There’s been a ton of confusion lately among QuickBooks Online users due to a series of emails from Intuit about the importance of PCI compliance (that part’s true, it is important), which they follow up with a plug to encourage you work with their “partner,” SecurityMetrics. Problem is, they are surprisingly quiet about the fact that QB Payments… is already PCI compliant.
From Intuit: It’s important to note that QuickBooks applications themselves maintain a high level of security. However, the security of your overall environment can be influenced by other applications used in conjunction with QuickBooks. As for the use of QuickBooks Payments services, it’s essential to understand that merely utilizing these services does not automatically make you PCI compliant. It’s also crucial to recognize that as a merchant, you hold the responsibility of safeguarding payment card information and adhering to PCI compliance requirements.
Short answer — chances are that you don’t need to pay their “partner” (aka Intuit is likely receiving referral fees) to confirm that you and your clients are probably already PCI compliant if you’re using QB Payments. But that doesn’t mean you shouldn’t review your workflows and integrations with other software to see if there’s a step in your process that doesn’t comply.
You know those emails Intuit is sending about PCI Compliance? QB Payments is already compliant. At issue is how you’re gathering those credit card numbers and bank account data.
If you’re using a workflow where the client enters the info, you’re fine. If you’re talking to the customer and manually entering it into QBO, you’re fine, though you also need to be on an isolated computer, not on a network, if you’re typing in the info.
But if you’re still using those old forms QBO used to provide, or have the information written down, or are saving it in your computer system, you’re NOT fine.
You do NOT need to hire the service in the email and pay $150/year. All you have to do is self-assess, and change your procedures if you’re out of compliance.
Q: For old clients who completed an agreement years ago with those old QBO forms, how do you move to compliance for those? Just delete and get rid of their old forms? A: Yes, delete any forms you have saved (and empty your trash)!
(Side note: Alicia’s company Royalwise is my #1 go-to for technical training in QuickBooks, whether for small business owners or bookkeepers, and I’ll be doing a class for her later this year! Here’s my affiliate link for her catalog — check it out.)
I’m recommending that you take a look at what these two leaders in our field have to say about PCI Compliance because I trust the heck out of them (not because I have affiliate links; in fact, the reason I requested affiliate links is due to the confidence I have in them both).
As much as I adore QuickBooks Online and can say so much good about it — in fact, we base our entire firm’s work on using QBO as an accounting platform — it’s important to remember that its parent company Intuit is a for-profit, publicly-traded company. They’ve built an incredible product, but their end goal is to increase shareholder wealth… so please take what they say with a grain of salt and do some research before plunking down additional dollars. Small businesses need to be careful to watch their budgets!
And I’ll end with another heads-up, which is that earlier this year there was in fact a phishing scam going around called “PCI DSS Compliance Verification” with the QuickBooks logo on it, that encouraged users to “verify compliance now” by clicking on a button. This was *not* an authorized email from Intuit. As always, you have to be careful whenever you’re encouraged to click on any button or link — whether it turns out to be phishing… or just misleading.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
✍️ Some of you may know that I’ve been writing this award-winning blog for 10 years now. Not monetized — just a labor of love that started out as a way to store articles for myself in an easy-to-search format. But during the pandemic its popularity exploded… not just for small business owners, but for the bookkeepers and accountants that keep them going. (If you didn’t already know my biggest passion is supporting small businesses & the communities that they help thrive and keep vital and colorful, then you must be new here.)
🔢 And I realized — when I help a small business, I help ONE of the key players in keeping local economies healthy. When I help a bookkeeper, I help a multiple of small business owners. When I help many bookkeepers… you can see where this is going…
🐣 Last year I decided that I wanted to focus my efforts on helping bookkeepers and tax pros learn to collaborate, and that the best way to start would be to offer a judgement-free space for bookkeepers to ask ANY QUESTIONS THEY WANT that for whatever reason they can’t ask their clients’ tax preparers (or, if in a firm, they don’t feel comfortable asking the tax department). And thus was born…
🏫 ASK A CPA! A member community designed to provide education, support, and resources for bookkeepers to better serve their clients — by preparing tax-ready books, improving relationships and building knowledge and systems that ultimately help small business owners and their communities.
