Kristina's Bookkeeping Blog

What is Use Tax, and when should I be paying it?

Often ignored, either accidentally or intentionally, use tax is an important part of your company’s bookkeeping. At the most basic level Washington State Use Tax can be described as:

Use Tax – Tax paid on goods and services subject to Sales Tax, when Sales Tax has not been paid.

What this mean is that use tax is paid when sales tax should have been collected, but wasn’t. Most often, this results from:

Out of state purchases

As a Washington State business owner, if you purchase goods in a state without sales tax, such as Oregon, you are required to pay use tax on those goods. If you purchase goods in a state that collects sales tax, but at a lower rate than Washington, you will only pay the difference.

Craigslist, etc.

This doesn’t apply to Craigslist exclusively, but any purchase of goods from someone who does not or cannot collect sales tax. So if you bought office furniture from a listing on Craigslist, or from the company moving out down the hall, you owe use tax.

Online Purchases

Although more and more online stores collect the appropriate sales tax on their goods, some still do not. Pay attention to purchases from websites like Amazon Marketplace. If you buy directly from Amazon, they usually collect sales tax, independent merchants generally do not. Ultimately, if you purchase goods online and the seller does not collect sales tax, you are required to pay use tax on those purchases.

Digital Products

Consider this an important sub-section of online purchases. This category is often the hardest for owners trying to do their own bookkeeping. As digital products continue to evolve, it can be difficult to pin down what is a taxable good and what is a service. The Washington State Department of Revenue describes digital products subject to tax as:

  • Digital goods
    • If you have electronically transferred data, information, music, movies, or pictures, it is a digital good. This is NOT limited to goods you’ve purchased, but also includes streaming or temporarily licensed goods.
  • Digital Automated Services (DAS)
    • Examples of DAS provided by the Washington State DoR include:
      • Photo sharing services.
      • Car history report services.
      • Online searchable databases
  • Remote Access Software (RAS)
    • This effectively covers “Cloud Computing” services. Does your company pay a monthly subscription for online productivity tools? These kinds of purchases or subscriptions are subject to sales tax. Often cloud service providers do not collect the required sales tax, in which case it is the buyer or subscriber’s responsibility to pay use tax.

Calculating your use tax rate isn’t very hard, it is the same as your sales tax rate (unless you have paid partial sales tax in another state and use tax is only making up the difference). The hardest part is being aware of when sales tax should be collected. As physical and digital goods are increasingly purchased online states are paying much closer attention to use tax revenue. As a result, it is important for bookkeepers and business owners to understand when it is and is not applicable.

If you are unsure how the Washington State Department of Revenue will rule on a particular transaction, ask them! Their Tax Ruling Form is a great resource for any tax issue, not just use tax.

Finally, if you feel that your business is ready for experienced help with your bookkeeping, contact Kristina’s Abacus today!

W-9 & 1099 Forms Explained

Year end is getting closer and closer. My last post covered what you need to know about employee W-2 forms. This time I’ll go over the equivalent forms for non-employee contractors, W-9’s and 1099’s.

W-2’s don’t seem to be as confusing as 1099’s because business owners know that if you have an employee, they will need to have a W-2. However, it is not as easy to tell to whom we need to send a 1099. As a general rule, if in doubt, it is best to err on the side of sending a W-2. If the contractor or business don’t need it, they can always shred it.

The purpose of a W-9 is to request the proper name and Taxpayer Identification Number for each contractor you’ve worked with. This information is required in order to process their 1099 form. For recording keeping purposes, the IRS requests that W-9 forms be kept on file for 4 years, in case they or the contractor in question needs to reference it.

Here are some guidelines for whom you should fill out a W-9 and to whom you should send a 1099 at the end of the year:

  1. If you paid $600 or more for services rendered during the tax year in the course of your trade or business to an individual or partnership. Professional fees to an attorney, accountant, web design, etc…are included in this. Payments to corporations are included only if they are for medical, health care, legal or fishing activities.
  2. If you paid $600 or more in rent for office space, machines, equipment or land in the course of your trade or business.
  3. If your trade or business gave any prizes or awards, of $600 or more, to an individual who is not your employee.
  4. If your trade or business paid $600 or more in medical or health care payments to an individual, partnership or corporation.
  5. If you paid $600 or more in taxable fringe benefits to non-employees in the course of your trade or business.

