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How to Tell if a Business Opportunity is Legit
By David Roberts

Introduction
With the economy slowing down it seems that there is an ever increasing number of ‘business opportunities’ popping up everywhere. To own your own business is the American Dream there are hundreds if not thousands of stories of those who were discouraged in the corporate world who left, took the risks and invested in opening their own business. In the search for an opportunity though, there are the legitimate and then the shady. How can you tell if the opportunity you are introduced to is legit or is it another MLM scheme? This article will answer that question.

The Red Flags of Shady ‘Opportunities’

1. The Opportunity - Anytime you have a group of people continually referring to ‘the opportunity’, you could be listening to a MLM presentation. It is a phrase that is supposed to describe this product or service that absolutely everyone will buy because they can’t live without it. And so many people need this product or service that we need YOU to represent us. In reality what they need from you is your contact list because your name will give them an IN with your friends, family and neighbors.


2. The Location – Rarely does a legitimate business meet with groups of people in a local hotel to promote their business. More often than not, if there is a monthly or weekly meeting at an area hotel, you are dealing with a Primerica, Pre-Paid Legal, Amway, or Noni Juice meeting. Occasionally, a legitimate company will have an informational meeting at a hotel, on a quarterly or yearly basis to find new owners. These meetings will end in a job interview, or application to purchase franchise rights and not in a call to pay $199.99 to sign up as a representative.


3. The Tools – In a MLM group, there are only about 3% of the members who make enough money to make a living at it. Those in the lower brackets struggle to make ends meet because they are spending what they do make on the “TOOLS” of the trade. These “tools” include videotapes or CD’s, audio tapes, books, business cards, brochures, etc. An estimated 30% of the income of the upper 3% comes from the sale of these “tools” to the masses who take them and distribute them in earnest hoping to eventually be one of the big-shots. Sadly, for 97% of them, it never happens. The tools for a legitimate business will be common sense ones. You want a restaurant franchise? Your tools will be kitchen equipment, food and property. These tools make sense!


4. The Recruitment Angle – If you were opening a restaurant or any other business, you would need to hire help. If you were opening a legitimate business without a payroll you would need some independent contractors. Here’s the trick – you will PAY them! If you are in an MLM meeting, they leave this little tidbit until the end. You have to advance in this organization and in order to do so, you have to recruit three people to promote yourself to the next ‘level’. Then, each of your three have to recruit three to promote themselves, and when they do that, YOU are promoted too! This is a Multi-Level Marketing scheme. If you have to keep recruiting to keep getting paid or to advance in the organization get out now!


5. Outrageous Claims – Often the opportunity meeting will trot out a few of the upper 3%. Pictures of their mansions, cars, planes, etc will be onscreen and they will capture your imagination with their outgoing personality and excitement. ‘YOU can make $30000 a month, like I do!’ If the opportunity is legitimate it is usually a very reasoned approach to attract new franchise owners. ‘It will cost this much, average income is this much, we’ll talk multiple locations later.’ No one suggests that you will purchase a plane within a year of your McDonalds opening. No one suggests that you purchase and pass out videotapes to promote your new McDonalds and no one will ever suggest that you can earn a little money if you ‘recruit’ a new franchise owner into the fold.

Conclusion

A legitimate business opportunity is not cheap. It is not flashy with loud emotionally charged music blasting before the meeting. It does not require recruiting your friends, family and neighbors. It does not promise extravagant lifestyles. It does not guarantee success. If you have attended one of these meetings and are on the fence about joining consider this. The average income of a MLM representative after two years is right at $1400 a year. A few of them do well enough to eke out a living, but that figure includes the multi-millionaire 3%. The average income of a legitimate business owner is right at $45000 a year. 50% of the businesses started succeed, 97% of MLM’ers fail. Play the odds and start a legitimate business and don’t fall for the hype of Pre-Paid Legal, Primerica, Amway, or any of the other fly-by-night pyramid schemes that continue to crop up all over.


Warning! Fake Tax ‘Experts’ Ahead
By David Roberts

Introduction

My name is David Roberts; I have a Masters Degree in Accounting and Business. I am a Certified QuickBooks ProAdvisor and a Certified Profit and Growth Expert. I have ten years plus tax preparation experience with four different types of software. I have trained people for the last three years in tax preparation for companies like Jackson Hewitt, Liberty Tax Service and Intuit (makers of Turbo Tax Online help). I am hesitant to tout myself as a tax expert because the laws change every year, forms are added, forms are removed and tax tables change often during the tax season you are working in. I am more than competent and feel confident in filling out any tax form that exists, but I still prefer to think of myself as a tax professional rather than a tax expert. Having said this however, I have to warn you that there is a ‘multi-level marketing’ group that is touting themselves as being tax relief (or reduction) experts or planners when the truth is that they wouldn’t be able to tell you the difference between a 1040 and a hole in the ground, or between a W-2 and a W-4.

