Best wishes to you and your family as you take time to step back from the busyness of everyday life and spend time with your loved ones during this holiday season.
May it be a good time of remembering the spirit and substance of what we pause to celebrate at this time of year.
Because many of you will be taking time off in the next couple of weeks, and you’ll have enough to get caught up with after vacation, and because I will also be taking some time off, this will be my last blog posting for 2010. It will resume again on Tuesday, January 4, 2011.
Thanks for the positive feedback so many of you have provided about my blog as a resource to help you in doing your job.
The picture here is my view from our office window.
Merry Christmas and and a Happy New Year!
12/17/2010
I just received the following email which is of interest to ALL employers and payroll personnel.
Payroll Tax Cut to Boots Take-Home Pay for Most Workers; New Withholding Details Now Available on IRS.gov
WASHINGTON – The Internal Revenue Service today released instruction to help employers implement the 2011 cut in payroll taxes, along with the new income-tax withholding tables that employers will use during 2011.
Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two (2) percentage point payroll tax cut for employees, reducing their Social Security (FICA) tax withholding rate from 6.2% to 4.2% of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.
The new law also maintains the income-tax rates that have been in effect in recent years.
Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than January 31, 2011. IRS Notice 1036, released today, contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on http://www.irs.gov in a few days.
The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than January 31, 2010.
For any Social Security tax over withheld during January, employers should make an offsetting adjustment in worker’s pay as soon as possible but NOT later than March 31, 2011.
Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.
As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or a large refund at the end of the year may want to consider submitting revised W-4 forms. IRS Publication 919, How Do I Adjust My Tax Withholding?, provides more information to workers on making changes to their tax withholding.
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For those of using an Intuit/QuickBooks Payroll Subscription – DON’T PANIC – Intuit will revise our payroll software to include these new changes and will release the changes through a payroll update. Just don’t expect it to be available on January 1, 2011, as they will having to make the coding changes – and that isn’t as easy as one might think. Intuit is already aware of this, see an article on their Payroll Support website.
Notice 1036 indicates that ONLY the employee Social Security (FICA) percentage is being reduced to 4.2% – employers will still contribute 6.2%.
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12/28/2010 an update:
It is my understanding that Intuit will be releasing payroll update 21102 beginning today – December 28, 2010 – you’ll just need to download the update. This update includes modifications to the Federal withholding tables, the Nonresident Alien withholding tables, and the reduction of the Social Security withholding tax rate to 4.2% (employee portion). This change will ONLY be effective for paychecks dated AFTER 1/1/2011 – paychecks dated BEFORE 12/31/10 will reflect the standard 6.2% employer & employee contributions.
Other key things that will take place:
- Making Work Pay Credit will expire on December 31, 2010. This was the credit of $800 for a married couple filing a joint return and $400 for other taxpayers. For details, see see About the impact of the American Recovery and Reinvestment Act of 2009 to small businesses.
- Advance Payment of Earned Income Credit (AEIC) will expire on December 31, 2010. Individuals eligible for the EIC may still claim it on their personal income tax returns. Employers may no longer advance a portion of the credit with each paycheck. For details, see Advance Earned Income Credit (AEIC) eliminated.
I would like to thank Yvonne Leiser, CMA for the following information:
Please be aware that employees making LESS THAN $20,000 per year will see a DECREASE in their take home pay.
Making Work Pay gave each worker a $400 reduction in taxes on their first $6,452 of wages. This ended at the end of 2010. It has been replaced with a 2% reduction in Social Security Taxes. Unfortunately, workers earning less than $20,000 will see a DECREASE in their take home pay.
User permissions issues can occur especially when dealing with third party QuickBooks integrated applications and the Enterprise edition where user permissions can be highly customized. In some cases, it appears that all users need to have the same administrative rights when they sign into QuickBooks as when the software was installed.
Better understanding of the process may help reduce some of the frustration and allow you to assist your clients in installing the third party application satisfactorily.
