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

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

 

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Q:

Subject: Question

 

Kerry,

I am trying to find out if I can claim the exclusion for primary residence ($500,000 for 2 people) in the case where we are selling our home as a fractional. In our case, we would sell 5 shares and keep the 6th.  Our profit would well exceed the $500,000. We would likely deed over the first three simultaneously and then the 4th and 5th would deed over at a later time. 

 

Do you have any info or advice that you could lend?

Thanks in advance. By the way I found you through a Google search.

A:

It should be possible to achieve your goal of utilizing the $500,000 tax free exclusion for the sale of 83.33% (5/6) of your home.However, there are a number of technical aspects that need to be addressed, which means that you need the assistance of both qualified legal and tax professionals.  If you try to handle this on your own, you could very easily screw it up.
 
Some of the issues you need to address with your professional advisors should include the titling of the shares on the house (individual names vs. a separate entity), as well as whether they will represent actual current ownership or a future remainder interest.  If a remainder interest is involved, a sale to any related parties will not qualify for the tax free exclusion.

You mentioned selling at different times.  If the sales take place in different tax years, this could possibly jeopardize your ability to use the tax free exclusion on more than one 1040.  Again, you should discuss this aspect with your personal tax pro

You should also understand that if you do utilize the full $500,000 tax free gain on the sale of 5/6 of the home, you will not be eligible for any tax free exclusion when you sell the remaining 1/6th share. 

You will also need to work with your  personal tax pro to allocate the cost basis of the home to the portions being sold and the one being retained. 

Good luck.

Kerry Kerstetter

Follow-Up:

kerry,

Thank you for responding to my inquiry regarding the fractional sale of my home. This was helpful.