws there are exceptions to this rule. If you’d like a clearer picture of the size of the exclusion you qualify for, please call us.

Taxes
The “office-in-home” tax deduction is valuable because it converts a portion of otherwise nondeductible expenses (for example, utilities and homeowners insurance) into a deduction. The treatment of home offices for income tax purposes is one of the more controversial provisions in the tax law.

An individual is not entitled to deduct any expenses of using his/her home for business purposes unless the space is used exclusively on a regular basis as the “principal place of business.” The IRS applies a 2-part test to determine if the home office is the principal place of business.

Do you spend more business-related time in your home office than anywhere else?

Are the most significant revenue-generating activities performed in your home office?

If the answer to either of these questions is no, the home office will not be considered the principal place of business, and the deduction will not be available.

Business use of the home by an employee must also be for the convenience of the employer. These rules make it very difficult for an employee to qualify for the deduction.

If these three tests are met, the deduction is limited to the gross income from the business activity. Furthermore, a deduction for home-office expenses cannot create or increase a net loss from the business. Any disallowed deduction may be carried over to future years.

Taxpayers taking a deduction for business use of their home must complete Form 8829. Some tax experts believe that taking a deduction for home-office expenses, whether clearly allowable or not, increases the likelihood of an IRS audit.

These are some thoughts to consider.

If you have a home office or are considering one, please contact me. This is a specialty of mine.

Small Business Jobs Act – A Look at the Benefits

Posted by Bruce Mc on Nov 18, 2010 in Information | 0 comments

On September 27, 2010, President Obama signed the Small Business Jobs Act of 2010 into law – a $42 billion bill in tax cuts, increased loans, and other measures. The bill is designed to prop up small businesses so they can create more jobs.

Many of the Act’s provisions have already kicked in – which means it’s time to learn how they benefit you.

More Loan Money Available

The main focus of the Small Business Jobs Act is to help small businesses get loans. Here are the three major ways the Act makes loan money available to small business owners.

SBA Recovery Loans. The American Recovery and Reinvestment Act of 2009 (the Recovery Act) was last year’s attempt by Congress to aid struggling small businesses. The Jobs Act of 2010 extends some of the Recovery money. With the passage of the Jobs Act, the Small Business Administration began funding new Recovery loans within a few days of the president’s signature.

7(a) and 504 Loans. These are the two largest SBA loan programs, and under the Jobs Act, they got a huge boost.

The bill increased the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing-related loan from $4 million to $5.5 million.

Increased Capital to Community Banks. The Jobs Act established a $30 billion fund, run by the Treasury Department, that extends ultra-cheap capital to community banks with incentives to lend to small businesses. This means higher loans – with better guarantees – are now available at your local bank.

Tip: Now is an excellent time to explore your borrowing options – whether it’s through a national organization like the Small Business Administration or your hometown lending institution.

Don’t miss out on the chance to use some of this capital for your business. Give us a call to talk over your needs.

Tax Cuts, Credits, and Breaks

The Small Business Jobs Act includes $12 billion in tax incentives. Take a look at the top six:

1. The elimination of capital gains tax on certain small business investments if they’re held for five years.
2. Higher limits on the amount of investments small business owners can write off for 2010 and 2011.
3. The extension of a Recovery Act provision that allows for a 50% bonus depreciation. This means small businesses can deduct capital expenditures on certain investments.
4. The ability to deduct all of your health insurance payments for you and your family when figuring your self-employment tax.
5. An increase in the amount entrepreneurs can deduct for start-up expenses for this year.
6. The ability to offset tax liabilities for five years by carrying back general business credits.

Less Red Tape

Some of the Act’s benefits reside in reduced paperwork and clearer regulations, which allow you to take advantage of tax breaks much more easily.

Deduct Your Cell Phone Simply. Previous policies required lots of documentation to deduct charges from an employer-provided cell phone. With onerous and confusing paperwork, you had to prove you used the mobile device for business purposes more than 50% of the time.

The Small Business Jobs Act addresses this headache. The legislation removes cell phones from the Internal Revenue Code’s definition of “listed property.”

What does this mean for the small business owner? It’s now much less complicated to deduct the use of your mobile phone on your taxes.

Tip: Other telecommunications devices have also been removed from “listed property,” including Blackberries and PDAs.

Limited Penalties. The bill limits the penalty for failing to report a transaction that the IRS has formally identified as an abusive tax shelter. The penalty is set at 75% of the tax benefit and capped at $200,000 for corporations and $100,000 for individuals.