Where They Come From

Perhaps a little background is necessary here. Before I started my Masters Degree program and before I had a clear direction in my life I was, as so many have been before me, sucked in to a MLM group that specialized in selling legal services as a sort of pre paid insurance type of service. It’s not really a bad idea, it could be rather profitable, and handy if they had ever chosen a law firm that was willing to actually fulfill the stated requirements on their pamphlets. In reality, only about 2% of the sales agents for this group ever actually make enough to pursue its sales full time. One of the ‘benefits’ of being a part of this ‘business’ is that one can actually deduct all the losses of this ‘activity’ and if you engage in this business, trust me, “There Will Be Losses” .
After about two years of pushing everyone I knew away from me trying to sell this “plan”, I realized that it was all just a sugar coated B S Pill. The dreams of being or getting rich are the sugar coating, everything else is B S. Eventually, everyone smells the B S and so eventually will you taste the B S. So I got out, and got smart and started training myself for a real career.
Okay, now you know the background. Lately, this same group with the pre paid legal insurance plan have begun touting this ‘new’ thing. They take the major benefit of having this business (deducting the losses) and turn it into its’ own MLM.
At best the sales agents go to a weekend training seminar or read a book and start telling everyone that they are ‘Tax Reduction Specialists’. It’s a little bit like your Kindergartner coming home to ‘teach’ you math, it can be cute, but not in this case. The emphasis is on deducting your vacations, hiring your children and deducting their pay, using your vehicle for your newly found ‘business’ and deducting mileage and using a room in your home as your ‘office’ and deducting rent, mortgage, utilities etc.

Reality Check

If it was in reality, legal to deduct your vacations, everyone would be doing it. What they don’t tell you is that, yes, you can deduct SOME of these expenses, but the IRS in an audit will require proof that it was a business trip, and not just a jaunt to the Islands for some fun. If you met for ten minutes on a week vacation, that is NOT business. They will ask for receipts, want to know what business you performed who you met with and why and in cases where this type of Fraud is suspected, they will VERIFY this information.
Can you hire your children and deduct the salary? YES! But then you have to have your children’s taxes prepared as they will owe Social Security, Medicare and other taxes as self employed independent contractors. THEN, you have to convince the IRS auditor that your 12 year old is an independent contractor and NOT an employee. (Good luck with that one.) If you do hire them as employees, then you are responsible to file the federal and state unemployment, workers compensation, and pay half the payroll taxes out of your newly found company. If you aren’t doing that then you cannot hire your children and deduct the expenses!
You will have to have a mileage log in written form to prove that your business mileage is business related and not just a trip to the local grocery store. If you only have one vehicle, there will be close scrutiny of your mileage logs if you claim 90% business use.
Then we get to the home office. There is a test used by IRS auditors to determine if the home office is allowed as a deduction. This test involves the use of two words, “Regularly” and “Exclusively”. Let’s look at the first one; “regularly” i.e. do you maintain regular office hours? If you only use the room sparingly as an office, the deduction will not be allowed. That’s simple enough, right? What about “Exclusively”?
An IRS auditor goes into one of these rooms (offices) and looks around. Hey, you have a computer; do the kids ever play games or check emails on this computer? Yes? The deduction is disallowed. Hey, there’s a television in the room, do you watch the TV? Yes? The deduction is disallowed. What about this Murphy bed? Only used one weekend a year when Aunt Sally visits? The deduction is disallowed. If you think I am exaggerating, call the IRS and ask them their definition of “exclusively”.

Why Are They Promoting This?

This is a very underhanded way they can use to snare you into the MLM way of life. Let me assure you that 95% of these people struggle to make ends meet and having been a part of it I have seen the misrepresentation at work to try to convince you that they are doing better than they actually are. So why would they promote this ‘tax-reduction’ scheme?
Because it sounds so good to be able to deduct all those expenses you normally pay so you can keep more of what you make, you may start looking for ways to own your own business so that you can do so. What? You don’t own your own business? Here’s one that’s for you, sell a pre paid legal insurance plan! And YOU have been recruited into their all encompassing scheme to sign up more suckers to sell this hyped up service that is no better than the soap from Amway or the vitamins from Shaklee. That’s it! They promote themselves as experts in taxation so they can get more recruits into their organization. These schemes come and go even over a period of decades and more often than not end up breaking the banks of those whose eyes get bigger than their wallets when they start to ‘dream big’.
You can tell a lot of these reps are phonies when you look at their websites and see that they haven’t seen an MLM that they don’t like. They sell ALL of them because they can’t make it big in ANY of them. (Travel MLMs, Health MLMs, and more) Look at the vehicles that have the following on their rear windshield:
“If you aren’t making $800 a week call me!” Ever wonder why you never see this on an Audi, a Mercedes or even a Honda? They are painting their Pintos, Broncos and Ford SUV’s with this claim when in actuality, if they made that much, they wouldn’t be driving such a crappy vehicle in the first place. (Do you sense a little sarcasm here?)

Conclusion

Warning! These people are fakes, frauds and liars; following their guidance isn’t going to get you rich, independently wealthy or a better life, it will get you put in jail or in debt to the IRS. Remember the old axiom, ‘if it sounds too good to be true, it is.’ If you don’t believe me, feel free to contact the IRS criminal investigation division and ask them about this group. If they come calling on you, shut the door, hang up the phone and delete the spammy emails. You will thank me later.


