Accounting

Accounting Business Technology

Billing for Time and Expenses: How It Works

Billing for inventory parts is easy. Pick the items from a list and specify a quantity. Poof. Done.

Billing for costs, time or mileage is a little more complex. QuickBooks has built-in tools to help you do this, but it’s a bit of a process.

To simplify your workflow, do this groundwork first:

  • Go to Edit | Preferences | Time & Expenses | Company Preferences. Click the Yes button under Time tracking and indicate your choices under Invoicing options. If you plan to mark up some costs and want a default number, enter a percentage and account (these can be changed on individual invoices).


Figure 1: As you do with other QuickBooks processes, make sure that your Preferences are set correctly.

  • Add any billing items necessary by clicking Lists | Item List and then Item | New in the lower left corner.
  • If you plan to bill for mileage, go to Lists | Customer & Vendor Profile List | Vehicle List and enter information about every business vehicle.

Invoicing for Services

If you’re a service-oriented company, you bill for time frequently. This is easy. You’re probably already familiar with the Enter Time entry in the Employees menu. Whether you make individual time entries or complete a timesheet, it’s critical that you make the correct selections for each Customer: Job, Service Item and Payroll Item field, and check the Billable box.

When you create invoices, this box will open after you select a customer:


Figure 2: QuickBooks lets you know when there are time and costs to be billed for each customer.

You can let QuickBooks enter the time totals now, or add them later by clicking the Add Time/Costs button. Either way, the Choose Billable Time and Costs window opens. Add a checkmark next to each entry that should be billed, and click Options… to indicate whether you want one line for each time entry or would rather combine all similar service item types.


Figure 3: QuickBooks wants to know which entries should be invoiced.

More Complexity

If you’re done with billable expenses for this invoice, click OK. If there are other costs that you covered, click the Expenses tab to see all transactions that you earmarked for this client on a bill, check or credit card. You have the option here to mark up the cost by a percentage or amount (even if you established this in Preferences), and to specify an account.

Do the same for Mileage, which you would have entered previously — when it was incurred — at Company | Enter Vehicle Mileage. Then select any Items that you purchased for the customer. Your records should be correct, assuming that you were conscientious about assigning expenses to customers and jobs.


Figure 4: It’s easy to pull billable expenses into invoices if they’re documented carefully.

Turning expenses into invoices and then into income can be complicated. Let us know if we can help. We are your partner in building a successful business.

QuickBooks Tip: Here’s a cool little keyboard shortcut. Hit F2 while you’re in QuickBooks, and you’ll get the Product Information screen. It’ll tell you everything you want to know about your specific copy of QuickBooks, like your release and license number, the file size, number of users logged in, audit trail status and the total number of accounts, customers, employees, etc.

QuickBooks News Update

Please note that as of May 31, 2012, Intuit is discontinuing support for QuickBooks Pro, Premier and Simple Start 2009, QuickBooks for Mac 2009 and QuickBooks Enterprise Solutions 9. You can continue to use these solutions, of course, but live technical support and add-on services like payroll, credit card processing, online banking and bill-pay will not be accessible. Talk to us about upgrading if you’re using any of these products or services.

Accounting Business Tax

Employee or Independent Contractor – Which Is It?

If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.

Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers’ compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

The Difference Between Employees and Independent Contractors

Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Sam Smith, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. He is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Sally Jones is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works 6 days a week, and is on duty in Rob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sally. Sally Jones is an employee of Rob Robinson.

Independent Contractor Qualification Checklist

The IRS, workers’ compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is, though their means of categorizing workers as independent contractors are similar.

One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS. The IRS considers the following:

  1. What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.
  2. What training the employer gives the worker. Independent contractors generally do not receive training from an employer.
  3. The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.
  4. The extent of the worker’s investment in the worker’s own business. Independent contractors typically invest their own money in equipment or facilities.
  5. The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.
  6. How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job.
  7. The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.
  8. Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.
  9. Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.
  10. The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.
  11. Whether the worker’s services are a key aspect of the company’s regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker’s activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.

 

Sometimes the issue comes up when a terminated worker files for unemployment benefits and it’s unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.

There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

  • Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.
  • Document relationships with your workers and vendors. Although it won’t always save you, it helps to have a written contract stating the terms of employment.

If you have any questions about how to classify your employees, please give us a call. We can help guide you in the right direction in the eyes of the IRS.

Accounting Business Tax

Tax Due Dates for May 2012

May 10 Employers– Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2012. This due date applies only if you deposited the tax for the quarter in full and on time.Employees – who work for tips. If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.
May 15 Employers– Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.
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