Tax Time, How QuickBooks Helps You De-stress
The reasons for putting off tax preparations are endless – and understandable. But when we procrastinate on this tedious job, tax filing deadlines mean marathon sessions grappling with tax records. Not only is this unpleasant, but it also makes it more likely you’ll make potentially costly mistakes on your return.
Conscientious daily work habits – including a diligent eye on tax issues – can help prevent this painful scenario. QuickBooks offers many built-in tools to help you minimize the tax-time terrors.
Stay on Top of Your Receivables in QuickBooks 2011
Even if your sales are up, slow customer payments may be damaging your cash flow. If you often come up short when it’s time to pay your tax obligations, it may be that you’re not chasing down your receivables adequately.
QuickBooks Pro and Premier 2011 added a number of features to help with this. The new Customer Snapshot gives you instant access to key customer information – things like open balance, number of days to pay, and recent invoices and payments.
A new vertical pane next to transaction forms displays an overview of your interaction with the customer or vendor. Beyond saving the time you used to spend looking up historical information, this feature can alert you to collection opportunities. A new Collections Center also automates e-mailed collection notices.
Figure 1: QuickBooks Pro and Premier 2011 display vertical panes next to transactions to help you catch unbilled items and open balances.
If you’ve got any questions about these newer versions of QuickBooks, give my office a call.
Older Versions’ Cash Flow Tools
Previous versions of QuickBooks also help you maximize customer payments. Enter an invoice for a customer who has outstanding time charges and/or costs, and a dialog box reminds you of that.
Figure 2: If you’re invoicing a customer who already owes you money, QuickBooks will remind you – and include the past due balance in your current form.
Also, QuickBooks’ integration with Microsoft Word makes short work of collection letters. Open the Customer Center, then click Word | Prepare Collection Letters and follow the wizard. The Payment Snapshot (Company Snapshot | Payments) is a page you should visit daily; its tables and graphs spell out who needs nudging.
Intuit also offers solutions that let you accept payments online, so you don’t have to wait for checks to arrive in the mail. Talk to us about which one might be best for you and how to get started with it.
Keep Documents Close
However you store receipts and other tax-related paper, it can be frustrating to match paper to QuickBooks data. QuickBooks 2010 introduced the ability to attach scanned documents to any screen that has the Attach icon. Using this tool faithfully will reduce the time and frustration associated with your tax preparation. Prices start at $9.95/month for one attachment per list item or transaction; 30-day free trial.
Figure 3: Click on this icon to attach a scanned paper document to a QuickBooks item.
Use “Classes”
QuickBooks uses the accounts assigned to your transactions to categorize your tax-related data. You can also slice your data in additional ways by using classes to break out account balances by filters, like by departments, consultants, or locations. But you must use it faithfully for it to be effective.
To get started with classes, first make sure that you’re set up to handle them. Click on Edit | Preferences, then click the Accounting tab and Company Preferences. Click on the box next to Use class tracking if it isn’t already checked, and on Prompt to assign classes if you want QuickBooks to remind you before you save an unclassified transaction.
Figure 4: Make sure your Company Preferences are set to accommodate class tracking.
Next, go to Lists | Class List, and then click the Class tab in the lower left corner. Select New. Type your new class name in the field that appears and check the Subclass of box if you want to make this a subclass. Assign these classes in transactions where appropriate, and you’ll have neatly categorized data for the Profit & Loss by Class, Profit & Loss Unclassified, and (new in 2011) Balance Sheet by Class reports. Classes can also be displayed in other reports.
Built for Tax Reporting
Unfortunately, QuickBooks can’t prepare your taxes for you – but these tools help shape your data so tax deadlines are less stressful and your returns more accurate than in the days of pencil and paper.
QuickBooks organizes data in the background by, for example, assigning your transactions to the appropriate accounts, so your reports tell the right story. Another helpful feature includes the ability to print 1099s, W-2s, and W-3s.
QuickBooks’ design encourages you to look at tax-related issues every day, which can be a very good thing come filing time. Take advantage of this – along with our expert advice – and you can be more confident and less frantic during your periodic interaction with the IRS.
No sure way to avoid an audit
Well, here we go again, these days everyone is talking about audits. I normally try not to join into what everyone is doing but, Some things need to be Pointed out.
First and foremost, there is no sure fire formula or guide that dictates by “doing this you’ll avoid an audit.” At best you can do is lower the possibility and having the records to substantiate your return. Meaning, have the records to back up the numbers.
The IRS conducts random audits to serve as benchmarks for its examinations. The best things you can do are file on time and pay what you owe. When it comes down to it, punctuality and accuracy are the only things the IRS really wants.
Yet for those returns that aren’t pick randomly, there is a system of IRS software called the Discriminant Inventory Function System that analyzes tax returns for oddities and discrepancies. This secret software the IRS uses, is based on a closely guarded formula. Basically the system assigns each return a score that determines whether or not the IRS will audit you.