Top Ten 2008 Income Tax Law Changes
By David Roberts

Every year for whatever reason whether it be political or an exchange of favors for lobbyists, our Congress adds additional changes to our already complicated tax law. Sometimes these changes are beneficial, sometimes they are not, but this article will briefly examine the changes that have been made for this 2008 Tax Year.
First, the tax rate on net capital gains and qualified dividends has been reduced! For those tax payers in the lowest two tax brackets who were formally paying 5% in capital gains tax will in the next few years pay 0%. For those interested in the effect on the Alternative Minimum Tax, yes, the 0% rate will apply for both regular tax and the AMT. This is great news and should help encourage those in the lower tax brackets to invest. Of course this begs the question of where are lower income tax bracket tax payers going to get the extra money to invest?
Perhaps if those who actually HAVE money to invest were given a reduction they might see fit to invest MORE money in hopes for a higher return! These increased investments would then benefit those who don’t have the ability to invest because this investment activity would create jobs. For more information, Google ‘Reaganomics’ or the ‘trickle down economics’.
Second, the IRA contribution limit for both traditional and Roth IRA’s have increased to $5000. ($6000 for taxpayers over 50 who are playing ‘catch-up’). This is going to encourage more people to save more for retirement. The subject of which kind of IRA is best for you is a little long for this article. The short version is that a traditional IRA lets you invest money pre-tax and reduce current tax liability. The Roth IRA is after tax but upon retirement the individual can withdraw the funds tax free. So it comes down to do you want to be taxed on $5000 now and pull it out when it’s $50000 tax free, (Roth) or would you rather avoid the taxes on the $5000 now and pay them when the amount is at $50000 when you pull it out? (traditional)
Three, for those who wish to make the decision to rollover their traditional IRAs to Roth IRAs you can now rollover funds from:
a. A qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan.)
b. An annuity plan.
c. A tax shelter annuity plan (section 403(b) plan) or
d. A deferred compensation plan of a state or local government (section 457 plan)

Although there would be a 10% additional tax on early distributions, there would be the benefit of these funds growing tax free from this point on.
Four, the phase out of reductions of Personal exemptions and itemized deductions. For those of us who are fortunate enough to have this problem, it means that the government feels that we are making WAY too much money to deserve our standard deductions and itemized deductions, which in the past have been phased out because we are of the fortunate ones and we need to be punished with ever increasing taxes for our achievements. THIS year however, this amount is only 1/3 of the amount that would otherwise apply. That means that even though we will not get the standard $3500 for a personal exemption, that we will at least get a personal exemption of $1167. Isn’t our government generous?
Five, the Kiddie Tax Rules are now expanded to include any child who is over 18 at the end of the year and whose earned income is not more than half of the child’s support. And, any student who is under age 24 at the end of the year and whose earned income is not more than half of the child’s support. Both groups of children will still be taxed at the parent’s tax rate and this does NOT apply to those who are full time students at a strictly online college or institution. This is a good reason to make sure your new college students are concentrating on studies and NOT on making money! Of course that may not be an option for some.
Six, a First-time Homebuyer Credit of $7500! First, let’s define a first time homebuyer according to our IRS. A first time homebuyer is someone who hasn’t owned a home for three consecutive years before the purchase date. Second, how does this credit work? Honestly this credit is more like a loan than it is a tax credit. The homebuyer will receive the benefit of a $7500 credit the year of the purchase of the home, which will then be repaid, beginning the second year after the purchase of the home, in increments of 1/15 for 15 years. If the home is sold at anytime during those 15 years the balance must be repaid all at once. This information will be reported on the new IRS Form 5405.
Seven, the exclusion on the Sale of Main Home. Now those widows and widowers will be able to exclude the full $500000 from the gain of the sale of their home IF: the sale occurs no later than 2 years after the date of their spouses’ death, and if the ownership requirements were met before the date of the death. This is of course, unless there was a sale of a main home by either spouse less than 2 years prior to the death occurring. Situation: Rita Smith and Evan Josephs meet and decide to marry. She sells her home with a gain of over $500000 and within two years she passes away, Evan cannot sell his home with the exclusion because the exclusion has already been taken by his wife. If she had waited to die until the third year, he would be free to claim the full exclusion of $500000.
Eight, this is actually a good one! Due to the ever increasing gas prices, the Congress has decided to allow 58 cents per mile for business miles driven during the later half of 2008. And, the medical mileage has increased to 27.5 cents per mile for the latter half of 2008. Accurate records is a must for this one, because the IRS is NOT going to believe that you drove 100% of your miles beginning in June!
Nine, our local heroes, the emergency responders will be receiving rebates or reductions of property and income taxes! They will also be receiving qualified payments of up to $30 per month for providing emergency responder services.
Ten, the Recovery Rebate Credit. Taxpayers will receive a refundable credit that will be figured in the same manner as the 2007 Economic Stimulus Payment, except that the amounts will be based on tax year 2008 instead of 2007. If there is a difference and the credit is less than the payment received, the difference does not have to be repaid! So this is completely unlike the initial stimulus package passed in 2001 in that they won’t ask us for this one back!
The next article will explore the remaining changes to the tax law for 2008.


