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7 Best Practices for QuickBooks Online

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Even if you’ve been using QuickBooks Online for a long time, it’s good to step back and evaluate your actions.

“Best practices” aren’t enforceable rules. They’re simply guidelines businesses commonly follow in one area or another. If you’re in retail, for example, one best practice might be to always ask customers checking out if they found everything they were looking for. This serves two purposes: It conveys a feeling of concern for the customer’s shopping experience, and it may also lead to increased sales.

QuickBooks Online has many best practices, some of which may serve multiple purposes, including these:

They keep your company data safe and clean.
They provide insight on your financial status.
They save time.
They can lead you to better relationships with customers and vendors.
Are any or all the following common practices for your business?

Reconcile accounts regularly.

One of QuickBooks Online’s most useful features is its ability to connect to your financial institution’s websites and download cleared transactions. QuickBooks Online also offers tools to help you keep your accounts reconciled online, like you used to do every month when your paper statement came. Reconciling accounts can help you uncover errors. It gives you a truer picture of your cash flow, and it improves the accuracy and timeliness of some reports.

It’s not a particularly pleasant process, but you should be reconciling your accounts regularly in QuickBooks Online. We can help.

Clean up your lists.

Some lists in QuickBooks Online aren’t overly long. You don’t have to worry about, for example, Payment Methods, Terms, or Classes. Your lists of customers and vendors, products, and services, on the other hand, can grow unwieldy over the years. This means it can take more time than it should to scroll through lists when you’re using those entities in transactions. It also puts unnecessary stress on your company file. If you can’t delete any, at least make them inactive.

Never leave QuickBooks Online open when you leave your work area.

This goes for everyone, even people who work alone and don’t access their company files away from their work areas. The obvious reason is to keep someone else from getting in and authorizing payments, for example, or otherwise compromising your financial information. It also protects the integrity of your data file in case your internet connection suffers some kind of outage.

Keep track of 1099 vendors.

Whether your company uses 10 vendors or a hundred or more, you may have to supply at least some of them with an IRS Form 1099 at about the same time you’re preparing W-2s for employees. Your 1099-related tasks will be much easier if those individuals and/or companies are earmarked. If you think vendors might need 1099s when you create their records in QuickBooks Online, click in the box to the left of Track payments for 1099 in the lower right corner. Not sure? Ask us.

Classify everything with care.

Every time you have to create a record or transaction where categories are involved (i.e., Classes, Customers and Vendors, Territories), check and double-check that you’ve assigned them the correct classification. Errors here can result not only in problems with daily workflow, but your reports will not be accurate. A related best practice: Create a meaningful group of Classes, and use them faithfully. They’ll help you make better business decisions.

To create your list of Classes, click the gear icon in the upper right and select All Lists | Classes | New.

View reports on a regular basis.

There are some advanced financial reports in QuickBooks Online that we should be creating for you on a regular basis, either monthly or quarterly. These include Profit and Loss, Balance Sheet, and Statement of Cash Flows. The mechanics of creating them aren’t difficult, but analyzing them is. You should be running reports on your own at frequencies that you think would be helpful, like A/R Aging Detail, Unpaid Bills, and Sales by Class Detail.

If you’ve been using QuickBooks Online for a while, you could probably come up with your own list of best practices. If you’re new to the site, consider scheduling some time with our Largo, FL CPA Firm to go over more of them. You can call us at 727-544-1120 or request a complimentary consultation online. Develop good habits from the start, and there won’t be nearly as much need for troubleshooting down the road.

Use Last Year’s Tax Form to find ways to Reduce Your Taxes in the Future

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It’s May. Your tax return has been filed. So what’s next? If you’re hoping to pay less tax in the future, your best move may be to go back to the drawing board. Using your last year’s return and what you tell us about your current financial picture as a guide, we can help you identify potential tax-reducing strategies for this year and beyond. Here are a few ideas to get you started.