Here are some common “red flags“:
- significant income increase or decrease
- significant deduction-to-income ratio — say, $40,000 in deductions on a $50,000 income
- business deductions consisting of fancy dinners and pricy trips to the Moulin Rouge
- home-office deductions
- low tip income for workers who traditionally make a lot of money from tips
- income exceeding significant benchmarks, such as $100,000 and $1,000,000
- self-employment
- computational mistakes and typos
- incorrect Social Security number
- incorrect reporting of income, deductions, and the like.
- late filing without applying for an extension with Form 4868
- not paying your full tax liability without applying for an installment agreement with Form 9465
Obviously, you can’t avoid an income change if you get a better-paying job. If you’re self-employed, you’re self-employed you’re not going to change that. However, you can still do some things to decrease the likelihood you will be targeted for examination:
- Keep Good Records – in the grand scheme of things, this is easy
- Explain Yourself – include the receipts, a written explanation and any other appropriate documentation with your return
- Don’t go overboard with your deductions – especially if you’re self-employed. Also, don’t estimate your deductions — use exact amounts based on receipts.
- Beware of Tax Software - Tax software is great for returns at the simpler end of the range. But, when you start getting into deductions and complex sources of income, it is best to verify the accuracy of your return with a tax professional.
- A sloppy return is sure to get a thorough check by the IRS, especially if the all-important numbers are illegible.
- Check and Recheck Your Return – no errors in your math, make absolutely sure all your math is correct.
You might also lessen the chance for an audit by having it prepared by a professional. I have heard from local IRS auditors that say they are more likely to pick a self-prepared return then one prepared by a reputable tax pro.
The best way to handle an audit is to simply stay prepared for one. You should keep a record for every line item on a tax return.
The government (IRS) isn’t kidding. It wants its revenue, and if you can’t justify a tax break, it’s not likely that you’re going to be able to keep it.
Righteousness in Designation?
Friday I was interviewed and retained by a new client. This particular client has several issues that actually can fall in line with a great debate we have all been following.
First, a little background:
A young newly wedded (three years) couple has their tax return done by “pros” as they are not among those who follow the taxing world. We will call them Pat and Jody Taxpayer. Having just started their own Business they left HeRBert (the group who prepared their returns) for what to them was perceived as a tax professional. They retained a CPA to handle some general bookkeeping and complete tax returns.
Good choice?
Of course it is, “All but the militantly nefarious and hopelessly deluded concede that CPAs are experts at keeping books and records. There simply is no higher accounting “designation.” then CPA.
The CPA (Certified Public Accountant) maintained records by gaining access to Pat & Jody’s bank account using the online statements. The first tax season for this CPA came around and she completed the 2007 tax return. Another year passed, and she completed the 2008 return.
Several months ago, the IRS notified the Taxpayers that the 2007 return was under investigation. Seven lines on two different Schedule Cs were in Question.
Considering a CPA had prepared this return there should be no worries.
So how did I get this return?
When the time came for the audit with the “Tax Compliance Officer”, the CPA, had manufactured information to provide the IRS to validate two of the seven lines in question and did not show up to guide the Taxpayers through the 3 ½ hour long ordeal. Needless to say, the IRS found no substantial proof or validation for seven lines in question. P & J now are holding a bill from the IRS for over $10,000.00.
Not only are the taxpayers confused about what happened, but the “Compliance Officer” also looked at their 2008 return, they are about to undergo another audit.
“Because good accounting skills are a critical part of good tax preparation, CPAs are uniquely qualified to be tax preparers.”
So where is this CPA? Avoiding Pat and Jody.
This is a most uniquely “qualified” tax preparer?
I reviewed 2006 (again prepared by HeRBert – a fast food chain preparation service), 2007 and 2008 returns. (again, these two returns were prepared by the same “CPA”)
- 2006 had 6 errors resulting in a $213 refund to Pat and Judy (I can say this because I have already amended this return)
- 2007 has 21 errors - three missing forms (associated with errors) and if that wasn’t bad enough, 5 of the errors are mathematical.
“Good tax preparation is about numbers. It’s about keeping good books and records.
In short, it’s about good accounting.
In fact, what is a tax return if it’s not an accounting?”
Hummmmm
if anyone needs a definition to “accounting” I have a link to the right for Merriam-Webster Dictionary or you can click this.
Good thing it doesn’t suggest an ability to add or subtract.
Same for Accountant.
- 2008, well is just wrong. I say this because nothing changed from 2007 through 2008.
- 2007 consisted of
- 1040 Long Form
- 2 Schedule Cs
What the 2008 return consisted of was a 1040A – Short Form, nothing more.
My conclusion is this CPA stands proudly among those who are truly CPA tax professionals. You real CPAs who are tax pros, give her credibility she assuredly doesn’t need.
As for Jody and Pat, luckily they found a tax professional. I will help them through the amended returns, the audit up coming, and any and all IRS intervention that may come their way. If you wish to stay updated on their situation, I will create a blog page giving more detail information and will keep it updated.
However not all of you will see it this way. Why? Well, I am no longer a CPA. I am not an EA, nor am I an Attorney. What does this make me? I am an unenrolled preparer.
Unenrolled preparers, by definition, have no recognized credentials and are bound by no professional standards
And what are the unique qualifications of an unenrolled preparer?
