2011 FORM 940 in Credit Reduction States who use QuickBooks Payroll

2011 FORM 940 in Credit Reduction States who use QuickBooks Payroll

When preparing Form 940 in QuickBooks, I was surprised to find out that all of our California (see other states below) clients owed money! The reason for this is that California is one of the states that did not repay the money they borrowed from the federal government to pay extended unemployment benefits.

Employers in what the IRS refers to as “credit reduction states ^[1]” must calculate and remit additional FUTA tax because the credit (or reduction of tax due) that employers usually receive for paying state unemployment taxes has been “reduced” in 2011. It’s all related to the extensions of the unemployment benefits voted in by congress in past year or so.

Credit Reduction States include: Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia, Virgin Islands, and Wisconsin.

So, see if you can follow the logic… They are REDUCING, the reduction, which means we get LESS of a reduction, which means we PAY MORE. Is that clear? Couldn’t they just have said, “employers in the following states need to PAY MORE.” That would be so much easier to explain. But I digress.

This “credit reduction” is calculated on Schedule A of the 2011 Form 940 ^[2] (PDF), Employer’s Annual Federal Unemployment (FUTA) Tax Return.

The good news for QuickBooks users is that QuickBooks DOES calculate the correct amount on the 940, but it does NOT AUTOMATICALLY record an increase to the payroll liability account.

This makes sense to us for two reasons. First, this is a one-time adjustment that doesn’t relate to any payroll processing and second, the 940 is not calculated until the end of the year, and it calculates on the total of all wages (up to $7,000). So there would be no way for QuickBooks to know how much to accrue in the liability account until after the last payroll for the year was calculated.

So, we have to manually record a “liability adjustment” in QuickBooks to record the increased expense and liability.

Our practice is to always pay payroll taxes via e-payment and in the case of FUTA tax, we always pay all the taxes before filing FORM 940. That way the form shows all the tax calculations and it shows that we’ve paid all taxes before filing. So we recommend the following:

1. To calculate the amount due, fill out FORM 940 in QuickBooks, but do not file it yet. Just save and close.
2. Then, after you know the exact amount, record a liability adjustment that affects liability and expense accounts.
3. Pay the liability via QuickBooks Pay Liabilities and use e-Pay to immediately make the deposit. Or use EFTPS and a Liab Chk transaction in QuickBooks if you don’t use e-Pay.
4. Go back to FORM 940 and finish filling it out and file it.

Here are some screenshots of what you’ll see.

Starting in the Employee center, Click Process Payroll Forms, and select the Annual FORM 940 for 2011.^[3]

When the Form 940 is processed, QUickBooks automatically calculates the applicable credit reduction (based on your state) in Part 3 of the Interview for Form 940:

^[4]

Not that you know the amount of your additional liability, you have to leave this form and come back later. Click Save and Close on the the 940 interview.

Then create a Payroll Liability Adjustment.

Here is a screen shot of the adjustment to increase the amount of FUTA by $147.00

^[5]

In this case, we wanted to pay via e-payment and make the amount show up on the Form 940 when we file it. So we paid the amount due using the Pay Scheduled Liabilities Screen.

After the e-payment was processed, the total paid shows up correctly on the Form 940. Now we’re ready to finish and file FORM 940.

 

Posted By Doug Sleeter On January 25, 2012 @ 5:54 pm In For Consultants/Accountants,For Small Business Owners,QuickBooks Tips/Tricks,Technical QuickBooks,Working with QuickBooks

 

Getting Ready for Year End

YOU MAY BE READY FOR CHRISTMAS TO GET HERE,

BUT IS YOUR BUSINESS READY FOR YEAR END?

Christmas is almost here and most of us are busy thinking about what to get for brother Mike, sister Sue, Aunt Laura, and Uncle Jack. However for business owners, now is the time to be thinking about another uncle; and that uncle is Uncle Sam.  Although most business owners don’t want to think about tax time until next year, there are some things that could be done now to make tax time go a lot smoother.

Here are a few of the steps that should be taken to prepare your business for the end of the year:

• Reconcile bank account – void any outstanding transactions that are older than 1 year
• Review accounts receivable (amounts customers owe you) – write off amounts that you believe to be uncollectible
• Inventory – if possible take a physical inventory
• Send financial information to CPA for tax planning
• Review employee information – make sure you have social security numbers and addresses for all employees
• Review 1099 information –make sure you have social numbers and addresses for all 1099 contractors

The beginning of the year is the best time to make changes in your business. If you are contemplating switching payroll service, CPAs, or accounting software; now is the time to do it. It’s much easier to switch payroll services or change to another accounting software at the first of the year rather than in the middle of the year. There is much more likelihood of errors being made during the transition in the middle of the year. 

Another consideration is whether or not to take a salary. If you are operating as an S Corporation, it is important for the shareholders to take a salary if there is a net profit for the year. Otherwise, you are opening yourself up to a potential audit risk.

Following all of these steps should help you to get your business ready for the year end and for Uncle Sam.  Sorry, you’re on your own with what to get for your brother or sister! 

Stay tuned next month for more tips on getting ready for tax time. Have a Merry Christmas!

TIS THE SEASON

TIS THE SEASON – A TIME OF GIVING

WANT TO START A TAX EXEMPT NON-PROFIT ORGANIZATION…where do you begin?

Christmas is almost here; a time for giving thanks for all we have and remembering those in need. There are those among us who have fallen on bad times, whether it’s from the economy, illness, troubled pasts, or just need a little help now and then. So you decide you have a pet project or have a worthwhile need and want to set up a Non-Profit organization to fulfill that need but don’t know where to begin. Let’s see if I can narrow it down for you and make the process a little simpler. These are the steps that need to be taken to set up a tax exempt organization:

1. Define Purpose of Organization
2. Incorporate
3. Obtain Federal ID Number
4. Open Bank Account
5. Apply for Tax Exempt Status

Defining the purpose is the most integral part of setting up a tax exempt organization. A definitive purpose is needed in order to clearly explain what the donations are to be used for.