❤️ We’re starting small, intentionally, and as such we’ll be capping our founding member group at only 50 people — there are only 9 spots left as of August 10th! Get in here and help us create the community you want to see in our industry. (Or feel free to just sign up for our updates if you want to have FOMO like all the time, that’s cool, too.)
I’m still floating through the clouds (quite literally, as I’m writing this from a window seat on the plane) on my way home from Scaling New Heights, where I was awarded Insightful Accountant’s 2024 Top Client Services ProAdvisor. And I’ve been thinking about how lucky I was to stumble into bookkeeping and accounting as a profession, and how much the support and education that QuickBooks provides to its ProAdvisors has played a part – not only in our team’s success, but also our clients’.
There are so many conferences, webinars, colleagues, apps, and tools that have helped me find this path, but unquestionably one of the most valuable has been our free subscription to the ultimate QBO client services tool – QuickBooks Online Accountant (QBOA). My team and I rely on its capabilities daily, and I can’t imagine running our practice without it. We reduce time spent on manual tasks, as well as review our clients’ books for accuracy and insights… basically a level-up on the already-robust basic subscription, with a version that’s designed for professionals who serve multiple clients.
Why does Intuit give us an accountant-specific bells-and-whistles version of QBO for free? Couldn’t they make a bunch of money selling this to us as an add-on? For sure… I see that angle, and I often worry they’ll switch to that approach someday. That’s how it was set up for QB Desktop – you had to pay to be a QBDT ProAdvisor, which gave you a special multi-client version of the software that allowed you to make edits and adjustments to client books and sync them between your system and theirs. But as you know… QBO already lets you do that, by the nature of its being cloud software-as-a-service, and so the extra bells-and-whistles aren’t as expensive to maintain as their Desktop counterparts. And having small business owners’ books prepared or reviewed by professional bookkeepers makes those businesses more likely to thrive, succeed… and remain in the Intuit ecosystem. It’s a win-win.
But I’m surprised at how many bookkeepers, even those who are already ProAdvisors, don’t realize how powerful a tool QBOA is. So I wanted to highlight my favorite things about it that I use all the freaking time.
Accessing all your clients’ books from one login
This may sound obvious if you’re a regular QBOA user, but honestly – how many other SAAS packages let you do this? We use countless apps and banks with our clients, and with the exception of a few (heaping blessings here onto Relay, Gusto, Guideline, Bookkeep, and Synder), we’re constantly having to log in and out of them when switching clients. QBOA lets you do this with one simple toggle. Side bonus: all our team members are associated with my account, so they can also have their own QBOA login (and therefore their own list of clients) if they’ve simultaneously got their own side-hustle or company, something common in our particular staffing set-up as well as with companies that co-firm.
ProAdvisor-specific training
I’m a huge fan of lifetime learning, and QBOA makes this easy. When I was on QB Desktop, I struggled to find training that was specific to bookkeepers working with multiple clients (rather than material that focused on end-users). In the QBOA portal, they suggest a personalized training path, provide self-paced study materials, videos, and links to live trainings. It also keeps track of your certifications and suggests new ones.
Client Overview
When doing a diagnostic review of a potential client, you should have them invite you as an accountant-user. Once that’s accepted, you can go into their books – and because of QBOA, you’ll have access to a Client Overview page, which gives you a sense of how much work it would take to bring them up-to-date, summarizing the most important points about banking activity, common issues, and transaction volume. For us, it’s an absolutely essential step that helps us determine whether we’re interested in working with the client, and if so… how much to charge for a clean-up and ongoing services.
