Tax Guru – Ker$tetter Letter

Coordinating QuickBooks With Tax Returns

As I have been saying for decades, the key to the most effective tax returns is good bookkeeping. This is the weakest link in the chain of events. As I have long advised, the best tools for bookkeeping have been Quicken and QuickBooks. Over the past few years, as Intuit has modified the programs, I have become less fond of Quicken and more appreciative of the capabilities of QuickBooks, which I will explain in more detail when I have more time.

As with any tool, QuickBooks is only as effective as the operator. One of the biggest mistakes I have been seeing far too often is using the wrong number of QuickBooks company files. It happens in both directions; either too few or too many. I have been spending huge amounts of my very limited time unraveling Quicken & QuickBooks data where people have combined too many accounts. As I have written for years in my Quicken Tips, each company file should coincide with a tax return; 1040, 1120, 1065, etc. For tax returns that include multiple business schedules, such as 1040s, the best way to keep their activity straight is to include all of them in one Company file and set up a Class for each business schedule (C, E, F, etc.). At tax time, it makes things so much cleaner. The worst thing to do is combine corporate (1120) activity in the same company file as for personal (1040).

Naming the QuickBooks data files should be done with this in mind as well. The best way I have found is to name it for the underlying tax return, such as Smith1040 and Smith1120. Having been on computers for over 30 years, I understand the benefits of short concise file names with no spaces.

I will be posting other tips for the most effective use of QuickBooks.

KMK