Bottom Ten Tax Law Changes for 2008
By David Roberts

Our first article explored the top ten changes to our tax laws for 2008. This article will continue the look at the remaining changes in store for us as taxpayers in the great old U S of A.
One, a Decrease in the Alternative Minimum Tax Exemption amount. Now, this particular change heavily relies on Congress doing what they have done in the past two years and making this change before December 31st, 2007. AMT began in the 1960’s when some congressmen got the idea that it wasn’t fair for the ‘rich’ ($60000/year) to be able to deduct all those expenses and ‘not pay their fair share’.
The problem occurs in that this AMT was never indexed to inflation. So, while $60,000 was considered wealth in 1960, it is not the same case today. It is possible that many Americans who have never dealt with this issue before will lose some of their deductions. The key will be to make sure that if one is close to the $69950 mark in income, that they inspect the result of taking all their deductions and facing the AMT or possibly just using the Standard Deduction.
Two, we get the 50% Special Depreciation Allowance back! Taxpayers who place property into service in 2007 will be able to take advantage of this special depreciation allowance in the first year. This property placed in service must have a recovery period of 20 years or less, qualified leasehold property, or water utility property. This allowance is figured after the section 179 deduction and before the regular depreciation.
Three, if the special allowance above applies, the limit on depreciation and the section 179 deduction for automobiles is increased by $8000.
Four, the Section 179 Expense Deduction. The maximum increases to $250000. The phase out of this benefit begins when property exceeds $800,000. Now that that is clear, what is the section 179? Any property placed in service has an expected life of service, autos, machines, buildings, etc. The section 179 allows the business owner to take full advantage of the entire amount of depreciation in the first year the property is placed into service. So, instead of taking 1/5 of the depreciation over five years, all five years of depreciation are taken in the first year. There are a couple of problems with using this option. First, you have now lost the deduction for the remaining years of use of this property. Second, should you sell the property before the useful life period is over, you will owe taxes on the remaining amount of depreciation taken in the first year. If selling the property is not anticipated, then this option would make sense.
Five, the Self-Employment tax that plagues many small business owners will be increasing its’ lower limit from $1600 to $4200 with the upper limit being increased to $6300.
Six, for those in the transportation industry, pilots, truck drivers, etc the Meal Expense Limit has been increased to 80%. This is for meals consumed on duty or in the course of doing your job. For those of us not in the transportation industry, we are still stuck with the 50% limitation.
Seven, the Credit for Prior Year Minimum Tax. For tax years beginning 2007, the current year refundable credit cannot be less than the prior year refundable credit, that is, before the AGI phase out.
Eight, Non-resident aliens will no longer be able to claim exemption from tax on interest related dividends or short term capital gain dividends that have been paid by a regulated investment company. (about time! Why should there be an exemption from this tax simply because the individual has chosen to not become a citizen?)
Nine, Expired Individual Provisions. The following tax benefits for individuals have expired as of this year:
a. allowance of certain personal tax credits against AMT.
b. Deduction for educator expenses in figuring AGI
c. Tuition and Fees Deductions
d. Deduction for state and local general sales taxes.
e. Non-business energy property credits.
f. Increased AGI limits for a deduction for a qualified conservation contribution.
g. Election to include nontaxable combat pay in earned income for EIC.
h. Exception to the early withdrawal penalty for plan distributions to reservists and repayments made to an IRA after 2007.
i. The exclusion from income for certain IRA distributions made directly to a charity.

Ten, Expired Business Provisions.
a. Research credit (for amounts paid or incurred after 2007)
b. Shareholders basis adjustment for stock of S Corporations making charitable contributions.
c. Indian employment credit.
d. Accelerated depreciation for qualified Indian reservation property placed in service after 2007.
e. 15 year recovery period for qualified leasehold improvements and restaurant property.
f. 7 year recovery for a qualified motorsports entertainment complex.
g. Special rules for contributions of food and book inventories.
h. Special rule for corporate contributions of computer technology or equipment for educational purposes.
i. Tax incentives based on the District of Columbia Enterprise Zone.
j. Deduction for domestic production activities in Puerto Rico.
k. Suspension of 100% taxable income limit on percentage depletion for oil and natural gas from marginal properties.
l. Environmental cleanup costs deductions.
m. Reforestation expense deduction increase for certain small timber producers.

Any one or all of these could be reinstated by Congress at any time before the end of this tax year, so consult your tax professional for details and prepare yourself just in case! I hope this article has been beneficial for you.

Phishermen Using IRS as Bait to Catch Victims
By David Roberts

It is that time of year that people’s thoughts begin to turn toward Year-End and taxes. (Well, some people’s thoughts anyway.) It is also that time of year that fraudsters begin to ramp up efforts to snare victims using ‘phishing’ techniques, i.e. using spam emails to lure victims into giving up sensitive information in the hopes for an extra portion of their refund or in exchange for answering a survey getting $80 credited to their credit card or bank account. In this article, we are going to discuss this pervasive problem and how to avoid getting suckered in by these schemes.
Below is the text of an actual spam email that has been sent to millions of US Taxpayers, we are going to take it step by step to explain how to tell if you are receiving a genuine message from the IRS or if it’s a Phisherman.

“From: Internal Revenue Service [mail to:security@irs.gov]
Sent: Friday August 8, 2008 10:00AM
Subject: IRS Survey: $80 to your account – Just for your time!
Importance: High

Congratulations!

Dear Customer,

You’ve been selected to take part in our quick and easy 8 questions survey. In return, we will credit $80.00 to your account – Just for your time!

Please spare two minutes of your time and take part in our online survey so we can improve our services. Don’t miss this chance to change something.

To continue click on the link below:

http://www.irs.gov/login.asp=survey

Copyright 2007 Internal Revenue Service U.S.A.