Questions?

Do you have questions about how to take advantage of the Jobs Act’s provisions? Make an appointment to meet with us. We’re eager to help you claim the capital you need for your business.

Investment – Capital for a new business

Posted by Bruce Mc on Nov 10, 2010 in Accounting, Information, personal finance | 0 comments

Anyone who’s ever lent a chunk of money to a relative or friend knows it can be a murky proposition fraught with sticky questions and daunting problems. If you have been trying to secure a loan and have been turned down by banks, you have an alternative. 

You can borrow money from other individuals at competitive terms, and without having to put up any collateral to secure the loan. These loans are called peer-to-peer loans. 

 
Peer to peer lending (or social lending) allows individuals to obtain a loan from other people who are willing to loan money. Enter the so-called peer-to-peer lending business, an emerging amphitheater of financial Web-sites that help arrange and manage loans between family members, friends and {as strange as it may sound} total strangers. Borrowers are turning to the sites as an attractive alternative to high-rate credit card loans, payday loans and other small unsecured loans that many banks won’t offer.

The sites all work a little differently, but were founded on a common principle of cutting out the middle man, which helps borrowers get a lower interest rate than they might through traditional sources such as a bank or credit card issuer. A lot better.

Lenders {basically anyone with a spare $50} are attracted by the prospect of earning higher returns than they may get elsewhere, such as in a bank CD.

At one site borrowers go through a credit check and get guidance about what to put in their listing, which must include their credit rating. For example, they may want to note any colleges they attended, which could sway a fellow alumnus to offer a better interest rate.

Lenders and borrowers are given market benchmarks to help them set and choose rates.

People can chose to lend to only the most highly rated borrowers and accept a lower interest rate, or make riskier loans to boost their returns.

There’s no limit on the amount someone can lend, but it is recommended to people to minimize risk by lending in $50 to $100 increments to a diversity of borrowers.

Instead of making money on the interest rate spread, the sites take their cut solely through fees for arranging and servicing the loan. Borrowers post how much money they’re seeking (from $1,000 to $25,000 usually) and the top interest rate they are willing to pay. Potential lenders bid to finance an entire loan, or more typically, pieces of loans. The bids with the lowest rates win.

One site collects an origination fee from the borrower ranging from 1 percent to 2 percent of the loan and an annual servicing fee from the lender of between 0.5 percent and 1 percent of the outstanding balance.

The company (site) collects and disburses monthly payments on the loans, which are all made for three years.

These loans are similar to signature loans or payday loans in that they are unsecured. But they differ and have three distinct advantages over those types of loans:

(1) You Avoid Banks – Peer to peer loans allow borrowers to bypass the banks by obtaining your loan from other individuals. Provided that the borrower’s credit score is satisfactory, they will likely be able to borrow money more easily through peer-to-peer lenders than from a bank.
 
(2) You get a Better Interest Rate – By avoiding banks and borrowing from a peer-to-peer lender, you will be able to obtain a loan at a lower interest rate. This is because social lenders have lower overhead costs than banks do. Lower overhead results in better terms for borrowers.
 
(3) A Three Year Repayment Schedule – Most peer-to-peer lenders schedule their loans with three-year repayment schedules. This means that your monthly loan payments are more affordable. Equally, most signature loans and payday loans have very short repayment schedules. Typically, those loans are due to be paid in full by your next payday. Longer repayment schedules take a lot of the pressure off of the borrower to repay the loan quickly.
 
Obtaining an unsecured loan via one of the peer-to-peer lending companies is an excellent alternative to traditional banks. You stand a better chance having your loan application accepted. You will likely get a loan at a lower interest rate. You will have ample time to repay the loan. Peer-to-peer loans are an excellent option for those people seeking an unsecured loan.
 

Now, why have I written a post on a Wednesday, and above all, why about all this? Hummm.

In today’s rapidly changing competitive environment, the most successful accounting firms are agile, adaptable, and capable of rapidly seizing new opportunities. I know you’ve heard of it: “The Learning Organization” — the kind of business that’s always learning… always improving… always achieving new milestones. Well I have come to a point.

            I have come to a point in my practice where it is time to expand and grow accordingly. A business plan has been made. A perfect location has been found and is available. A working model has been established, and now is the perfect time. All cost have been established and verified. Employment for 16 accountants the first year and with expansion, over the next ten years up to 100.