When a QuickBooks third party integrated application is initially installed, and sends its first request for data, the person who is the QuickBooks Administrator must be logged into the company data file in single-user mode to grant the application permission to access the company data file.
Example:
Larry is the QuickBooks Administrator and Karen is an employee who will be using the third party application. Karen does not have the same user rights or permissions to access data as Larry.
When the integrated application sent it first request to the company file – basically the 3rd party software would say “Hi QuickBooks, I’m Application X and I would like to work with the data in this company file.” Larry would initially grant permission to the third party application by selecting “Yes, Always” in the QuickBooks Application Certificate window.
Larry’s next task would be to choose a user – from the drop down menu, who had sufficient permission to run the program.
In an example like this, Larry would select the Admin user OR create a new user with the applications name with permission to access the portions of QuickBooks that the integrated application needed to work with.
By setting up permissions like this Karen would have to use the 3rd party application with the company data file closed, the 3rd party program would log in with the designated permissions even though Karen herself would not be able to access the data directly within QuickBooks.
The primary purpose of using QuickBooks to keep books is to provide financial and management information in order for you to run your business, make sound business decisions, and to prepare your taxes.
Most business owners are very worried about generating income; however, running a business involves a lot of other tasks. You will need to invoice customers, record payments from customers, pay your own bills to outside vendors, perhaps manage inventory, and analyze your financial data to see where you need to focus your efforts next. QuickBooks is a tool that you can use to automate the tasks you are already performing as a business owner or to set up a new business.
Financial Management is the process of:
- Running your business
- Recording money coming in
- Recording money going out
- Using Reports to
- Understand how your business is doing
- Make decisions
Unfortunately, many contractors have bookkeeping systems that are or have been designed by accountants and/or bookkeepers which are designed to provide tax information as their primary goal. While you certainly need to have information to complete your tax returns, how they have set things up does not always make sense for your needs or purposes, and there really is not any requirement to keep your books as a mirror image of your tax return.
Bookkeepers and accountants know taxes; after all, that is what they do best. Most are unfamiliar with the construction industry and its intricacies. We will teach you how to setup QuickBooks so that both you and your accountant will get the information that you each need in order to perform your respective jobs.
If there wasn’t any conflict between your management needs and your tax needs, this wouldn’t be an issue. Unfortunately, the IRS does not know much about the construction business either. Their goal and their rules are focused on forcing you to calculate your profits, and thus your taxable income, in a manner that produces consistent results across all types of businesses. In short, they only want to “box” you in and limit your parameters for calculating your income so that you can only fudge your numbers to a limited extent. None of this exercise has anything to do with managing your business!
Six Ways Financial Management Helps Your Business Succeed:
Why take the time to learn and use financial management methods?
Accounting is the language of business, so you and other parties (banks, IRS, etc.) should all speak the same language in order to:
- Stay on top of your cash flow: Track money in and out of your business. Even a profitable business can go bankrupt if it does not track cash flow.
- Manage your customers and sales: Track what they are buying, keep records up-to-date so you can contact them.
- Track Production and Inventory: Know how to obtain goods and services from your vendors and establish credit.
Once your records are centralized, you can create reports for a variety of important activities:
- Filing with the IRS
- Understanding how your business is doing (this will help on pricing products and services)
- Sharing your financial picture with third parties (banks, SBA, etc.) to secure loans
And then, of course, tracking the money going in and out of your business. All companies, even huge established one’s with billions in revenue and tens of thousands of employees, rely on financial management for these areas.
Whatever your business, sound financial practices are a toolset that can help you get the greatest return from your efforts.
Information is Power!
There are certain questions that all business owners would like answered. Businesses that practice sound financial management and record-keeping will have the answers to these questions (and more) at their fingertips.
Ok, so you “might” have some rough figures in your head, but without proper record-keeping, you will never “really” know.
Financial Accounts – Why they matter to your business
Accurate record-keeping lets you understand and use all of your information.
- Money in from payments received
- Data on customers and vendors
- Record of your bank accounts
- Money out for checks written, refunds, and other expenses
