Business ideas

Setting Up Quickbooks Part 1 :Getting Started

 By David Roberts

 You've just purchased your first Quickbooks software and brought it home. You've been in business for a number of years and figure you can handle entering in your vendors and customers easily. You want to plug it in and start entering your data right away. The seductive nature of the Easy-Step Interview is calling you and you convince yourself that all you need to do is follow the prompts and you will have a fool-proof QB file in no time. You aren't quite sure about the Chart of Accounts and you remember filing as an LLC, but aren't sure about whether you should be considered a Sole Proprietorship or Partnership, or S-Corp or C-Corp, etc. STOP!

Quickbooks has been described as a deceptively easy accounting software program. Deceptively, because when you begin entering information and are not 100% sure that you are giving it the right designations, you can really foul up your QB file, and take it from someone who makes a living straightening up other people's QB, it's better to get some help first. Some information cannot be changed once entered and if you begin using that slightly off item list or chart of accounts, you won't get the desired results on your Quick-Reports at all and you run the risk of it being un-fixable outside of completely re-entering your file. This article and the next few articles will help you beyond using the Easy-Step Interview and give you the information you need to successfully create your QB file.

•I. First Things First

Imagine, if you will, a four square box, or draw it if you like. In the top left box, write in small letters, Sole Proprietorship. In the bottom left box write, again in small letters, Partnership. In the top right box write S-Corp and in the bottom C-Corp. Each and every one of these types of businesses can be considered an LLC. The LLC is simply a legal designation added to the tax designation of one of the four.

What it means is that if your company is sued, unless you are found to be in gross negligence or doing ‘something' illegal, it is very difficult for someone to collect anything. Lawyers typically don't want to mess with an LLC regardless of the tax designation. It would be bad news for the attorney who does whether he wins or loses the case. If he loses, that is bad enough, but if he wins the judge could appoint him or her as a designated ‘partner' of the LLC which means, should your company need to expand you can require payment from your new ‘partner' equal to the amount that you or other ‘partners' put in, and he/she would have choice but to cough it up. But if you do really well that year, you can send your new ‘partner' a K-1 with income you never paid him/her and he would have to pay taxes on that income you never paid him. So trust me, an attorney doesn't want to mess with you, unless you have done something grossly wrong.

A Sole Proprietorship is one owner, and the year end taxes are filed with a simple Schedule C and is a much cheaper alternative tax-preparation wise to either of the other three options. Taxes can be filed with your personal 1040 by April 15th.

A Partnership is two or more people running the same business. The Partnership return is filed, like the Sole Proprietorship on April 15th and usually costs more, but not as much as the last two. It, too is filed on April 15th of the tax year. It is important to get the correct information regarding the percentage shares that each partner has in the business so that at the end of the year each of the income and expense accounts are allocated to the appropriate person. Each is taxed according to the amounts left over after expenses have been paid.

An S-Corp taxes you like a partnership or sole proprietorship, you are taxed once on the amount of income you take after expenses are paid. In this it is a better arrangement than the C-Corp which causes you to be taxed once on your business' income and yet again on the amount you allocate to yourself when you draw money out to pay your salary. (This can be adjusted or changed for more information contact me at homesoonaccounting@earthlink.net if you need to. Having an S or C Corp means your tax return is due on the 15th of March, not April, so you have to be prepared a month earlier than the other. The form that is filed is the 1120 or 1120S and is the costliest of all four options. (If you are paying more than $350 to get it done, call me.)

•II. Which is Best for Your Company

Which one is right for you depends a great deal on you. If you are working in a field that is ripe for lawsuits, construction, repair, etc, I would suggest the S-Corp or C-Corp to protect your personal assets. If you are working in the service industry, a Sole Proprietorship or Partnership may work better. If you want that added piece of security against those who see lawsuits as their inherent right to win the lottery, by all means incorporate now!

But if you are just starting out, there is no need to pay well into the $500-600 range to prepare your taxes on what amounts to a hobby until you get more clients.

•III. Why Do You Need To Do This First?

•1. You Are Going to Need to Assign the Right Accounts

When you determine which designation you are, the QB chart of accounts will assign the right category to the funds you use to start your business and the funds you withdraw to keep it going. Money invested in the Sole Proprietorships or Partnerships is considered an Owner's (or Partner's) Contribution. In a C or S Corp, it is Shareholders Contribution. When you draw money out from the business that you have put in that is Owner's Draw or Partner's Draw and that money will not be taxed when you take it out because it's a part of your original investment in the company. Many business owners mistakenly put their initial withdrawals in the salary or payroll expense and end up getting taxed on their own money. In the C or S Corps, money taken out is Shareholder's Distribution and has the same advantage in not getting taxed. The Contribution and Distribution accounts are both part of your Owner's or Shareholder's equity account.

Some accounts when entered and used are difficult to change if entered incorrectly, others must be completely re-worked, so it's important to get these correct!

•2. You Are Going to Need to Enter the Right Information

When you enter an account into QB for the first time, you are given the option of entering the tax line. (see part two for explanation for each one.) In earlier versions of QB, the options on the tax line are not as specific as they are in the 2008 version. The first lines on an account are either income or expenses and are broken down as they would be on the appropriate tax for based on which type of return is needed. In the 2008 version, Schedule C options are designated as such as are the Schedule E for rental properties, some 1040 lines and K1's. (More in Part Two article.) Each of the Schedule C options are for the Sole Proprietorship only. K1 options are for the partnership or corporations and each of the other options make tax preparation very easy for the business owner.

The danger is that these tax lines are optional, QB will work without filling out this information but the Income Tax Report will then only have two categories for transfer to a Corporate or other tax return, Uncategorized Expenses and Uncategorized Income. And while the numbers won't change so to speak, the taxation of various accounts will and incorrect entries could lead to an incorrect valuation of your business.

•3. You Are Going to Need to Start off on the ‘Right Foot'

Once you begin using these accounts, it is difficult to reassign transactions to the correct account so you want to make sure that you get started off on the ‘right foot'. Like someone remarked once, it's like soup, the more you put into it, the more you get out of it. Quickbooks is very easy to get started on, but it's important to get the accounts correct as if you don't, you could end up generating reports that are completely useless to both you and the accountant handling your information.

No individual would think it enough to check his bank account once a month, or once a year to verify transactions, he or she would have no idea currently what their financial position is. A business owner should be more cautious and seek to know their financial position on a weekly if not daily basis. It's how you can know what to spend and where.

Homesoon Accounting servicing Kissimmee, St. Cloud, and Southeast Orlando offers help in tax preparation, Quickbooks consultation and fraud prevention management, with ten years experience in helping individuals and small businesses with their tax issues and bookkeeping. Since this is a home based business we don't have to pay rent on an office for 12 months with a 4 month income, like the national franchise offices do and we pass that savings on to you.

Article Source: ArticlesBase.com - Setting Up Quickbooks Part One: Getting Started