            I am however missing funding. So I am seeking out a silent partner or partners. I would utilize the means above, alas they fall short of the need funding to kick it all off. Calculations have been made for all construction, furniture, utilities, equipment, operating supplies, salaries, and the proverbial oddities necessary to maintain the tax, payroll and accounting firm.

            So to you, perspective lender/s and/or silent partner/s. Provide the funding as described in the business plan. We build a strong growing firm and you get 6.5% interest on the loan payment. Also, as described by the sites above, a three year payment plan will be established. Monthly payments will be made accordingly to you over no more than thirty-six months. {Although preliminary estimates show that the total (All interest as well) would be re-paid in less than one year.}

            So there is no mistake, this is a loan to a business, not an individual. The business is a new tax preparation and payroll service company. I will disclose no more than I feel I absolutely have to. Interested parties please contact me personally.

The week in review

Posted by Bruce Mc on Sep 19, 2010 in Week in review | 0 comments

I wanted to let you know first that on September 13^th Intuit announced the release date for its newest version, QuickBooks 2011, which includes several new features that will help small business owners find data when they need it, perform everyday tasks and access business information remotely.

According to Intuit, the software goes on sale September 27. – to my clients. Update when you will but please note that I won’t get there until Jan 2011.

Some quick tax cut calculations – Taxes are all about the numbers.

Next I want to mention that there are several bloggers giving out a weekly list of Tax and personal finance bloggers.

Blogroll Beans

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – WEDNESDAY EDITION

WHAT’S THE BUZZ? TELL ME WHAT’S A HAPPENNIN’ – usually posted every Saturday over at THE WANDERING TAX PRO

“. . . who says all CPAs, attorneys and EAs have a tax background and the appropriate competency?” I hear the comment and feel the same. In fact, all I know and most who I read from all feel the same. So from all our point of view to what is actually happening how is that so many are going to be just presumed to know what they need to know? Becoming a Registered Tax Return Preparer.

Home Business: Are You Providing a Product or a Service? – When you start a home business, it is important to understand the distinction between a product and a service. This is because this distinction could affect how you are paid. Consider:

• Most people pay for a product before they receive it.
• Most people pay for a service after they receive it.

Regulating Paid Tax Return Preparers

If that’s not regulation, I’d hate to see what regulation looks like I’d consider the source, but true enough he was regulated. Joe,  agreeably, somebody willing to commit blatant fraud isn’t going to have a change of heart because they have a registration number and have to pass some lame “proficiency” test.

What $1 buys

Five Myths about the Bush Tax Cuts –  popular myths coming from both sides in the tax cut debate.

More on the Bush Tax Cuts

• Jonathan Allen (Politico), Nancy Pelosi Keeps Losing Democrats on Tax Cuts
• Bruce Bartlett (Fiscal Times), Bush Tax Cuts Had Little Positive Impact on Economy
• Neil H. Buchanan (George Washington), The Bush Tax Cuts and Uncertainty
• Mike Dorf (Cornell), Boehner v. McConnell on Taxes
• Howard Gleckman (Forbes), Mitch McConnell, the Bush Tax Cuts, and the Future of Government
• Timothy Homan (Bloomberg), Paychecks Could Be Whacked If U.S. Tax Vote Slips 
• Paul Krugman (New York Times), The Tax-Cut Racket
• Lori Montgomery (Washington Post), Senate GOP Looks for Deal in Tax Debate
• Stephen Moore (Wall Street Journal), Let Them Eat Tax Hikes
• Gerald Prante & Bill Ahern (Fiscal Times), Five Myths about the Bush Tax Cuts
• Greg Sargent (Washington Post), Dear Dems: Do NOT Take GOP Deal on Tax Cuts
• Michael Scherer (Time), Obama Finds His Footing in the Tax Fight
• Kimberly Strassel (Wall Street Journal), Why Democrats Can’t Win on Taxes
• Martin Vaughan (Wall Street Journal), Democrats Find Party Unity On Tax Cuts Remains Elusive
• Martin Vaughan (Wall Street Journal), McConnell’s Embrace of Estate-Tax Compromise Draws Criticism

Compare Traditional and Roth 401k – As it’s name implies, a Roth 401(k) is a 401k plan with features similar to a Roth IRA.  It has a variety of benefits over the Traditional 401k, depending on your specific financial situation.

10 Ways to Boost Your Retirement Savings Starting Now – With longer predicted life expectancies, a roller coaster stock market, and more pending job losses, it’s more important than ever to find ways to boost your retirement savings now.

Dumb Money: Early 401k Withdrawals – The economy is still struggling to get going. While jobless claims recently fell more than expected there were still 451,000 initial applications for unemployment.