While the reason for asking for information from you may differ, whether it is a survey or a mistake that entitles you to more of a refund than you claimed, the result is the same. Your information and shortly later your bank account are gone. A lot of these phishermen are offshore companies that use a method known as ‘hopping points’ to hide the origin of their operations. A phisherman in Germany will use a ‘hopping point’ in South Korea; these crooks have gotten very creative and will often use several ‘hopping points’ to cover their tracks. But let’s look at this email step by step to see what we are dealing with here.
One, any email sent to security@irs.gov is going to get rejected as this is not a valid email address, try verifying this yourself as the email address, while likely is a false one can sometimes actually lead to the IRS which will fill their inboxes with tons of requests for information on this ‘survey’.
Two, when has the government EVER sent you a letter that has said, ‘Congratulations’, either paper or email? Chances are, the answer is never. Let’s face it, the government isn’t in the business of ‘congratulating’ anyone. One person mentioned that he got a draft notice that said, “Congratulations!” but the rest of the letter was all bad news.
Three, the IRS will never refer to you as a ‘customer’. Taxpayer, yes; Citizen, sometimes, but never ever as a customer. And, even though this is a little facetious when has the IRS ever created anything that is quick and easy? This is the same government institution that sent three extra sheets of paper with each return in 2000 to explain the Paperwork Reduction Act!
Four, inevitably on these emails there will be a grammar or spelling error. Since these emails are often generated by people whose first language is not English, 99% of the time there will be an error. The English that the IRS uses might not be very clear, but its spelling and grammar are impeccable. ‘8 questions survey’ should be ‘8 question survey’.
Five, about clicking on these links, remember that these links can be disguised, so while the link may say it’s sending you to the IRS site, in reality, it’s sending you to a cloned site, which in many instances actually looks better than the real thing. NEVER click on these links, NEVER cut and paste these links, if you want to verify the site, manually type in the site into your browser. Cutting and pasting will paste the hidden site, not the intended site into your browser!
Six, the IRS does not have to copyright itself every year, so there would be no copyright in the corner, it DOES make it look official and that is of course why the phishermen will use this tactic. And finally, number seven, and remember this one, THE IRS WILL NOT INITIATE CONTACT WITH A TAXPAYER VIA EMAIL OR FAX. So why are people caught by this scam? Simply because people are always looking for free money and those that are looking for free money are the ones who keep getting caught up in these types of scams.
Let’s assume that you have already seen the email and clicked on the link (NEVER DO THIS) in addition to taking you to the wrong site, some links can put a Trojan horse or create a backdoor to your operating system that cannot be detected by Norton, AVG etc, because these backdoors are created by the people who are real familiar with how these programs work. If you have clicked on this link, you are taken either to the survey, (and in many cases, the survey is entirely skipped but regardless of whether it is there or not, this page will ask for your name, Social Security number, the card number you want ‘credited’, the expiration date and the CSV number on the reverse of the card.
While the IRS will request your SS #, and the amount of your refund, the IRS will NEVER ASK FOR YOUR CARD NUMBER, BANK ACCOUNT NUMBER, ETC, EVER! Why? Because they already KNOW it! When you opened your account, you had to use your SS number as an identifying number to do so.
In addition to using SPAM emails, these fraudsters will also use automated faxes. These faxes will often claim that you have won a vacation, or that you need to fill out IRS form W-8 for Foreign People Earning US Income. This is a completely fictitious form, do NOT return this form to the sender!
Okay let’s say that you have become a victim of this fraud and you have compromised your personal information. What do you do? First, send the email to phishing@irs.gov and contact all the major credit bureaus. If this email claims to be from the IRS you may also call the TIGTA hotline at 1-800-366-4484. Fraud affects everyone, don’t be a victim, learn what you can do to prevent it! And if it has affected you, fight back! There are many services you can use to repair your credit rating after your identity has been stolen.

Diagnosing Common Errors in QuickBooks
Part One: Negative Balances in A/P or A/R

By David Roberts

Introduction
Diagnosing problems in a QuickBooks file is easy once you know what you are looking for. It’s usually a matter of glancing at the chart of accounts for anything out of the ordinary. The problem is that most business owners aren’t sure what is out of the ordinary and what isn’t. This is the first in a series of articles that will explain how to diagnose what the problem is and how to correct the problem once known.

Negative Balances in A/P or A/R

Although this may seem kind of basic for those who have been entering data into QB for a while, for those who haven’t this may be new information, so hang in there for their sake. Accounts Payable is the account automatically created by QuickBooks when you enter your first bill. This is the account that all these amounts go into and from which these same amounts are taken when you pay the bill. More often than not, the clients I see for the first time have a negative balance in the A/P and cannot explain why, nor do they know what to do with it.
A negative balance in the A/P would indicate that YOU owe your vendor money, and though there are legitimate reasons why you would give a credit to a vendor, a refund for extra material sent, etc., most of the time it is the result of a simple mistake. That mistake is the entering of a payment to a vendor without entering the bill that the payment should apply to. This happens when the data entry clerk is not using the Enter Bills/Pay Bills screens and is simply entering the amounts paid into the check register. Since there is no corresponding bill, (according to QuickBooks) the amount of the check is entered as a credit toward the vendor specified.
Likewise, a negative balance in the A/R indicates that there are customers that your company owes money to. And again, there are legitimate reasons you would credit a customer, but often it is a mistake. The mistake that is made is that a customer payment is recorded without a corresponding invoice being recorded. If the invoice isn’t recorded, then according to QuickBooks, this customer doesn’t owe you anything, upon receiving the payment and recording it, you now have a customer you owe money to, but not really.

NOW HOW DO I FIX IT?

As with all questions related to accounting, the answer is, “that depends”. If these are current mistakes and the bank accounts have not been reconciled as of yet, the method of correction is easy. For the A/P, look for the Pay Bills and enter in the same check number that you used earlier and pay the bill in that screen. The little ‘oh-oh’ screen will pop up telling you that this check number is already used, ignore it and use that number anyway. When you are done with all of these entries, return to the register and look for those identical check numbers, the ones entered correctly will have BILLPMT in the box below the check number, delete the one without that designation and you will have completed the task. Fixing the A/R is not much different, (assuming that the reconciliations have not been completed!) enter an invoice dating back to the time of the payment received for whatever that customer ordered. The invoice will counter the credit received and will bring the balance out of the negative to zero, unless the customer of course, still owes you for work done.