Save for Retirement

Making pretax contributions to a 401(k) or 403(b) plan sponsored by your employer reduces the amount of your taxable wages — and the amount of income tax withheld from your paycheck. Your deferrals, along with earnings from investing the deferrals, are not taxable until the money is distributed to you.

As a 401(k), 403(b), or 457 plan participant, you may also have an opportunity to make after-tax “Roth” contributions. Making Roth contributions won’t save you taxes upfront. The advantage comes later, after a five-year period passes, beginning with the year you made your first Roth contribution. At that point, any Roth money distributed from the plan is tax-free, provided you are at least age 59½ or the distribution is made on account of your disability or death. So, qualifying earnings on your Roth contributions are never taxed.

Think Capital Gains and Dividends

Turning to non-retirement account investments, two types of earnings receive favorable tax treatment: long-term capital gains and qualifying dividends. Right now, the tax rate on both is capped at 20% (15% or 0% for those in a tax bracket below 39.6%). Because your regular tax bracket could be as high as 39.6%, there may be a substantial tax incentive to earn capital gains and dividends instead of fully taxed short-term gains and interest income. Of course, tax considerations are only one factor to consider in managing your investments.

Find Above-the-Line Deductions

On the expense side of the equation, certain expenses often referred to as “above-the-line” expenses, are deductible in arriving at your adjusted gross income rather than as itemized deductions. Some examples include:

  • alimony paid
  • student loan interest
  • moving expenses
  • self-employed health insurance

Limits apply. An above-the-line deduction not only lowers your taxable income, it can help you qualify for various other tax breaks.

A review of your tax situation this year may reveal additional opportunities to save taxes. When you’re ready to think taxes, think of us. We’ll be glad to help. At Jackson and Associates CPA, PA, we are Largo, FL Certified Public Accountants who build a strong relationship with our clients by working year-round to help them prepare for tax season. We constantly watch for changes to the tax regulations and develop new techniques to limit tax liabilities for both individuals and small businesses. Call us today at 727-544-1120 or request a free consultation online.

Learn How to Take Advantage of Your Financial Statements

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Largo CPA Firm Financial statement information is most useful if owners and managers can use it to improve their company’s profitability, cash flow, and value. Getting the most mileage from financial statement data requires some analysis, which is why it’s great to partner with a small business CPA like Jackson & Associates CPA.

Ratio analysis looks at the relationships between key numbers on a company’s financial statements. After the ratios are calculated, they can be compared to industry standards — and the company’s past results, projections, and goals — to highlight trends and identify strengths and weaknesses.

The hypothetical situations that follow illustrate how ratio analysis can give company decision-makers valuable feedback.

Rising Sales, Rising Profits?

The recent increases in Company A’s sales figures have been impressive. But the owners aren’t certain that the additional revenues are being translated into profits. Net profit margin measures the proportion of each sales dollar that represents a profit after taking into account all expenses. If Company A’s margins aren’t holding up during growth periods, a hard look at overhead expenses may be in order.

Getting Paid

Company B extends credit to the majority of its customers. The firm keeps a close watch on outstanding accounts so that slow payers can be contacted. From a broader perspective, knowing the company’s average collection period would be useful. In general, the faster Company B can collect money from its customers, the better its cash flow will be. But Company B’s management should also be aware that if credit and collection policies are too restrictive, potential customers may decide to take their business elsewhere.

Inventory Management

Company C has several product lines. Inventory turnover measures the speed at which inventories are sold. A slow turnover ratio relative to industry standards may indicate that stock levels are excessive. The excess money tied up in inventories could be used for other purposes. Or it could be that inventories simply aren’t moving, and that could lead to cash problems. In contrast, a high turnover ratio is usually a good sign — unless quantities aren’t sufficient to fulfill customer orders in a timely way.

These are just examples of ratios that may be meaningful. Once key ratios are identified, they can be tracked on a regular basis.

