Month: March 2020

Dealing With Deposits in Quickbooks

Recording payments, whether they come in to comply with an invoice you sent or are issued as sales receipts, is one of the more satisfying tasks you do in QuickBooks. The sales cycle is almost complete, and you’re about to have more money in the bank – once you document the payments as bank deposits.

Unless you use QuickBooks Payments, which moves your company’s remittances into an account automatically, you’ll have to deal with your deposits twice. First, you’ll have to make out a deposit slip for the bank. You’ll also need to record the deposit in QuickBooks itself.

Fortunately, the software makes this easy for you. Here’s how it works.

A Special Account

By default, QuickBooks transfers payments received into an account called Undeposited Funds. You can see it in your Chart of Accounts by clicking the Chart of Accounts icon on QuickBooks’ home page and scrolling down a bit. Look over to the end of the line and you’ll see its current balance. This account is an Other current asset. It holds your payments until you record them as deposits and take your money to the bank.

When you’re getting ready to take cash and checks to the bank, click the Record Deposits icon on the home page. The Payments to Deposit window will open.

Figure 1: When money moves into Undeposited Funds from invoice payments or sales receipts, it’s displayed in the Payments to Deposit window.

We recommend completing your physical deposit slip first, based on the checks and cash you have in hand. Then, match them to payments in the window pictured above. You can click in front of each one you’ve matched to create a checkmark. When you’ve finished, click OK. The Make Deposits window will open. Make sure that the account you want to Deposit to is showing in the upper left corner. You can add a Memo and change the Date if needed.

Do you want cash back from your deposit? You may want to move this to Petty Cash, for example. Click the down arrow in the Cash goes back to field and select the correct account. Add a memo if necessary and enter the Cash back amount. When you’re done, save the transaction. QuickBooks now knows that you’re taking a deposit slip to the bank.

The total for your handwritten deposit slip and the final tally in the Make Deposits window should be the same. This will ensure that the amount deposited in your bank account will match the bank deposit amount in QuickBooks when reconciling. If you have leftover cash or checks, you’ll need to track down their origins and create new transactions.

Checking Your Work

It’s a good idea to check your Undeposited Funds account occasionally to make sure that you haven’t left money undeposited. To do this, open your Chart of Accounts again. Right-click Undeposited Funds and click on QuickReport: [number] Undeposited Funds. All should be selected in the Date field in the upper left. Click on Customize Report and select the Filters tab. Scroll down in the Filters list and click on Cleared. Select No and click OK to display your report.

Figure 2: You can customize your QuickReport to see if you’ve neglected to deposit any payments. If this list contains any, open the Banking menu and select Make Deposits to follow the steps above again.

Changing Your Destination Account

As we’ve already mentioned, QuickBooks is set up to automatically move payments into Undeposited Funds. We recommend leaving it this way so you can easily check for money that hasn’t been deposited. You can change this, though. If you feel it’s necessary, please call the office and speak to a QuickBooks professional who will help you modify your destination account.

Working with Payment Methods

QuickBooks comes with a default set of payment methods. You can add to these and/or make existing ones inactive, so they don’t clutter up the drop-down list. Open the Lists menu and select Customer & Vendor Profile Lists | Payment Method List. If you don’t accept Discover cards, for example, right-click on that entry and select Make Payment Method Inactive. To add one, click the down arrow next to Payment Method and then New. The Payment Method should always match the Payment Type.

Precision Critical

Account reconciliation is difficult enough without having to deal with deposit discrepancies. Treat this element of your accounting with great care. If you need help with account management, financial reporting or any other QuickBooks-related issues don’t hesitate to call.

• By Leon Clinton
• March 30, 2020

Reporting Tip Income: The Basics

The short answer is yes, tips are taxable. If you work at a hair salon, barbershop, casino, golf course, hotel, or restaurant, or drive a taxicab, then the tip income you receive as an employee from those services is taxable income. Here are a few other tips about tips:

• Taxable income. Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.
• Include tips on your tax return. In your gross income, you must include all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
• Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.
• Keep a daily log of your tip income. Be sure to keep track of your tip income throughout the year. If you’d like a copy of the IRS form that helps you record it, please call.

Tips can be tricky. Don’t hesitate to contact the office if you have questions.

• By Leon Clinton
• March 28, 2020

New Tax Law Affects Tax-Exempt Organizations

The Taxpayer Certainty and Disaster Tax Relief Act, passed on December 20, 2019, includes several provisions that may apply to tax-exempt organizations’ current and previous tax years. As such, tax-exempt organizations should understand how these recent tax law changes might affect them. With this in mind, let’s take a look at three key pieces of legislation that affect nonprofit organizations:

1. Repeal of “parking lot tax” on exempt employers

This legislation retroactively repealed the increase in unrelated business taxable income by amounts paid or incurred for certain fringe benefits for which a deduction is not allowed, most notably qualified transportation fringes such as employer-provided parking. Previously, Congress had enacted this provision as part of the Tax Cuts and Jobs Act, effective for amounts paid or incurred after December 31, 2017.

Tax-exempt organizations that paid unrelated business income tax on expenses for qualified transportation fringe benefits, including employee parking, may claim a refund. To do so, they should file an amended Form 990-T within the time allowed for refunds.

2. Tax simplification for private foundations

The legislation reduced the 2% excise tax on net investment income of private foundations to 1.39%. At the same time, the legislation repealed the 1% special rate that applied if the private foundation met certain distribution requirements. The changes are effective for taxable years beginning after December 20, 2019.

3. Exclusion of certain government grants by exempt utility co-ops

Generally, a section 501(c)(12) organization must receive 85% or more of its income from members to maintain exemption.

Under changes enacted as part of the Tax Cuts and Jobs Act, government grants are usually considered income and would otherwise be treated as non-member income for telephone and electric cooperatives. Under prior law, government grants were generally not treated as income, but as contributions to capital.

Certain government grants made to tax-exempt 501(c)(12) telephone or electric cooperatives for purposes of disaster relief, or for utility facilities or services, are not considered when applying the 85%-member income test. Since these government grants are excluded from the income test, exempt telephone or electric co-ops may accept these grants without the grant impacting their tax-exemption. The 2019 legislation is retroactive to taxable years beginning after 2017.

Questions?

Help is just a phone call away.

• By Leon Clinton
• March 25, 2020