Making Progress with Mileage-Based Road Fees

Obama names Warren to set up consumer protection agency – Calling Warren “one of the country’s fiercest advocates for the middle class,” Obama said she would ensure the Consumer Financial Protection Bureau ends abusive practices.

A rant…

New to the taxguy post Joe Taxpayer with this  A Retirement Shortfall.

Trustworthy Tax Professionals are a Must When Seeking Tax Help

The left hand of the government apparently does not know what the right hand has been doing not really sure there was any question of that but I like to see the proof – thanks Mary.

The IRS Announces: No More Paper Coupons It’s Time to Learn How To Use EFTPS – It’s time for those taxpayers who are fighting the electronic age to step it up.  The IRS today issued proposed Regs to discontinue the use of paper coupons as early as next year.  If you try to send in a paper coupon after December 31, 2010, there wont be anyone at the Treasury Department to process it.

Blogging and Tax Obligations

Maybe You Shouldn’t Be In Business is an interesting read. If you’re thinking about starting a business, read this then give your situation some real thought before proceeding.  

5 Insider Tips for Starting a Small Business

Tax Hike on Pass-Through Businesses Twice that on “companies that ship jobs overseas”

This ended a week of post from USATaxAid’s Blogs series concerning steps you need to take with your business to protect your assets. Read all the post:

Lack of Paperwork Nails Taxpayer in IRS Audit

3 Steps to Asset Protection that Really Works

Does a Single Member LLC Protect Your Assets?

Why LLCs are Better than Corporations for Asset Protection
The Consequences of Tax Education Deficiency

No Advance Fees-Sort Of – The FTC has recently amended the Telemarketing Sales Rule to cover abusive practices by debt collectors. While aimed at those who are targeting consumers who want relief from credit card debt, tax debts to governments are also covered.
What If They Gave a Tax Party and No One . . . .

In an off tax note I found DangerousCrayon, the post I was drawn to homemade vanilla extract. I came across this in Homemade Gift Series #1: Vanilla Extract from Trent over at the simple dollar. Very cool

I was asked recently why I don’t mention more of the “more popular” tax blogs that are on the web. Aside from popularity being over rated, I don’t care much for those who are overly flashy or what have you.

Let’s face it, please, there are those who blog about taxes and finance because they enjoy the topic themselves (thank you to those people) and just want to get the information out to the average taxpayer/reader.

Don’t get me wrong, there is nothing against making money with your blog be it a tax blog or a PF or other sort of blog, but if your motivation behind your blog is only financial, please pick something other than taxes to write about. The general taxpayer deserves someone who is generally interested in helping them (taxpayers) not bleed them out. If a blog is in my week ending post then it falls under my thoughts of those who are interested in informing you about taxes/personal finance first, that is the purpose of their blog, at least from where I sit.

Also I was hoping I could get some more suggestions for PF blogs. If you know of a good one please send me a note.

Thanks

The Income Statement (Profit & Loss) Part 2

Posted by Bruce Mc on Jul 15, 2010 in Accounting, Bookeeping, Income Statement, Information, Preparer, QuickBooks | 0 comments

It has come to my attention that many of you could use some help in understanding how to use your Profit & Loss effectively in managing your business. Even more so, Some of you may not even know that this is a tool to use in managing your business. So here is just exactly what the Profit & Loss Statement is good for.

The Profit & Loss Statement is your major management tool. This report shows you many things that you will want to be aware of as you are managing from month to month.

The Profit & Loss lists all your income and all your expenses. It will first list your income and then list your Cost of Goods Sold (COGS), subtracting the total COGS from your total Income. COGS are the expenses that are directly related to your service or product you sell.

For example:

 if you are a contractor, then your COGS could be your labor, the building materials, the permit, things like that.

 Each industry has its own COGS. So the number that you get from subtracting your COGS from your total income is your gross profit margin. This number is very important and helps you to determine if you are making a profit on your services or product. This is not the infamous “bottom line” though, because all companies have “overhead” or expenses that are not directly related to the service or product.

For example:

your accounting, the receptionist, taxes, office supplies, and many other expenses not directly related to what you do or sell.

So after you have subtracted the COGS and the overhead expenses from your income, that is what your net profit is for the month or the infamous “bottom line.”

