New Year - Time for New Filing System

New Years is when I make time to setup new file folders for the year--for both myself and all the clients I do regular work for. That requires a bunch of printing labels for manilla folders. I save the label templates so it's fast from year to year. 

I also start pulling my paperwork to go into a plastic tub for storage. (I only keep current year's paperwork in my desk drawer files). First, I burn (shred) the 4^th year’s paperwork to create an empty tub as the IRS only requires me to keep 3 years of paperwork. Clients’ paperwork I don’t return to them until they do their taxes, as there are sometimes questions from the tax preparer. I don't have to do this on New Year's but it's become a tradition with me because it's fastest if I have new file folders ready for the new paperwork that's to come in. 

Also, there is the mental preparation. The hardest part of a job is getting started. I perhaps enjoy filing more than most but only because I recognize its value. If I have to do it a little here and a little there, forget it. The emotional units it takes to get motivated are more than the task is worth. In the old days, I was not motivated to make nice labels at all because I thought it was busy work, not necessary. But professionals I respected did make them so which was right? Which was faster? After years of scientific research, I discovered that nice labels and a pretty filing system was faster because I never mis-filed and could always find paperwork immediately. So, when I start a new job and clients see me making labels and setting up a nice filing system, and they think I’m wasting my time and their money, they’re mistaken. I'm making them more profitable. 

So now it's this thing I commit to doing during the downtime of New Year's long weekend. If I do it all of mine and all of my clients in one day with some nice music in the background I can get into a groove and it all gets done beautifully. 

Clients who have massively disorganized filing systems asked my advice. I encouraged them to set aside an entire day for this task. If they have employees, a corporate-wide official day of paperwork client up and organization is a brilliant way to go. We discovered that if they commit one whole day to files (nothing but paperwork) they can create a whole new level of organization that they find easy to maintain. Creating a company-wide day for paperwork only is a winning strategy. If you're like me, you'll make it around New Year's. 

Easy Bounced Check Processing QuickBooks

This is the easiest way to process a bounced (NSF) check in QuickBooks. It works for all QuickBooks: desktop, enterprise and online because it takes into account what's happening business-wise, correct accounting, and how the sofware works. The numbered steps are what you do. The rest is context. 

1. Enter original Invoice

2. Enter Original Receive Payment

The bank informs you that the check bounced. There it is: Item returned undeposited, and a bank fee, often $12. Figure out who's checked bounced. You need to know which customer/client?

3. Enter an expense using the customers name. Post the expense to "Accounts Recievable". 

It'll show up on your Open Invoice report. You'll be able to reconcile your bank account. 

4. Go to the Original payment for the original invoice, and uncheck the payment against the invoice. Leave the payment as a credit. 

That invoice is now unpaid, which is correct. They still owe you for the original invoice. 

5. If you want to pass a fee onto your customer at this point, create a line iten in the Line Item List (Products Items List in QB Online). Your Item name might be "Bounced Check". Your descriptoin might be "Charge for NSF check processing". Your amount is what you want but $35 is the most businesess charge. 

6. Go into the original invoice, and add that line item, and charge. Some of my client's don't charge for this so they won't have steps 5 and 6. 

The customer gives you a new check/payment. 

6. Do a new Receive payment for the new check. Apply the new check to the original invoice by clicking that it's going to pay off the original invoice. 

Now in your open invoice report, you'll see the original payment and the expense. They balance to zero. To clear these 2 line items off your report, apply the original payment to the expense. 

7. Go into Receive Payment window (as if you're doing a new transaction) and enter the customer in question. That'll pull up both the original payment and the expense. You can click those off against each other so they no longer show up on the open invoice report. 

This is natural because you're following the linear steps that happen in the real world. No one likes having a bounced check, especially your customer/client, so be nice about it. This is what it means to have a successful business. 

The Winter of our Discontent

That line, "the winter of our discontent" keeps coming to me. It feels appropriate for what I expect for this coming winter. After all the stresses we've been through these last few years, businesses without good accounting may go down. Without great accounting, so much money is being lost that very few businesses can thrive, let alone survive hardships. When a business fails, it adversely affects the owner, their family, staff, vendors, customers, and the entire community. Before a new beginning, there is a "winter of our discontent". What's most important when losing financially is to hold onto your self esteem and goodness.  

For those of us who have great financial reports to review, it may be still be a difficult winter. This is the winter to invest in the improvement of your financial reports if ever there was one. 

Steinbeck used it as the title of a book I'm listening to now. The story is about a charactor who's father lost the family fortune. He is now an adult working a menial job. He's a good person with good values who's not bothered by his current financial situation. His wife and eveyrone around him are however. He gives up his integrity and plans to become a criminal to "get ahead'. Luckily, a couple of good people intervene, interupt his crime, and gift him with wealth. Their reasoning is because he's a good person. "Keep the light" is how it's worded. Most important during hardship is to "keep the light". 