The question is often asked ‘Is it necessary for to incorporate a Non-Profit organization?’ The answer is yes. Simply setting up a bank account and collecting money does not make you tax exempt and does not allow the donors to deduct the donation on their tax return. You must incorporate as a Non-Profit organization with your state. As a side note, it is fine to remain a regular C Corporation; electing S Corporation status is unnecessary as there is typically no taxable income to worry about.

After incorporating and receiving the Articles of Incorporation, you need to apply for a Federal ID number with the IRS.

The next step is to open a separate bank account for the organization and make sure no other personal or business funds are intermingled with this account.

The final step is to apply for tax exempt status. Form 1023 must be filled out and filed with the IRS. This is the application needed to be filed to obtain approval for tax exempt status as a 501(c)(3) organization. This form needs to be filed within 27 months of forming a Non-Profit Corporation. It is advisable to seek professional help when filling out the Form 1023. Activity can continue while waiting for approval from the IRS. The tax exempt approval will be retroactive to date of incorporation in most cases.

Although records and financials should be kept for all Non-Profit Corporations, a Form 990 tax return is only required to be filed if donations total more than $50,000 for the year. Otherwise Form 990-N Electronic Postcard can be used.

 I hope this helps those that are willing to help others. 

So during this holiday season, let’s think of those who are less fortunate than we are and give thanks for what we have. And remember not to eat too much! Happy Holidays!

Tax News – Mileage Rate Increase

IRS Increases Mileage Rate

As gas prices continue to rise there is some good news. The IRS has increased the mileage rate from 51 cents to 55.5 cents per mile effective July 1, 2011. The IRS normally updates the mileage rates at the beginning of the year and it remains the same for the entire year. This year there will be one rate (51 cents) effective for the first six months of the year and another rate (55.5 cents) effective for the last six months of the year. Every little bit helps.

But remember, it doesn’t do any good if you don’t keep up with your mileage.  Keep those mileage logs!

What financial records to keep, how long to keep them

This is something I get asked a lot. “How long should I keep tax returns, bank statements…etc?” So I thought I would send this information out again.

I hope you find it useful. You can’t take everything with you, but the following are suggestions about how long you should keep personal finance and investment records on file:

Financial records timeline

Type of record	Length of time to keep – and why
Taxes	Seven years
Returns	The IRS has three years from your filing date to audit your return if it suspects good faith errors. The three-year deadline also applies if you discover a mistake in your return and decide to file an amended return to claim a refund.
Canceled checks/receipts (alimony, charitable contributions, mortgage interest and retirement plan contributions)	The IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more.
Records for tax deductions taken	There is no time limit if you failed to file your return or filed a fraudulent return.
IRA contributions	Permanently If you made a nondeductible contribution to an IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
Retirement/savings plan statements	From one year to permanently Keep the quarterly statements from your 401(k) or other plans until you receive the annual summary; if everything matches up, then shred the quarterlies. Keep the annual summaries until you retire or close the account.
Bank records	From one year to permanently Go through your checks each year and keep those related to your taxes, business expenses, home improvements and mortgage payments. Shred those that have no long-term importance.
Brokerage statements	Until you sell the securities You need the purchase/sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.
Bills	From one year to permanently Go through your bills once a year. In most cases, when the canceled check from a paid bill has been returned, you can shred the bill. However, bills for big purchases — such as jewelry, rugs, appliances, antiques, cars, collectibles, furniture, computers, etc. — should be kept in an insurance file for proof of their value in the event of loss or damage.
Credit card receipts and statements	From 45 days to seven years Keep your original receipts until you get your monthly statement; shred the receipts if the two match up. Keep the statements for seven years if tax-related expenses are documented.
Paycheck stubs	One year When you receive your annual W-2 form from your employer, make sure the information on your stubs matches. If it does, shred the stubs. If it doesn’t, demand a corrected form, known as a W-2c.
House/condominium records	From six years to permanently Keep all records documenting the purchase price and the cost of all permanent improvements — such as remodeling, additions and installations. Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home. Holding on to these records is important because any improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. This adds up to a greater profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax.
Source: Marquette National Bank and Catherine Williams, President of Consumer Credit Counseling Services of Greater Chicago

Don’t like QuickBooks new online banking screen?

For those of you that don’t like the new side by side online banking screen, there is good news. You now have a choice.

This side by side look was introduced with QuickBooks 2009 and there was a lot of grumbling going on. I even went so far as to recommend not upgrading to QuickBooks 2009 if you were using online banking ; it was so horrible.

Well, Intuit got the message. With Release 8 of QuickBooks 2009 you can now choose which style you want to use.

By going to Edit > Preferences > Checking > Company Preferences

You can toggle between the two views:

Side by Side Mode (new way)

Register Mode (old way)

So remember the first step if you are using QuickBooks 2009 is to apply your updates. If you are using QuickBooks 2010 you just need to change your preference.

NGAC – QuickBooks

Well this is my first blog so I really don’t know what I’m doing but here goes. This will be a blog centered around QuickBooks software users. You can ask questions regarding QuickBooks, how to use it, problems you may be having with it, or things you don’t particularly like about it. I have the ear of the developers of QuickBooks software and if you have any hints or suggestions, I can pass them on.

I have been working with QuickBooks since it has been around and can probably answer most of your questions. Although I don’t like everything about the product, I do believe it is the best one out there for small businesses.

Please give me your thoughts or let me know if you need help with QuickBooks.