There are many things to be aware of and to look for on your Profit & Loss in helping you to manage your company. The following is a Top Ten list:

1. Did I make a profit? If so how much?
2. Use your Profit & Loss to determine your financial viability, not your online bank balance. Small business owners think that if they have money in the bank, they are good. The problem is that your bank account is only one facet of your business at a specific point in time, and your Profit & Loss will provide you with the overall picture.
3. If I did not make a profit, why?
4. Did we spend too much on a given expense, like tools? Computer repairs? Cell phone fees? Meals out? Advertising?
   1. You can see this at a glance as a total for each expense category on your Profit & Loss.
5. How much income do I need to break even?
6. How many months have I lost money?
7. Based on your numbers, you will be able to tell if you need to get a loan.
8. Do you need to lay people off?
   1. You can determine this from this Statement.
9. Do you need to make your company more efficient in order to break even or make a profit?
10. Based on your income numbers, you might find one income source essentially non-existent and another is booming. This will give you direction on what to promote, what to put your money into and what not to.

So as you can see, your Profit & Loss will provide you with crucial info in the management and direction of your company.

You can use your Profit & Loss to help with many facets of the business. But as you may have figured already, it is very essential that your accounting/bookkeeping be accurate, because if the accounting is off, then these reports are incorrect and therefore, worthless. If you have QuickBooks and do not know accounting, it would be good to outsource the review of your books and maybe the entry of your transactions to a reliable accounting/bookkeeping service, so that you can have effective tools in your tool bag and have control of your business.

Understanding what to look for and how to use it can save your company in tough times and make your company extremely profitable in the good times.

Related articles

• What is the importance of profit and loss account (wiki.answers.com)
• Profit and Loss, By Leontia Flynn (independent.co.uk)
• One trading statement for Companies House and HMRC for small firms in future (telegraph.co.uk)

Mistakes made in QuickBooks

Posted by Bruce Mc on Jul 1, 2010 in Accounting, Bookeeping, QuickBooks | 0 comments

Common QuickBooks Mistakes

 Okay truth be known (for those of you not in the know) I am a big QuickBooks fan. Meaning a lot of companies, new businesses and the such who can’t afford to take on an accounting firm to handle their needs they need something to handle their books. In cases like that, I recommend only QuickBooks products. Why? Well for what it is, it is the best on the market.    

 Okay that being said:  

I want to  address some Common Quickbooks Mistakes. Things I have seen a lot of lately. QuickBooks is a very user friendly program, and is used by the majority of small businesses without bookkeeping or accounting pros. Being user friendly is its strong point and its flaw. What I mean is, QuickBooks is very simple to use yet if you are not trained in bookkeeping/accounting, you can make many mistakes without being aware that you’ve made them.    

Yes, QuickBooks is easy to use, but it is also easy to make mistakes in. Unfortunetly, there are not very many safeguards in place to help those that are not trained in bookkeeping or accounting to keep from making these mistakes.    

It is my recommendation that you have a professional bookkeeper do your books for you. If not, send your Accountants copy to your/an account on a regular basis (QuickBooks Services From L & R Tax), or you get well trained in accounting/bookkeeping in order to be sure your books are correct.      

Why?    

 The importance of this is that if your data is entered incorrectly, then your financials and reports that you will be printing and using from QuickBooks will be incorrect, making you unable to make proper financial decisions for your company. Even worse, you will think the reports are correct, because you are not aware of the errors and make decisions based on these inaccurate reports. This can be serious, especially in regards to cash. You may think you have more than you do, you may think you are making more money than you are.    

This can be a very important ‘life or death’ issue for a small business. You must know the condition of your company and you must have financials that are accurate.   

“Garbage in, Garbage out!”   

So it is to your advantage to be sure that your books are correct and that your data is continuously being entered properly, in order to have it be helpful.    

Bank reconciliations are not done. - Bank reconciliations are extremely important. Unfortunately, many small business owners do not realize this, because they do not even reconcile their own personal checking account. They just figure they can look on line for a balance and as long as there is money in the account, they are fine. The issue is, bank reconciliations are a must because they are the final way to be sure all entries are made into your books and that there are not any double entries. And don’t make the mistake of not finishing your bank reconciliation. This means that when the bank reconciliation is done, all the transactions on the statement are checked off, but the balance is not at zero for reconciling in QuickBooks. If you do not find why you are not balanced, then QuickBooks will just make an entry in the reconciliation discrepancy account, and you will not ever find out what is incorrect in your books.    

It cannot be emphasized enough how important bank reconciliations are in establishing correct books.    

Again, if you have ‘garbage in.’ then you get ‘garbage out,’ meaning your financials and other reports will be worthless.    

