Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

  • Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 684 other subscribers
  • Blog Stats

    • 313,354 hits
  • Posts By Day

    October 2006
    M T W T F S S
     1
    2345678
    9101112131415
    16171819202122
    23242526272829
    3031  
  • Subscribe

  • Special Pages

Archive for October 17th, 2006

Incompatible?

Posted by taxguru on October 17, 2006

Posted in Uncategorized | Comments Off on Incompatible?

How many bank accounts?

Posted by taxguru on October 17, 2006

Q:

Subject: Multiple Companies

I have three companies but I want to use one bank account.
I order parts and items for Police Officers in one company.
I order parts for Marine and Sporting in another and
I have a welding Business as the final business.

I have three companies but I have one business bank account.
How can I get this to work properly?
Using QuickBooks Pro 2006

Also if I send you a copy of the QBB’s of each account can you look them over and make suggestions or modify?

This is all new to me. I have been doing this by hand on paper for a couple of years but have decided to try and use QBooks.

Thanks in advance.

A:

Don’t send any files to me. I am not accepting any new clients.

This is a matter that you need to work on with your own professional tax advisor, who should be able to help you set up your QB in a way that is properly coordinated with the related tax returns.

Whether you can operate multiple businesses out of a single bank account depends on the ownership of those businesses. If they are all owned by the same entity, a single bank account can work, as long as you properly use the QB Classes to separate the activity for each business. This would be okay if all of the businesses are owned by you individually and you report them on Schedules C with your 1040, as well as if they are all owned by a single corporation. You would use one QBW data file.

If the businesses are each owned by separate entities, such as a different corp for each one, you must have a separate bank account for each, as well as a separate QBW file for each. Money can be transferred between the accounts if necessary in ways approved by your professional tax advisor.

Again, any competent tax advisor should be able to help you set this up properly.

Good luck.

Kerry Kerstetter

Posted in Uncategorized | Comments Off on How many bank accounts?

LLC Accounting

Posted by taxguru on October 17, 2006

 

Q:

Subject: Questions after reviewing your web site
 
Hello.  I ran across your web site while looking on the web for information about how to handle a specific issue.  I was unable to find something specifically on point, so I wonder if it would be acceptable to throw the question your way.  Three questions, actually.
 
1.  In a single member LLC, how should the owner’s draw (payments for activities which are the basis for the LLC’s existence) be accounted? What type of QB “account” is Draw?
 
2.  I often receive payments from clients that comprise both professional fees and reimbursed expenses.  Based on advice I received some time ago, I have been grouping them together.  Yes, that results in tax payments based in part on the reimbursement, but it is balanced by the deductions taken on the expenses; besides, I was informed that was the appropriate way to handle it.  Your web site discusses contra expenses, and indicates that the reimbursements should be allocated to the same account as the expenses.  Is the difference between the way you’re handling it and the way I’m handling it a matter of tidiness, or are there different consequences?  (It also seems to me that there is a question of how clients would report the payments if they issue a 1099, since my reporting ought to match theirs.)
 
3.  On a related point, if I charge a surcharge on advanced expenses, is there any reason that those payments cannot be grouped with fees (assuming that there is no sales tax issue)?

A:

If you have truly reviewed my websites, you should know how important I believe it to be that business owners work directly with qualified professional tax advisors before deciding which kind of entity to use, as well as how to operate with the one that is selected.

As is far too often the case, it appears that you set up an LLC without understanding how they function.  Now that it is established, you still have the choice of how it is to be taxed, as a Schedule C on your 1040 or as a corporation (C or S).  That choice should only be made with the assistance of a tax pro. 

The treatment of owner’s draw will be different depending on how the LLC is taxed.  Your personal tax pro should be able to explain the differences.

With reimbursements received, there are different ways in which they can be handled on the books.  Because some entities have taxes based on gross revenues, I am a fan of keeping that figure down to the lowest legally allowed.  The way I usually handle it depends on a number of factors.  Generally, we post the receipts back to the original expense account only if they are separately designated on invoices and if they are for the exact same amounts.  If those costs are marked up when passed along to the customers, all amounts received should be processed through the revenues account.

In regard to the 1099 matching issue, you should understand that payments to most corporations are not required to be reported on 1099s, while payments to unincorporated businesses are.  However, from your email signature, it appears that you may be an attorney, in which case payments to your corp are required to be reported to IRS on 1099s.  IRS has singled out incorporated attorneys for tighter reporting that for any other kind of corporation.  This may or may not influence your decision as to how to tax your LLC.

Good luck.  I hope these comments help.

Kerry Kerstetter

 

 

Posted in Uncategorized | Comments Off on LLC Accounting

Posted by taxguru on October 17, 2006

Actor Wesley Snipes faces 40 years for alleged tax evasion – The idiot fell for one of those bogus tax protestor scams.

 

Posted in Uncategorized | Comments Off on

Posted by taxguru on October 17, 2006

Sweat equity in IRA real estate can be no-no – Using IRA money to purchase real estate is often a wise investment strategy; but there are a number of technicalities that need to be complied with.

 

Posted in Uncategorized | Comments Off on