It is best to require a W-9 before the first payment is sent out to any new contractor or business with whom you do business throughout the year so that you have all the information collected before your end-of-the-year filing.

As with W-2’s, 1099’s are now due to both employees and the IRS by January 31. Previously these forms could be submitted by the end of February or March if e-filing, but now the deadline has been moved up to January across the board.

If you have any questions, let me know in the comments! If you’re looking for someone to handle your bookkeeping, contact us at Kristina’s Abacus today!

New W-2 Form Deadlines

W-2-Forms-Explained_(300x276)As we are nearing the end of the year, it’s time to start thinking about W-2 and W-9 forms. I know, it’s everyone’s favorite part of the holiday season!

The following are some tips for meeting your W-2 reporting obligations and an explanation of when and how to file the correct forms. My next post will cover this information for W-2’s cousin, the W-9 form.

Reporting employee wages and taxes

You must issue an annual W-2 form if you paid an employee any amount in wages during the previous year. This form reports the employee’s wages, income tax and FICA tax withholding, as well as certain other employment-related payments. The form also contains information on any deferred taxes from retirement contributions, untaxed moving expenses and tips for individuals in service industries.

However, as a result of the Affordable Care Act, businesses that provide health insurance to their employees must report the cost of coverage on employee W-2 forms. The reported amount should include both the employee and employer contribution to the health care premium.

In addition to all employee-related information, W-2 forms must include the employer’s business name, address and federal ID number.

Know the mailing dates

Once all of the necessary information has been entered onto the W-2 form, you must provide copies of the form to both your employees and the Social Security Administration (SSA).

In the past you had until February 28 to send W-2 forms to the SSA, as long as employees receiver them by January 31. Beginning this year all forms must be submitted to employees AND the SSA by January 31.

Once you’ve given your employees their W-2s, ask them to check and make sure the information is correct. If any inaccuracies are found, corrections may be submitted using form W-2c.

In the event of non-receipt

It is important that you adhere to the mailing deadlines for both your employees and the SSA. If you choose to ignore these deadlines, you may be subject to penalties, including fines or even imprisonment.

Let your employees know they should contact you directly if they do not receive their W-2 form in the mail, as this will make the process easier for everyone involved. If this happens, verify the employee’s mailing address. You might have W-2s returned to you if the mailing information is wrong, in which case you can attempt to resend using the correct address or ask the employee to pick it up from you.

If you already have the correct mailing address on file, you may choose to wait about 7–10 days to allow for slow mail delivery to catch up to the recipient. If the employee still has not received the W-2 at this point, send a duplicate copy.

If necessary, the employee may also contact the IRS if they have not received their W-2. The IRS will likely ask the employee to wait until February 14 to allow for slow delivery time. After that, the IRS will contact the employer and ask that the employee receive a duplicate W-2.

You can read more about W-2 forms directly on the IRS website. If you have any questions or are interested in having Kristina’s Abacus handle your bookkeeping, contact us today!

Keeping the Books Clean – 10 Bookkeeping Tips for Small Business Owners

how_to_hire_a_bookkeeper-300x264Whether you are starting a new company, or trying to get messy bookkeeping under control, it should be a priority for every small business to have clean, organized books, and a plan to keep them that way.

After all, if you don’t know where you stand with finances, projections, shortfalls, and other elements of the financial health of your business, you won’t know if you are winning or losing.

Here are 10 tips to help you with your organization and planning:

  1. Have a bookkeeper create a chart of accounts for your company’s specific needs.  Keep it concise, but thorough.  I have found that for most small businesses, it is easier to work without a numbered chart of accounts.  You can turn this option on or off in QuickBooks in the preference section. Instead, use a chart of accounts designated alphabetically.
  2. Take time daily or weekly to add your receipts into accounting software.  Once I have entered the receipts, I mark the receipt with a red pen to let me know that it is entered.  I keep the receipts in a file to await the statement.  The file can be a physical file, or if you prefer, you can scan the receipts and keep the in a file on your computer or cloud.  When your statement comes in, it is very easy to match the receipts to the statement and reconcile the statement to the accounting software.
  3. Keep your vendor list clean and use NOF (not on file) vendors for transactions that you will not be using again so your vendor list doesn’t get outrageously long and complicated.
  4. If you have recurring transactions each month, “memorize” the transactions in your accounting software, so you don’t have to re-enter them each month.  This saves a lot of time and insures that you are entering the transaction the same way each time.
  5. Leave notes for yourself in customer accounts, vendor accounts, checks, bills, journal entries.  Make notes that will mean something to you when you look back on the transaction later.
  6. Don’t try to do your own payroll.  Payroll companies are not expensive and are well worth it.
  7. Make sure to name your checking, savings, loans, line of credit accounts clearly in your chart of accounts so that you don’t ever get confused what account is which when you are reconciling.  I like to label the accounts in this format: “ Banner Checking xx1234”.  This is much clearer than “Checking Account”.  What if you change banks, or have more than one account?
  8. DO NOT mix personal and business expenses.  Get a separate account and credit card.  Keep them separate!  If there is the only point that you take away from this article, this is the most important.
  9. If you have contractors or professional companies working with you that are not Incorporated, you will want to make sure that you give them a W-9 so that at the end of the year, you will know who needs a 1099 issued.  It is better to give someone a W-9 that doesn’t need it, than not give one and it is needed.  It is also easier to get a W-9 from people before they are paid.  They will want to get it back to you quickly to expedite their payment.
  10. Finally, have a professional bookkeeper or accountant review your books monthly or quarterly depending the volume of transactions and your bookkeeping skill.  Do the things that you feel comfortable doing and get on a schedule for a professional to keep everything else on track.   This approach will make your year-end process and CPA cost much more manageable.

Kristina’s Abacus can help set up these bookkeeping systems to get you on the path to success. For a free consultation, contact us today!

My favorite Quickbooks & Xero addons

Quickbooks and Xero are pretty powerful programs on their own, but it can still take a lot of time getting information into and out of your accounts. So when you start using addons to streamline the administrative side of bookkeeping, things really start to take off. With that in mind, I thought I would run down my top three addons that work with Quickbooks and Xero.

TSheets

TSheets is a web-based scheduling and time tracking software. You can set up employee schedules and they can clock in and out directly through the website. This can be done with the automated time tracker or by manually entering hours into the timesheet. TSheets also has a GPS tracker.  This is very helpful to employers that have employees that are working offsite (i.e: construction).  It shows where the employee was when they logged in and out.  It helps cut down on the truth stretching that happens out in the field.  It can be set up to go to Managers first for approval before it is imported into QB to be recorded as billable hours and payroll hours.

For the independent contractor TSheets is an excellent way of tracking billable and non-billable hours. Having a quick and easy way to track which clients you’re working on allows you to make sure they’re getting billed correctly. You might even find out it’s time to offload some non-billable hours to an assistant. However you end up using TSheets, that information can be imported directly into your Quickbooks or Xero file. You can then run that as payroll or accounts receivable. A lot better than tracking hours in an excel spreadsheet, that’s for sure!

Expensify

As you might have guessed, Expensify helps streamline expense reporting and reimbursement. Two things that we all want done as quickly as possible! Like TSheets, Expensify is web-based. It makes it much easier for employees to submit expense reports and for you to review and approve them. Employees are able to take pictures of expense receipts directly on their phone through the Expensify app and it will scan for matching information. On the company side you can quickly review expense or even set up automated reimbursement rules. Just like TSheets, Expensify syncs with your accounting software and imports expense and reimbursements to the appropriate accounts. All this means that both you and your employees spend more time working and less time shuffling through boxes of receipts.

Bill.com

So once you have hours to bill and expenses to pay, what then? Well, Bill.com! This last web application centralizes your accounts payable and accounts receivable into one location. Vendors and business owners can send bills directly to this portal to be processed and paid, instead of needing a paper copy sent to their office.

Once the bills are received, they are processed by the bookkeeper and then the authorized approver on the account is notified that there are bills ready to be signed off on. You can see PDF copies of the bills and approve them immediately or wait to pay them at a later time. Once the bills have been approved, the bookkeeper processes them for payment and they are paid by manual check or E-payment through Bill.com. All of this is automatically synced to QuickBooks and Xero without any need for manual entry!

Another benefit of Bill.com is that it functions as a easy to use virtual filing cabinet. The business owner and the bookkeeper have access to the company’s entire history of bills in PDF format and the remittance information filed by vendor in Bill.com. It really does keep things simple!

So there’s my top three suggestions for applications to integrate with your accounting software. These will save you time whether you do your own bookkeeping or you need to get your professional bookkeeper all the information they need. Either way, the less time you have to spend entering data, the more you can grow your business!

If you’re looking for a bookkeeping services to help you with your all your bills and expenses, contact us today!

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