Bank reconciliations are your best way to double check all of your books. If these are not done or are done poorly, then you‘ll never know that your books are incorrect. Do not just click on the ‘reconcile now” button.    

Find the error, make sure to zero out.    

I have seen books where the reconciliation amount that is recorded in the reconciliation discrepancies ‘catch-all’ account have been in the hundreds and thousands of dollars. If this is the case, it is a guarantee that your books are off and it could be serious.    

16 Bank Reconciliation Tips and Tricks

Expense accounting.  -  For the inexperienced in bookkeeping/accounting, it is thought that entering your expenses is very simple. Another common mistake that happens is that an expense is entered in an asset account. 

For example,

you may have bought a part for a computer repair for $35, you go to enter it in your books and see an account called computer equipment. Without understanding that there is an asset account called computer equipment and an expense account called the same, you may enter this expense in an asset account inadvertently.  

 !!!  QuickBooks will not warn you of the error.  !!!

This is improper accounting and impacts both your balance sheet and your profit and loss statement.    

Quick Lesson:

 An asset account is listed on your balance sheet and is only to have asset values and depreciation entered in them. An expense account is listed on your profit and loss statement and an expense decreases your profit for the month.

Asset accounting - A common mistake in asset accounting is that it is simply not done. If you do not do asset accounting, then you do not have a true value of your company. Many times, the inexperienced do not know what should be entered as an asset and what should be entered as an expense. Or it may be done, but it is not done correctly.   

 For example:

 there is no depreciation entered monthly and so you do not have correct values for your assets.

Loan accounting. -  You may have loans and you simply have not known how to enter them, but tried. There are two kinds of loan accounting, payable and receivable. I have seen where someone loaned money and entered it as a billing and it reflected in their accounts receivable. This is not correct accounting of a loan you made.

 Quick Lesson: 

 When you loan someone money, it is an asset that should be listed as such on your balance sheet, and so it is entered differently and should be separate from your billings/accounts receivables.

Where I have been. . .

Posted by Bruce Mc on Jun 20, 2010 in Information | 0 comments

            Well let’s not let the title miss lead to much. I haven’t really been gone, but I have been very out of touch for a while so let’s find out what I have been doing. . . 

            Over the course of this past year, I have expanded my firm. Not so much in a construction manner but an expanse of my services. For a full listing, you can go to my website and explore the Services page. 

            The biggest part or upgrade would be the addition of on-line services. We now have available to our clients an online payroll service, on line accounting service, online employee services, and direct deposit capabilities. 

             It seems we have focused our online amenities towards the business folks. Well, that’s just where we started. We aren’t done yet. Still to come (timeline is looking at 2011), are going to have online access for all of our clients’ needs. From basic financial planning, to tax questionnaires (that will go out from here to clients, and back again) along with access to past returns for up to ten years. But that is latter. 

            We currently have over 50 on line calculators to assist you. You’ll find these calculators on our calculator’s web page. Under the following headings – Taxes & Payroll, Business Planning, Personal Finance, College Saving, Retirement, Estate Planning, Home Mortgage, Car Loan, and Loans. 

          Our changes in part are contributed to our upgrade to a better provider company. We have purchased many of our products from Thomson Reuters, the leading software provider worldwide for accounting professionals. This has opened the door to many services we can now offer our growing client base. We will continue to use our software from our pervious providers as well.

          The above notwithstanding, through the #1 software provider for the general public we have been able to offer our clients a choice between the two. By doing this, we are able to accommodate all your needs. 

          Last, but not least. We have a new web site. One of the top things we have done to better serve our clients. Through this site you will have a great many options to help you find the information you need. Not just the calculators that I mentioned above, but you also can find answers to common QuickBooks issues, buy intuit software, incorporate, get tax information at our Tax Center page where you can find more calculators, find forms (Federal and any State), find due dates and much more. You’ll also be able to sign up for our monthly newsletter, have access to financial guides, find links to buy books we recommend, almost everything you might need including my appointment calendar where you can request an appointment and see when we are available. 

           We are very happy with the new site and we hope you will be too. It will offer our clients and others information to access to information that isn’t always that easy to find. I have added links to our web site at the top right of this blog so they will always be there. Go to our home page to start looking for what you need. L & R Tax Preparation.

           As I work my way back through everything I will try and get back to my regular Sunday post where I recap the best post from other tax bloggers along with my favorite PF bloggers.

No word yet from Alltop. I’ll keep everyone up to date as things progress.