Month: June 2016

Quickbooks

Should you be Applying Finance Charges?

There are many reasons why your customers send in payments past their due dates. Maybe they missed or misplaced your invoice, or they’re disputing the charges. They might not be very conscientious about bill-paying. Or they simply don’t have the money.

Sometimes they contact you about their oversight, but more often, you just see the overdue days pile up in your reports.

You could use stronger language in your customer messages. Send statements. Make phone calls if the delinquency goes on too long. Or you could start assessing finance charges to invoices that go unpaid past the due date. QuickBooks provides tools to accommodate this, but you’ll want to make absolutely sure you’re using them correctly–or you’ll risk angering customers and creating problems with your accounts receivable.

Setting the Rules

Before you can start, you’ll need to tell QuickBooks how you’d like your finance charges to work. It’s at this stage that we recommend you let us work with you. There’s nothing overly difficult about understanding finance charges in theory: you apply a percentage of the dollar amount that’s overdue to come up with a new total balance. But setting up your QuickBooks file with the finance charge rules you want to incorporate may require some assistance. If it’s done incorrectly, you will hear from your customers.

Here’s how it works. Open the Edit menu and select Preferences, then Finance Charge | Company Preferences.


Figure 1: Before you can start adding finance charges to overdue invoices, you’ll need to establish your company preferences.

What Annual Interest Rate percentage do you want to tack onto late payments? This is an issue we can discuss with you. Too low, and it’s not worth your extra time and trouble. Too high, and your customers may stop patronizing your business. And do you want to set a Minimum Finance Charge? Will you allow a Grace Period? If so, how many days?

You’ll need to assign an account to the funds that come in from interest charges. This needs to be an income account. In our example, it’sOther Income.

The next decision, whether to Assess finance charges on overdue finance charges, needs consideration–and some research. This may not be an option depending on the lending laws in the jurisdiction where your business is located. So again, if you want to charge interest on unpaid and tardy finance charges themselves, let’s talk.

When do you want the finance charge “countdown” to begin? When QuickBooks identifies a transaction that has not been paid within the stated terms, do you want the added charge to be applied based on the due date or the invoice/billed date?

Note: If your business sends statements rather than invoices, leave the Mark finance charge invoices “To be printed” box at the bottom of this window unchecked.

Applying the Rules

QuickBooks does not automatically add finance charges to your customers’ invoices. You’ll need to administer these additions yourself, though QuickBooks will handle the actual calculations. Open the Customers menu and select Assess Finance Charges to open this window:


Figure 2: You’ll determine who should have finance charge invoices created in the Assess Finance Charges window.

Make very sure that the Assessment Date is correct, as it has impact on QuickBooks’ calculations–because being even one day off makes a difference. Select the customers who should have finance charges applied by clicking next to their names in the Assess column. QuickBooks will display the Overdue Balancefrom the original invoice, as well as the Finance Charge it has calculated.

  • If you choose not to apply finances charges to a customer because he or she has provided a good reason for the late payment, be sure the box in the Assesscolumn is unchecked.
  • If you want to change the finance charge due for a valid reason, you can type over the amount in the last column. This would be a rare occurrence and should be exercised only after consulting with us.

Important: If there is an asterisk next to a customer’s name, there are payments or credit memos that have not yet been applied to any invoice.

When everything is correct, click the Assess Charges button at the bottom. QuickBooks will create separate invoices for finance charges for each customer who owes them.

We can’t stress enough the importance of consulting with us before you start to work with finance charges enough. Keep your company file accurate and your customers happy by getting this complex accounting element right from the start.

Tax

What to do if you get a Letter from the IRS

Each year, the IRS mails millions of notices and letters to taxpayers for a variety of reasons. If you receive correspondence from the IRS here’s what to do:

Don’t panic. You can usually deal with a notice simply by responding to it. Most IRS notices are about federal tax returns or tax accounts.

Each notice has specific instructions, so read your notice carefully because it will tell you what you need to do.

Your notice will likely be about changes to your account, taxes you owe or a payment request. However, your notice may ask you for more information about a specific issue.

If your notice says that the IRS changed or corrected your tax return, review the information and compare it with your original return. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.

If you don’t agree with the notice, you need to respond. Write a letter that explains why you disagree and include information and documents you want the IRS to consider. Mail your response with the contact stub at the bottom of the notice to the address on the contact stub. Allow at least 30 days for a response.

For most notices, there is no need to call or visit a walk-in center. If you have questions, call the phone number in the upper right-hand corner of the notice. Be sure to have a copy of your tax return and the notice with you when you call. If you need assistance understanding an IRS Notice or letter, don’t hesitate to call the office.

Always keep copies of any notices you receive with your tax records.

Be alert for tax scams. The IRS sends letters and notices by mail and does NOT contact people by email or social media to ask for personal or financial information. If you owe tax, please call to find out what your options are.

Tax

Tax Tips for Students with a Summer Job

Is your child a student with a summer job? Here’s what you should know about the income your child earns over the summer.

  1. All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. If you have any questions about whether your child’s withholding is correct, please call the office.
  2. Whether your child is working as a waiter or a camp counselor, he or she may receive tips as part of their summer income. All tip income is taxable and is, therefore, subject to federal income tax.
  3. Many students do odd jobs over the summer to make extra cash. If this is your child’s situation, keep in mind that earnings received from self-employment are also subject to income tax. This includes income from odd jobs such as babysitting and lawn mowing.
  4. If your child has net earnings of $400 or more from self-employment or church employee income of $108.28, he or she also has to pay self-employment tax. This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
  5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay–such as pay received during summer advanced camp–is taxable.
  6. Special rules apply to services performed as a newspaper carrier or distributor. As direct seller, your child is treated as being self-employed for federal tax purposes if the following conditions are met:
    • Your child is in the business of delivering newspapers.
    • All pay for these services directly relates to sales rather than to the number of hours worked.
    • Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax purposes.
  7. Generally however, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

A summer work schedule is sometimes a patchwork of odd jobs, which makes for confusion come tax time. Contact the office if you have any questions at all about income your child earned this summer season.

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