WA State Salestax in QuickBooks Online is Broken

This is not a how-to or training blog. I’m assuming the reader knows how WA State Salestax works; that WA B&O is the state business income tax; and how to file both for one business at least.

If that’s not what this blog is about, then what is it about? It’s about the following:

1.     How I know Salestax Reporting is broken in QuickBooks Online.

2.     Why it’s Not likely to get fixed anytime soon.

3.     And lastly, What Can We Do About It?

1.     How I Know it's Broken:

a). The Salestax Liability Report is the one to run. It should match the P&L total for the same period, same basis. A recent QB Online construction-business client had $520k in sales on her cash P&L. On her cash Salestax Liability Report for the same period she had only $360 in sales total. Her invoices were done correctly.

On QB Desktop the P&L and Salestax Liability Report match exactly or within 1%. I debugged that 1% difference once. It was how the software processed the payment/invoice dates. Took me hours to clean up and the discrepancy would show up on a past or future report. Just always go with the Salestax Liability Report all the time. Print a hardcopy of that report. Staple it to the back of the State Return which you print out. In case of an audit, this proves you filed correctly and with the best intent. 

b). The client imagined that all of her out of state sales were on the P&L but excluded from the Salestax Liability Report. That explained the difference. However, all of the out of state sales should have been totaled in the line item “no salestax” at the bottom of the report. There was a value in that field on her report.

Non-taxable sales for WA B&O taxable customers (everyone located in the state of WA) should be totaled in the non-tax column across from the city where the customer is located in WA State. 

I clicked on the value in the “non-taxable” line item. It should have been all out-of-state sales. What information went where didn't follow any format I could see. 

c). Another mistake was that the various cities total was greater than the state total. Technically this can’t happen as each invoice has only one state and one city. 

Some cities were duplicated with different tax rates. The client exported the Salestax Liability Report to Excel and deleted what she decided were the “wrong” cities line item.  She then massaged the numbers in the “right” cities so that that city total = state total. That was a good start. 

What she did in reporting the difference between Sales Tax Liablity Report and P&L (same basis, same time) as out-of-state sales is also a good idea...given you're working with what you're working with. You'll see why below.

However, no one using QB Online who needs the Salestax Liability Report to be correct can defend their numbers in case of an audit.

 

2.     Why It's Not Likely to Get Fixed Anytime Soon:

Various features of the Salestax Liability Report have been buggy in QB Online for a long time now. This doesn’t seem to be a priority if the report is broken now.

When users had access to the city tax rate fields, I, as a user, could clean them up a bit. Now users are locked out. Intuit exclusively has control of the various cities and salestax rates for the state of WA.

This is the NEW salestax module so Intuit thinks they’re moving in the right direction.

I called to report the bug. I have Advanced VIP tech support. The tech was awesome in many ways except he did not believe me.

He repeated that no one else was complaining. I've often been the first to report a bug. Of course, he didn’t know that.

Then he said that he would have to work with me by remote access in that particular client’s database in order to verify the bug. What that means in tech language is that only after hours of exhausting every possibility of proving me wrong would he send this bug report up to Senior Tech Support. I don’t have hours to donate, period. And I don’t want to donate hours when my past efforts have been fruitless.  

I asked if he was sure no one had reported anything? For one thing, I’ve reported problems before. Where they not there? Could he research this again?

He finally admitted he had one bug report. “Crazy thing. One has to click on the non-tax field inside the invoice a 2^nd time for it to register on the Salestax Liability Report as a non-taxable sale. I think he may have said for out of state customers”. At this point I was losing interest.  

If that’s true, that could explain why the P&L was higher, just like the client imagined. But imagine fixing that bug for invoices for $500K in sales? Imagine going into each invoice to ‘click on this one field again”, then back to your Salestax Liability Report to make sure it was now registering? And then doing it again if it didn't register. Is that not a major bug that should be fixed asap?

Plus, even if one did that perfectly it would only improve the Salestax Liability Report in QB Online, not fix it all the way. 

What Can we Do About it?

a). 50% of my clients use QB Online. The new 50%. Clients who have been in QB Desktop for many years don’t switch. The get their QB Desktop version hosted for remote access.

The Salestax Liability Report works perfectly in QB Desktop. 

When a client asks me to recommend which software they should use, if salestax reporting is important in their business, I morally have to recommend QB Desktop. 

