A Cloud Journey

First in a series about Cloud Accounting

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I started my business in a haze of excitement and enthusiasm, unprepared but having no choice but to make it work. There was no cloud then, other than the type in the sky. Living in the Pacific Northwest, we had more than a few of those, and personally, I had a few dark clouds as well.

To take care of my clients, I traveled. I drove from one client to the next, often bringing back boxes of statements and receipts to my office, where I would attempt to put them in some kind of order and enter them into my QB Desktop software. Sometimes clients wanted me to work at their office, such as the weird guy out in the country who I eventually fired for inappropriate behavior. Sometimes clients wanted to stand over me and watch what I was doing instead of tending to their own business. After a series of increasingly responsible corporate jobs I found this both insulting and time consuming – I can work so much faster when I’m not being surveilled.

Sometimes clients wanted me in their office, in a separate room, where I would use generous amounts of Red Bull and chocolate to keep myself awake while I tried to figure out why the CPA changed my ending bank balances. (Has anyone else experienced this? CPA’s who change the bank amounts to coincide with their year-end ideas? And then never reversed their entries?)

Not only was this method of working annoying, it was time consuming. Clients weren’t always right around the corner from me, and since I was starting out and needed the money, I took every job that came along, whether it was a good fit or not. So I drove, a lot. I drove into downtown Seattle, where at least the client paid for my parking, and I drove down the 405 to Bellevue at rush hour, and I drove to Gold Bar, which is rather like driving from Earth to Mars.

Sometimes I would pull over to the side of the road and take a nap.

And then I started hearing about online applications that would do everything we could do with the desktop. A NetSuite rep met with me, and wanted me to promote their software. But I didn’t understand how it worked, and I didn’t have time to learn anything new, so I let it pass by.

I kept working like I had been.

Then I became accounting manager for a web-based accounting firm, and I found I never had to go anywhere. Eight hours a day, every day, I sat at my desk and directed activities, opened and closed numerous QB and Peachtree files we hosted, even a few programs I’d never heard of, and hoped never to again. My staff was spread out across the U.S., and so were our clients. We could be anywhere we were needed. Our clients were given scanners so they could easily upload documents, and I was sold.

It wasn’t perfect, partly because I was a manager and glued to my desk for the work day, but it was definitely an improvement. There was no traffic, no wasted time, no watching the cost of gas creep up until I wondered if it was worth it. There was just the work, available at all times.

And there’s one of the problems with working in the cloud: the work is always there, and, if you’re anything like me, sometimes you can’t resist logging in and doing it, even when I should be doing other things, things that would indicate I’m a well-rounded person, and not a workaholic.

I’m not a particularly well-rounded person, but neither am I a workaholic.



NEXT: What is the Cloud?

QB Tips - Don't Delete Users

There is a theory that if you CAN do something, there's no reason why you shouldn't. This is a bad theory, and sometimes can be harmful, especially when you're dealing with QuickBooks.

QuickBooks allows you to delete users. You have a user, you decide to fire said user, you go in to your QB file and it has an option to delete said user. So you select it.

Why wouldn't you?

You wouldn't because it's a bad idea. 

You can't delete accounts that have transactions in them, nor can you delete vendors or customers or employees with transactions. 

So why should you be able to delete a user? If the user has transactions, and you delete the user, those transactions will have missing links. When we have missing links, we're in an excellent position to end up with data corruption.

The best solution? Just don't do it. Change their password, and leave them there, with all the transaction history linked to that user. 

Intuit QuickBooks Mobile Changes

This just in: This will no longer be available on the web/browser, and will be an Android/iPhone app only.

More info here

Don't know why they do these things . . .

Why I don’t want to see Miscellaneous on your P&L

It’s not that I have anything against Miscellaneous. My life so far has been a collection of Miscellany. However, it’s not a tax deductible expense.

Look, I’ve seen a lot of tax returns. And nowhere on a tax return is there a line item for Miscellaneous. Or Uncategorized Expenses, the default QB account. It doesn’t exist because it doesn’t mean anything. As a friend of mine just said, “I’ve never gone into a store and bought miscellaneous.” (Thanks, Lori.)