To learn more about how to utilize your financial statements for the biggest advantage, give us a call today at 727-544-1120. Our trained staff of professionals are always available to answer any questions you may have. You can also request a free consultation online.

Do You Understand How Your S Corporation Income is Taxed?

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Local Largo, FL tax preparerWhen it comes to taxes, complicated rules are the norm. So new shareholders of S corporations shouldn’t be surprised to learn that there are some seemingly illogical rules that will govern the way they’ll be taxed on corporate income. While some people think that using an online tax software is the easiest and cheapest way to get the best refund, that’s almost never the case. At Jackson and Associates CPA, PA, a Largo CPA Firm, we believe in helping taxpayers keep more money in their pockets and understand the unique requirements for S Corporations.

Pass-through Treatment

As opposed to a regular corporation’s income, the income of an S corporation generally isn’t taxed at the corporate level. Instead, the income is “passed through” the corporation for inclusion on the shareholders’ returns.

No Cash, No Tax?

Under these rules, shareholders have to report corporate income even if it is not distributed to them. For example, let’s say an S corporation has two 50% shareholders and earns a $100,000 net profit last year. The company needs all its cash to fund operations and makes no distributions to the shareholders beyond their regular salaries. Each shareholder would still report $50,000 of income (plus salary).

Having to pay taxes on money that hasn’t been received may seem harsh. On the upside, the income will not be subject to taxes again if and when it is distributed. A “basis” calculation required under the tax law serves as a tracking mechanism to prevent S corporation income from being taxed twice. Shareholders receive basis for passed-through income and must reduce basis by cash distributions. Only distributions in excess of basis are subject to taxes.

Questions?

To learn more about S corporation income tax rules and regulations and how they affect your business, give us a call today at 727-544-1120. Our Largo, FL CPA Firm’s professionals are always happy to help. You can also request a free consultation online.

Must Know Tax Rules for the Self-Employed

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If you’re in business for yourself, you know how challenging it can be to run your business and keep on top of your tax situation.  At Jackson & Associates CPA, PA, our Largo CPA Firm works with all types of businesses and individuals on these tax issues.

Here’s a refresher on the tax rules you need to be aware of if you’re a self-employed sole proprietor or are thinking of becoming one.

Income Taxes

As you probably know, sole proprietors do not file a separate federal income-tax return for the business. Instead, they summarize their business income and expenses on Schedule C of their personal income-tax returns.

Be sure to keep complete records of your income and expenses. Deducting all your ordinary and necessary business expenses will help minimize your tax liability. If you have losses, these are generally deductible against your other income, subject to special rules relating to hobby losses, passive activity losses, and activities for which you were not “at risk.”

Self-employment (SE) Taxes

Any self-employed person who has net earnings of at least $400 from the business is subject to SE taxes on those earnings. SE taxes generally track the Social Security and Medicare taxes paid by employees and their employers and are partially tax deductible.

Quarterly Estimated Tax Payments

Your net SE income will be taxable whether or not you withdraw cash from your business account. Moreover, you may be subject to penalties if you fail to make appropriate quarterly estimated tax payments.

Home Office Deduction

If you work out of your home, you may be able to deduct a portion of the costs incurred to maintain your home. You also may be able to deduct commuting expenses incurred to travel from your home office to another work location.

Health Insurance Costs

When tax law requirements are met, you may deduct your health insurance premiums as a trade or business expense, including premiums paid for your spouse, dependents, and children under the age of 27.

Retirement Plan

If you don’t already have a tax-favored retirement plan, you may want to consider establishing one. Contributions to the plan would be tax deductible, within certain tax law limits. Types of retirement plans available to sole proprietors include solo 401(k) and simplified employee pension (SEP) plans.

Don’t deal with tax issues on your own. Call us right now at 727-544-1120 to find out how we can provide you with the answers you need or learn more about our CPA Tax Preparation Services.