Would someone please tell me?
Anyone?
The silence is deafening.
That’s because the answer is “none . . . nada . . . zero . . . zilch.”
The silence sir, is deafening because you are on your computer. But now, please, open your eyes fully, adjust your glasses, I want you to hear me plainly.
An unenrolled preparer is a unique person. Like a Lawyer, a CPA, or Doctor or any other profession, you are going to have unqualified hacks. My Credentials are useless in the taxing industry.
Or did you miss it?
The AICPA told a CPA/Tax Professional “We do not offer a credential in taxation. In general, our approach has been not to develop credential programs around areas for which the public already believes CPAs to ‘own’. In addition, we do not endorse a particular tax credential.”
An unenrolled preparer sees how others take advantage of the miss-conceptions of the designation and learns tax rules and regs to help people through what can be a very taxing time (no pun intended).
I question your thinking when you say a man with over 35 years in the tax preparation industry has no credibility. I only have 23 so I must not have any either?
Hummmm, let’s look at my background a bit:
a) A Masters in Accounting
b) Formally employed by this countries (at the time) Largest Accounting firms
c) Formally a CPA
d) 23 years preparing returns for taxpayers
Of the four listed in my mind, only qualifies me to call myself a tax professional. I can assure you it isn’t one of the top three.
“There simply is no higher accounting designation.”
Thus, if the Internal Revenue Code imposes an affirmative duty on taxpayers to maintain good books and records, doesn’t that alone explain why CPAs are uniquely qualified to prepare tax returns and why many CPAs are drawn to the field of tax preparation?
Of course it does.”
You Pompous arrogant ass. Is your head so high in the sky that you are not getting enough oxygen?
True enough, the IRC does affirm duty to taxpayers to maintain good and accurate records. Alone that tells me (a former CPA) should seek advice from a CPA on how to keep those records not how or where to put them on a tax return.
It is my opinion that a good majority of the CPAs that are drawn to taxation and preparation do so for the money.
(Not to get off subject, but are you actually a licensed Tax Attorney, and a CPA? I know a few Lawyers and I’ll have to ask, to be sure, but I think like the AICP, there is nothing out there for Lawyers to hold actual “tax” credentials. If I am wrong please correct me, do you have some designation that says you’re a Tax Lawyer? If so, what is it?
As for not being bound by professional standards, I find it hard to understand why I have to point out to a designated pro that we (The Unenrolled prepares) are bound by the same rules in Circular 230 as you are. Maybe you should read it some time.
A while back, I post Who is: a post that defines different titles. If you want to see the entire post please click on the link Who is: Below is a brief recap:
A Tax Attorney - Typically large and even small businesses will meet with a tax attorney once every quarter or once a year to ensure that they are making the best possible business choices with regards to investments and tax issues. Since the taxation, laws change constantly.
A Bookkeeper – is responsible for keeping accurate, up-to-date business records for proper cash flow management, balance sheet preparation, and developing expansion and investment plans.
Accountants – keep track of a company’s money.
Enrolled Agent – is a federally authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.
Tax Preparer – an individual who prepares tax returns.
Other post from the “taxguy” blog that may be related to the taxpayer issue mentioned in this post.
Choosing the Right Representative
5 Worst Things You Can Do if You Get an IRS Collection Notice a Guest post from Peter Pappas. . .
How to Avoid IRS Penalties and Interest
Picking A CPA With Too Much. . .
Failure to Pay. . .
A Failure to Pay Child Support, Federal Non–Tax and State Income Tax Obligations could go to The Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds first. They have been authorized by Congress to conduct the Treasury Offset Program. Through this program, your refund or overpayment could be reduced by FMS to pay any past–due child support, Federal agency non–tax debts, or state income tax obligations.
You can contact the agency with which you have a debt, to determine if your debt was submitted for a tax refund offset. The IRS won’t be able to tell you this until after FMS has taken your refund. If your debt was submitted for “offset”, FMS will take as much of your refund as is needed to pay off the debt and send it to the agency owed. Any portion of your refund remaining after offset will be issued in a check.
You will get a letter if an offset occurs. This notice will reveal the original refund amount, your offset amount, who they are paying, and their address and telephone number. FMS will notify the IRS of the amount taken from your refund. Contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.
If you filed a joint return and you’re not responsible for the debt, but you are entitled to a portion of the refund you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset. If you file a Form 8379 with your return, write “INJURED SPOUSE” at the top left corner of the Form 1040, 1040A, or 1040EZ. The IRS will process your allocation request before an offset occurs. If you file Form 8379 with your original return, it possibly will take 11 to 14 weeks from the date of filing to process your return.
Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the Service Center where you filed your original tax return. Allow at least 10 weeks for IRS to process your allocation request. They will compute the injured spouse’s share of the joint return for you. If you lived in a community property state during the tax year, they will divide the joint refund based upon state law.
For additional information, FMS can be reached at 1-800-304-3107.
Prepare your taxes on-line With L & R Tax Preparation
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E=MC2 or use QuickBooks