WHAT IF EVERYTHING IS RECONCILED?

If the negative balances date back into months that have been previously been reconciled and the bank statements and QuickBooks match, deleting these payments by customers and reentering them applying them to invoices will throw off all reconciliations for the rest of the year. You will then have to re-reconcile the bank accounts and that can be tedious.
For A/P corrections after reconciliations, DO NOT DELETE THE BILLS! We have to be a little creative with this so here goes. First, create a fake bank account; call it Adjustment Bank or First Bank of David, whatever you wish. Go to the Pay Bills screen and use the fake bank account to pay the bills you are sure have already been paid.
Once you have completed the entries, make a fake deposit from an account called adjustment into the fake bank account for that same amount of the already paid bills. This effectively zeroes out the bank account, which you can then make inactive.
For A/R corrections after reconciliations, since the amounts have already been received and deposited into the right bank account that has already been reconciled, simply entering in matching invoices to compensate for the received funds will not affect the bank account, and thus will not affect the reconciliations already done. Just make sure to tie out the payment to the invoice number you create by using the invoice number in the payment memo box. Since the amount won’t change you won’t have to worry about affecting the reconciled transactions.

CONCLUSION

Admittedly, this is not the ideal solution, and if you only have a few of these transactions and it won’t require an entire year of re-reconciliations, you should do it the long way. However, this way gets you done sooner and let’s you get on with the day to day business you love to do. I hope this helps you with your QuickBooks issues.


Setting Up Quickbooks Part 1
Getting Started
By David Roberts
Homesoon Accounting

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.

Setting Up Quickbooks Part 2
What to Do with the Tax Lines
By David Roberts


Introduction

I can remember real well what my grandmother would say when her guests would load up more on their plate than they would eat. “Don’t bite off more than you can chew.” Or, “His eyes were bigger than his stomach.” When I planned this article, I knew there was a lot of information, but doing all of it may have been ‘biting off more than I could chew’. So, I am going to break this article up into two so that I can be fair to each and every one of you who may be struggling to figure out what to do with that last line in the edit accounts window. The first article will cover the Schedule C Income and Deductions part of the tax line and the second will examine the K1 and Balance Sheets along with the M-1 and the 8825A-E forms.
Remember that this is what I do for a living, so I have to know this information, I have to get excited about it, (yes I know, I need a hobby) because it’s a big part of my practice. Don’t feel bad if you happen to nod off in the middle of information about this or that section number, I will attempt to make this as informative and entertaining as the subject of taxation will allow. (The IRS doesn’t like it when we have fun discussing taxes!)

II. Schedule C Income and Expenses.

Depending on the version of Quickbooks you have, you may or may not see the description ‘Schedule C’ in the tax line information. Regardless this is the place that you would put income and expenses for your business.
1. Gross Receipts or Sales – You may have as many income accounts as necessary and assign this tax line to them. Whether you call the accounts daily sales, or Credit Card sales, it is revenue brought in to the business by your daily activities.
2. Returns and Allowances – When you purchase items for your business, sometimes it becomes necessary to return them to the vendor. You can’t delete the original entry or purchase information but you can record the return using this tax line because technically, though it is not revenue, it is income, because your money is being returned to you.

3. Other Income – This covers income not generated through sales or returns, interest on your business checking account (not investments, that is another line.) charges that you pass on to your clients, bounced checks, late fees, etc. This will help you distinguish what your business is generating on a regular operating basis and will help give you a more accurate picture of your finances.

4. COGS (Cost of Goods Sold) – Purchases – for those businesses that must purchase materials to construct or build products for their customers. A stool manufacturer for example must purchase the legs, the seat, the cushions separately and sometimes from different vendors. A retail store must purchase goods for resale. This is where those purchases must go.

5. COGS – Cost of Labor – These are not salaries, these are the costs of getting the product built and out to the customer. Subcontractors’ labor, etc would go here.

6. COGS – Additional Section 263A Costs – This involves the capitalization of certain items of inventory in the possession of the company owner. The good news is that unless the business is producing more than $10,000,000 a year, chances are, this won’t apply to you.

7. COGS – Other Costs – If it costs your business to get the item shipped to you or shipped to your customers, that’s where this expense goes. Shipping marketing materials, or items for use in your business does not go here.

Deductions

8. Compensation of Officers/Shareholders – If you have your business set up to pay you a regular salary, that amount would go here. The good news is that most business owners who initially started their companies, if they have put a sizable investment in, can draw out some of their ‘pay’ in a Distribution to Shareholder category, which means you will only be taking out part of which you put in, and thus, it is not taxable personally to you. A lot of small businesses do not even pay out to the owners until the business is on more solid footing.

9. Compensation of Other Officers – Same as above without the Distribution option unless the ‘other’ officers are partners who invested in the corporation too.

10. Salaries and Wages – This is of course, where you put in what you paid your employees, not the 1099 vendors, but the weekly, hourly workers.

11. Repairs and Maintenance – This one is self explanatory, just make sure that your accountant is depreciating your machinery correctly so that the costs of repairs doesn’t escalate beyond the useful life of the asset.