Which is a crying shame since sometimes they have compelling reasons to go with QB Online. But 10% salestax on $520K is $52K, and that’s not pocket change. In addition, the business has to pay WA State taxes on state sales. Then there is the threat of an audit. 

b). If anyone has time, please do report your Salestax Lability Report problems. Why not let Intuit dial into your computer and help you debug it? Once they realize they can’t fix it, they should send the bug up to Senior Tech Support to fix. You won’t hear back from Senior Tech Support, but you’ll have done your good deed for the day. 

Lastly, does the Salestax Liability Report in your QB Online version work perfectly? Do you have various WA state customers with and without saletax, and out of state customers too? Does it work perfectly for your business? I would love to hear that it does. Love to!

Why did you get a 1099 from Venmo or Cash App?

A brand-new law requires mobile payment processors like Venmo, Cash App, Apple Pay, Paypal, eBay, and many more to send the IRS and you a 1099 if you get sent $600 and over for “goods and services” via that mobile processor. These mobile processors are called TPSO’s. Venmo, Cash App, Apple Pay, Paypal, eBay and more are all TPSO's. 

This brand new law is part of the “American Rescue Plan”. 

Here is a brief history of 1099 reporting that I've watched happen:

*** In the 1980's the IRS stepped up 1099 reporting so that businesses had to report on total yearly payments to service vendors. The goal was to reduce welfare payments by tracking down Dads who weren't paying child support. 

*** In 2001, the Patriot Act greatly expanded 1099 reporting requirements. It also allowed the IRS to collect data on all credit card transactions, so they are no longer included in 1099 reporting. 

***Now, in 2002, the government is requring TPSO's to report on all money you've recieved in a year that's over $600 from one source and may be income. This new law marks a sharp departure from previous collection efforts, in a misguided way. If you care about civil rights, read on. 

Personal Money Reported as Busines Income

TPSO's are used more frequently for personal expenses. A young man told me that he received a 1099 for money he and his wife pass back and forth to each other using Cash.app. To clarify, he'll be getting a 1099 for grocery money. The government doesn't know if it's income or not, so they'll collect everything. The problem with this is that it's a legal matter if you don't declare your income, and the burden of proof is on you. 

Double Declaring Busines Income

The other problem with this new law is that if a client  does pay you with Venmo, that client is already rquired to send a 1099 to you. That means you'll get 2 1099's for the same income. Like I said before, all credit card transactions are already exempt from 1099 reporting but Venmo, Cash app, etc take money out of your checking account. It is litterally impossible to prove you only got paid once. 

Why this should be made illegal now

Consider how the governments mistakes with issuing 1099's could ruin your life. 

This is how the IRS audits. If you fail to declare income, the IRS has forever to come after you. And the penalty for not declariing income can be prison. If in 10 (or 15) years, the government audits you for Cash.app money you received and you don't have the records to prove that it was your ex-wife sending you money for groceries, the IRS can put you into prison. If your client sent you a 1099 for income via Venmo, so that income was double declared is that client going to stand up for you with the IRS by opening their books to the IRS? 

 

If the IRS thinks you've declared expenses that aren't legitimate, they have 3 years to audit you. The burden of proof is on you to prove that the expense is an acceptable write-off. That's why businesses keep records for 4 years--in case of an audit. If you can't prove it, you have to pay that expense, plus penatlies and interest. 

Putting you in prison for not declaring your income could become a huge civil rights issue in the future. If you believe the government won't ever exercise that power, then they don't need the right to exercise that power. 

How our goverment could meet their objective in a positive way

This law was passed because the government needs money. Ask anyone who works for the IRS (or writes a book about working at the IRS) and you will learn that the best way to get more tax revenue is to give the IRS the budget and management to hire hire-level sophistocated auditors who specifically target high income tax evaders--the whales. These are hard cases to solve but once solved are very profitable for the government. The cost of giving the IRS the money for this kind of auditing is far cheaper too. Funding the IRS to go after the whales who are cheating on their taxes will bring in lots of money. 

On the other hand, this law is going to fail to bring in more money because massive data collection is very expensive. Massive data collection of mostly unsable data is a net loss. So will we taxpayers be covering their losses the IRS 's losses with yet more taxes?

What can you do? 

First of all, please contact your federal congressional representatives and senators to complain about this new bill. Another law planned was to require "every" bank transaction over $600 reported to the IRS. It did not pass because so many people complained. Complaining works, especially if you complain in a proactive way. 

Ask for a repeal of the law that changed tax reporting requirements for TPSO's as part of the American Rescue Plan. 

 

Second, if you're using TPSO's to pay someone choose, “gifts, donations, or reimbursements”. Do not  select “services or products” unless you are sending the money for professional services or retail products. Someone told me that Cash.app does not offer that choice. What else can you do to protect yourself?