Is the purchase supplies? Materials, office supplies, franchise fees, burritos for the overnight crew, cleaning supplies, fixtures, or what you have? Everything fits somewhere. If it doesn’t, is it really a business expense? And no, those tickets you bought to see Moby don’t count either, don’t think you can slip them under Miscellaneous and no one will notice.

This isn’t to say you can’t create new accounts for your expenses that don’t seem to fit anywhere. Of course you can – assuming they’re legit business expenses that you can support during an audit. But we want to be clear about what the expense is, and we want them to fit in a category that can help you see on your P&L how you’re doing at any given time, and sticking things in Miscellaneous doesn’t tell you a thing, does it? Except that your business incurred expenses for .  .  . well, who knows what for?  

You can’t run a business effectively with that sort of non-specific thing going on. At year end, I want to look at my P&L and see how much I spent on each category, and if I’m looking at Miscellaneous I’m still wondering, “What did I spend THAT on?” Then I’d have to go back and look. Rather defeats the purpose of doing the bookkeeping in the first place, doesn’t it?

In addition to having clean financials that mean something to you and whoever else has to look at them, there is no place for Miscellaneous on a tax return. This is even more important to you, since we really want to keep the IRS happy.

I recently met with an IRS auditor. You know, the official guys. We had a good time, telling tax jokes and sharing taxpayer stories. Of course, the tax return I handed him didn’t have Miscellaneous on it, or Uncategorized Expense, or anything that wasn’t specific. Since it was pretty clear, we went over franchise fees, just a quick calculation to see if the total could be easily arrived at from sales. And guess what! It was!

But I digress. If there had been a line item for Miscellaneous on there, I’m certain he would have asked for all the receipts. And this is because: Miscellaneous doesn’t mean anything. You might as well say, “yada, yada, yada,” for all the good it’ll do you.

Your bookkeeper’s job is to give you clean books from which clean tax returns can be prepared. If you don’t have a bookkeeper, that doesn’t mean the IRS doesn’t expect clean books just as they would from me.  Keep your books clean, your receipts in order, and your head above water. It takes just a little extra time, and is well worth the effort.

(About those pesky receipts, the kind you can’t see because they fade: Scan them, somehow. You can tape them to a sheet of paper and scan a full sheet. You can get a receipt scanner. You can use something like Concur Breeze, which allows you to scan your receipts when you get them, and it then uploads so you have easy access to categorize them and get them into QB. You can make a copy of them, if you’re into that sort of thing. But don’t count on a pile of faded receipts to keep you out of trouble if someone should come looking.)

Preparing for Year End: Things to Do

Now that it’s mid-December, have you reviewed your books to see what you need to do to be ready for 2012? There’s no better time to prepare, assuming you haven’t done so already. If you have, that would have been a good time to prepare. The sooner you get everything together, the happier you’ll be once January gets here.

                And it will get here, make no mistake.

                Have you reconciled all your accounts? I prefer to reconcile accounts monthly – it’s much easier to do each month as it passes by, but if you haven’t reconciled at all yet this year, it’s time to get started.

What accounts should you reconcile?

1.       Checking accounts

2.       Savings accounts

3.       Line of Credit Accounts

4.       Credit card accounts

These are the obvious ones, but also take a look at other balance sheet accounts. Do you have loans you’re paying on? Does your year end balance reconcile to the lender’s year end balance? If you have liabilities, including the dreaded payroll liabilities, are they accurate? Is your sales tax liability account accurate?

                Why do we reconcile? For one thing, if you don’t reconcile your checking accounts, you run the risk of missing income or expenses. If you’ve been recording all your vehicle payments against the loan account without accounting for interest, you’re missing out on the interest expense. Your payroll liabilities may have been paid but not recorded, missing another expense.

                Downloading your transactions from your bank doesn’t mean you’ve reconciled either. How do you know there aren’t any mistakes? If you don’t reconcile, how will you find duplicated transactions? Better to be assured your books are correct than to assume they are. Should you be selected for a random audit, the time to have cleaned everything up would have been when it happened, not when you’re panicked about what the IRS is going to find when they ask for your QuickBooks file, which they now do.

                Check your major purchases too. Did you buy anything during the year that should be listed as a Fixed Asset? Make sure it’s classified properly. Your tax preparer will need to know about any purchases during the year, including the date purchased and amount you paid.