12. Bad Debts – What is a bad debt? When you sell goods or services on account, be aware that some clients won’t pay you. Be prepared to either confiscate the goods sold, or continue to bill for services. At what point does the debt become bad? I’d say probably past 180 days and your chances of collecting are close to zero. There are two ways of handling bad debts in your accounting. One, the Allowance for Bad Debts account. This assumes that a certain percentage of your Accounts Receivable will turn bad. (.5 – 2%) You create the account in QB and estimate that a certain percentage will never pay and you put it into this account. Two, only count those who have indicated that they will not pay or cannot pay and add them to the Bad Debts account after 180 days. Keep in mind that if a bad debt does get paid in a following year, you have to make a reverse entry to take that amount from the bad debt account and put it back into accounts receivable.

13. Rents – Office space, warehouse space, storage space all goes here.

14. State Tax – These are NOT state sales taxes, these are state taxes you pay to operate your business.

15. Local Property Tax – County, City, Parish, etc charges that you pay for to own property in that particular county, city or parish.

16. Payroll Taxes – Quickbooks puts the appropriate payroll taxes here automatically when you subscribe to the Add on service of Assisted Payroll. (see the article entitled, “Using Add On Services” for more information) If you are not subscribed to QB payroll you have to enter in the correct information as to employee and employer contributions to Social Security and Medicare.

17. Other Misc. Taxes – In Northern states that seem to tax residents and businesses out of existence, things like parking taxes, etc would go here. Have you considered moving to Florida?

18. Licenses – Each occupation (legal ones, that is) requires a license to operate. These are usually paid to the county separately from the county taxes. Those fees would be in this tax line.

19. Interest Expense – Are you paying interest expenses? Again, this is self explanatory.

20. Depletion – This is the natural resources version of Depreciation, so unless your business owns forestry land, oil reserves, or farms, you won’t have to deal with Depletion.

21. Advertising – Experts say that unless you are spending 10% of your revenue on advertising, you are not spending enough. However, you have to be wise about it. Any kind of marketing from yellow pages ads (least effective) to radio, television and bench ads would go here.

22. Pension/Profit Sharing – A deal you might make with potential employees is to pay less hourly and pay bonuses based on performance. This keeps a sort of ‘ownership’ attitude amongst the employees and the bonuses would be put here.

23. Employee Benefits – Insurance packages, etc would be put here.

24. Meals and Entertainment – When going about your daily business you have to eat. Remember that only 50% of these expenses are deductible, however, if you have a staff party and pay for a meal for all of them, it is all deductible. Oh, and the IRS isn’t stupid, you can’t have a staff party every day.

25. Other Deductions – If you are unsure of the category and it doesn’t seem to fit anywhere above, use this one and be sure to ask your accountant later where it would go.


Setting Up Quickbooks Part 3
What to Do with the (rest of the) Tax Lines
By David Roberts


I have to apologize as there are some lines here that would cause an entirely separate article, and yet are not used by 90% of the companies using Quickbooks as their accounting software. I am sorry that these definitions are so brief but should you need clarification please don’t hesitate to email me.

I. K-1 Tax Lines

The K-1 tax form is a little bit like a mutt form on the tax return. Mainly it concerns the division of profits and expenses in a partnership, trust or corporation so if your company is not a partnership or corporation these particular tax lines won’t apply to you. Some people receive a K-1 because they are part of a group of people who own a trust or portfolio that generates income through the year. That income is split up into the designated percentages amongst those in that group. One example of this would be the trust left to a group of siblings that generates income through the year, the eldest receiving 60% and the one or more siblings receiving an equal share of the remaining portion. Each sibling would receive a 1065B which would then be used to fill in the K-1 form.
Schedule K
1. Rentals Income – Used when a partnership or corporation earns income from rental property.
2. Rentals Expenses – Self explanatory but make sure you can break down what your actual expenses are versus what you think you are spending. Ads, Management fees, mileage to go collect rent or inspect problems with the home, all play a part in reducing your income and tax liability.
3. Portfolio – Interest – CD’s – when a CD is part of an investment it earns a special place on the K1 form apart from interest from the US Treasury which is the next category.
4. Portfolio – Interest – U.S. Treasury (bonds) etc. Many of these bonds are non-taxable income and many of these non-taxable bonds pay decent interest rates.
5. Portfolio – Dividends – What would normally be on a 1099 DIV form in the case of a partnership, corporation or trust that owns stock will go on the K1.
6. Portfolio – Royalties – Income received from copyrights, patents, oil, gas or mineral properties. Check your portfolio to see if your mutual funds are being invested in these type of companies.
7. Other Income – the all-purpose IRS junk category. Other. If you can’t fit it into one of the other categories, put it here.

Deductions –
1. Charitable – yes, partnerships, corporations and trusts can donate to worthy causes and receive the same benefits of writing off these donations to offset income and to foster goodwill in their communities.
2. Other – If you can’t fit a deduction anywhere else, put it here.

Investment Interest

1. Foreign Tax - Some mutual funds invest globally and thus you end up paying some foreign taxes. Sometimes these foreign taxes are deductible, that is a completely different article I haven’t written as of yet.
2. Reduction in Available Taxes – another category put on your 1099DIV at the end of the year. Most companies will not use this category, I have been doing this for 9 years and have yet to service a client that uses this category.

II. Balance Sheet Tax Lines

While a lot of the lines that have been covered can easily go into this income or that expense category, the balance sheet covers the accounts that would be considered assets, liabilities or equity.

1. Cash – this would be your bank accounts, your cash on hand or petty cash accounts. It would include any account that is immediately available as liquid assets.
2. Accounts Receivable – If you accept payment on credit terms, all amounts that you are waiting to be paid would be classified as A/R. There are companies out there now who will pay cash for your receivables, which in cases of extreme cash flow restrictions would be an option. The percentage you get however will be significantly reduced and isn’t an option for a lot of smaller business owners.
3. Allowance for Bad Debts – This is the method I discussed earlier about figuring in advance that .5 – 2% of your A/R will never pay and being able to claim that as such against your A/R.
4. US Government Obligations – Rare to be used, but if you have back taxes or debts owed to the government on a payment plan or regular payments, use this box.
5. Tax Exempt Sec. – If the company owns any bonds or tax exempt securities, these are assets that pay out based on the ‘loan’ made to the payor.
6. Other Current Assets – These are assets that can be easily and quickly converted to cash within a year’s time, CD’s, Bonds, etc.
7. Loans to Shareholders – Just as it is feasible for a shareholder in a corporation to loan money to the company, it is also feasible for the shareholder(s) to borrow money from the company. Keep in mind that this kind of loan is strictly regulated and is one of the reasons that the Enron executives were more closely scrutinized and prosecuted, because the loans were below market value for excessive amounts that could never have been repaid.
8. Mortgage Real Estate Loans – If your business involves the collection of loan amounts for real estate purchases, this would be the account to put those payments into.
9. Other Investments – Are there any other investing activities that your company participates in that generates income either directly or through depreciation or amortization of assets?
10. Buildings – Your building will be included on the balance sheet as being a positive addition to your assets and their value, the loan for the purchase of the buildings however will be on the liability side. There should be a separate fixed asset account showing the original cost of the building.
11. Accumulated Depreciation – the yearly amount deducted from the VALUE (not the COST) of the building, vehicle, etc. Accumulated means all the previous year’s accumulated deductions for this asset. This amount if added correctly will appear on the chart of accounts as a negative figure.
12. Land – Land does not depreciate, however the cost of the land is an asset and should be included in the accounting.
13. Accumulated Amortization -
14. Other Assets – Assets that cannot be put into any of these categories. Intangible assets, like goodwill, etc.




Balance Sheet Liabilities
1. Accounts Payable – These are the accounts you owe that are on credit. This is for products, services or merchandise you purchased on credit.
2. Short Term Mortgages Payable - In a time of extreme cash flow need, sometimes a business owner will take out a short term mortgage with collateral. Short term means it should be paid within 12 months.
3. Other Current Liabilities – All liabilities that will be paid off within 12 months.
4. Loans from Shareholders – When the company is strapped for cash and the owners/shareholders are not the money is put here so that when it is taken out it is done so as a repayment on the loan from the shareholders, with interest, and is not taxable, apart from the interest gained personally to the shareholder.
5. Long Term Mortgages/Notes – Mortgages on property, notes payable to companies or individuals that don’t expect payment within a years’ time.
6. Other Liabilities – All liabilities not fitting in other categories go here.
7. Capital Stock – The number of shares authorized for issuance by a company's charter, including both common and preferred stock. Generally the value assigned to each share is $1 but that is up to the individual business owner.
8. Paid In Capital – capital received from investors for stock, also called contributed capital.
9. Treasury Stock – stock reacquired by a corporation to be retired or resold to the public. Not to be considered when calculating an earnings per share ratio, dividends or for voting purposes.
Numbers 7,8 and 9 are usually meant for companies with the intent to sell their stock or go public. For these categories I would suggest getting guidance from a CPA before attempting to undergo that process yourself.

M-1
The M-1 is a form used for corporations with income or assets over $250,000. It is a comparison to the beginning years balance sheet to the end of year’s balance sheet. The use of Quickbooks makes this preparation easier as the information flows easily from the Quickbooks file to many different types of tax preparation software. (Lacerte, ProSeries, etc) The cost of these tax preparation software is usually prohibitive for a company that doesn’t specialize in tax preparation, so seek out a preparer that uses one of these two systems.

1. Net Income Per Books – the income minus expenses on books flows through to here.
2. Depreciation Per Books – ditto.
3. Expenses on Books not on Return – consult a tax professional before putting any of your accounts into this category!
4. Income on Books not on Return – again, consult a tax professional before using either of these categories.



8825A-E
If your corporation or partnership owns one or more rental real estate properties, the income and expenses are assigned to one of these accounts. The A, B, C etc are for separate rental properties so you can keep track of up to 5 different properties.

1. Gross Rents – how much rental income did you receive for this property.
2. Advertising – how much did it cost you to advertise this property as being for rent?
3. Auto and Travel – how many times did you travel to the property for maintenance, collection of rent, etc.
4. Cleaning and Maintenance – tenants can sometimes make a mess, how much did the carpet cleaning, painting, etc cost you?
5. Commissions – did you hire someone to help you rent the place? Pay them and deduct it here.
6. Insurance – this would be for property and casualty insurance on the property in case you get sued or someone hurts themselves while living on or exploring your property.
7. Legal and Professional Fees – did you have an attorney draw up the rental paperwork?
8. Interest Expense – generally reported on the 1098 of the property.
9. Repairs – outside of regular cleaning, was anything damaged that needed repairs?
10. Taxes – Real estate taxes, county taxes, etc
11. Utilities – Are you paying utilities to keep up appearances while you are trying to rent the property? Are you paying utilities for the tenant?
12. Wages – do you have someone on staff who is your “property manager”? Split up their wages amongst the properties for accurate bookkeeping! (but pay them with one check.
13. Misc. Expenses – pest control, security, etc would all go here.

Hopefully this article has helped you further your Quickbooks education on tax lines. Remember the old adage, “Garbage in, Garbage Out!” Put in correctly, your reports will be more accurate, and decidedly more helpful to you and your accountant.


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.