                I’m not big on New Year’s resolutions, but resolving to reconcile your books monthly is a good resolution, any time you make it. It takes so much less time than trying to do it at year end, and that’s a good thing, right?

                 

Preparing for Year End: The 1099 Situation

I don’t know about you, but the end of the year always gets here before I’m ready for it. And whether we’re ready or not, it will be here anyway, so I try to prepare in December, if not sooner, so I at least have a chance at starting 2012 at an advantage.

1099’s are often overlooked until year end, but the sooner we prepare for them the easier they are to get done once January gets here.  The 2011 Schedule C (Profit or Loss from Business for sole proprietors) now has a line item asking: “Did you make any payments in 2011 that would require you to file Form 1099?” While it has always been a requirement to file 1099’s, now the question is being asked on your tax return, and if you answer Yes, the next question is: “Did you or will you file all required Forms 1099?”

If you answered yes to the first part the only answer that works here is Yes. Of course, that means you have to actually have done it, or will do it, or have me do it, or whatever works for you. Otherwise you’re just asking for trouble. There’s a penalty for each 1099 not filed, and last time I checked it was $50 per occurrence.  

Whether you’re a sole proprietor, a corporation, an LLC, or a partnership, you’re required to file 1099’s.

Amounts to Report

$600 or more, unless it’s for royalties, which is $10 or more.

Who gets a 1099?

The following are the biggest categories to be aware of:

• Nonemployee compensation (subcontractors), unless they’re incorporated
• Rental income (yes, you must send your landlord a 1099)
• Mileage, nonemployee
• Auto reimbursements, nonemployee
• Attorney fees and gross proceeds (any amount)
• Car expenses, nonemployee

There are more but those are the major ones that might apply to you.

When to Report

1099’s are due to the IRS by February 28^th, and to the recipients by January 31^st.

If you’ve paid someone more than $600 this year, you’ll want to make sure they’ve provided a W-9 to you, or have provided their EIN. If you’ve paid more than $600 and don’t have a W-9 yet, get it before the end of the year so you’re ready.

If they refuse to provide a W-9, give them no more payments. And in the future, don’t pay anyone without getting a W-9 first, just in case, even if you don’t anticipate paying them more than $600 in a year.

If you’ve made payments and are unable to get the EIN info from the payee, give me a call. I’ll tell you the best way to handle it.

Here’s a link to the W-9 form:  http://www.irs.gov/pub/irs-pdf/fw9.pdf

Meals and Entertainment

Isn’t it cool that we can take meals and entertainment as a business expense? I mean, it’s like getting paid to eat! Running your own business has so many tax advantages!

Alas, this isn’t really one of them. People often think it is, but that would be wishful thinking. There are times when meals are a deductible business expense. Perhaps you’re having lunch with a customer or a vendor or a partner, and you’re talking about business. Then you have a legitimate business expense. Save your receipts, and write the name of your dining companions on the receipt, and the purpose of the meeting. Enter the info into QuickBooks (assuming you’re like most of us and using QuickBooks). It helps to put the additional info into the memo section. Keep these receipts in a safe place where you can easily access them should someone suggest an audit.

That would be the IRS of course. No one else cares who you eat with.

And of course, the deduction on your taxes is 50% of the total, because the IRS assumes you’d be eating anyway. (And yes, tips are included in the total.)

What is not a legitimate business expense? On your way to a job site, for your convenience, being out of the office, not having access to your kitchen. The IRS doesn’t care if your business keeps you away from home, forcing you to eat elsewhere. The way they see it, you’ll eat anyway, whether you’re on the job or just cruising around looking for trouble. Why should that be a business expense?

They actually have a pretty valid point there. I’m not likely to jump on the IRS bandwagon for no good reason, but you can’t use your business to reduce your food costs. You have to eat anyway, don’t you? How does that make it a business expense? You say you wouldn’t have to dish out for food if you didn’t have to be away from home? The IRS says, “pack a lunch then.” You wouldn’t pay your grocery bills out of your business account would you? (Please say no, or we need to have a talk.) Same diff.

Keep your receipts for true business meals. Annotate them carefully. Keep them safe, just in case. If you want to be reimbursed for eating, look into mystery shopping.

And entertainment? What do you think?