Books Review ➡️ Transaction Review
Just below the Client Overview on the left-nav bar is an unassuming little item called “Books review”. Click into that and you’ll find a series of headers – the first of which, “Transaction review” is my favorite. It’s like QBOA is your junior accountant, digging through the books to find unaccepted bank feed transactions, uncategorized transactions, transactions without payees, undeposited funds, and unapplied payments. And it transports you to where you can actually fix a lot of these problems on behalf of the client (or you can give them a heads-up and ask them to DIY before you dig into your review). Until this feature was developed, we literally had folks combing through transactions – and there was no transparency into how bad things were in each area, which meant we didn’t know how long it would take us to go back-and-forth with the client to get things fixed… and this is before we even are taking care of reconciliations and reviews – truly foundational stuff that needs to be addressed right off the bat so that the books are in good-enough shape to address the big issues. I don’t want to use the phrase “game-changer” because it didn’t change the game… it moved us into a higher league of play.
Books Review ➡️ Account Reconciliation
Account reconciliation is the header just to the right of Transaction review, and it performs the next round of what we would normally ask a junior accountant to do – it shows the current status of each of the bank accounts, in terms of when they were most recently reconciled, as well as the number of and a list of unreconciled transactions. You can access reconciliation reports from here, look at the most recent statement if it’s in the system… and it doesn’t limit you to bank and credit card accounts; if you reconcile any of your Balance Sheet accounts, you can see this info, as well as link to them from here.
Accountant Tools ➡️ Reclassify Transactions
And what do you do once you’ve used Books Review to identify the myriad issues? This is where it gets really good, in my opinion. There are quite a few tools for accountants that are included in QBOA, but one in particular was a total game-changer when it was first released however-many years ago. And it’s just gotten better through the years. We have access to a tool called “Reclassify transactions” that our clients don’t get to use (just think of the mess they could end up making if they did). It allows us to filter transactions by type of financial statement or down to the specific account, and then also by date, type, and customer/ vendor. Once you’ve pulled up a list of all the transactions that fit your filters… you can reclassify or recategorize the ones you select. All at once. In a batch. You can even select just the ones that have a particular word in the memo (and with RightTool, another favorite tool, you can even filter by that word, or by a dollar amount or range)! It’s truly the most incredible feature, especially for cleanups. You can get quite granular with your filters and fix massive issues in a matter of minutes. Talk about a value-add.
Bonus! Chart of Accounts templates
I’m adding it as a bonus instead of one of the main features because it’s newish, so we haven’t yet had an opportunity to use it a ton – but I know it’s going to be a favorite. To be honest, this is one of those things that for years felt like it was just a missing feature; we used countless workarounds to standardize our clients’ Chart of Accounts, or at least make sure they all fit the format we use when preparing Tax-Ready Books (my passion and focus when providing education to bookkeepers). Intuit finally announced this feature at QB Connect last year and you should have heard the room burst into applause! The one trick to keep in mind is that you access the area where you build (or import, your choice) your templates from “Your Practice” as a QBOA user, not from each client. If you go to “Accountant Tools” while you’re in your ProAdvisor space, just after you log in – like where you’d go to get your Training – that’s where you see this option pop up in your toolbox. From there, you can get a video overview or take a guided tour. Once you’ve got your templates in there, you can assign them to a client or update their existing COA. Finally, wee-hoo!
And More…
There are other great features of QBOA that I know some of my colleagues adore – both ones that have been around for a while like reporting tools and app integrations, and newer ones like role-based access and permissions to clients’ books. But I meant to only list my top five and couldn’t do it under six, and then I wanted to add a bonus, and eventually this article will have to end or none of us will ever be able to get back to work and dive into the benefits QBOA offers. Enjoy!
Note! As my readers know, I am downright fanatical about transparency and full disclosure (often to my detriment, as you may have noticed that I have a wildly popular award-winning blog that is non-monetized). Though this particular post is a paid partnership with Intuit, I want you to know that a) I wanted to write an article on QBOA anyway, but couldn’t find the time; getting paid allowed me the break from client work I needed to make it happen; and b) they didn’t delete a single thing when I presented it. In fact, they have been totally cool with all my Intuit-bashing since the first article I wrote for them… which impressed me quite a bit, to be honest. That’s three times now — I might just keep this win-win-win up.
Thanks yet again, and as always, to Lisa Simpson from the AICPA Town Hall for her regular updates on what’s going on with Employee Retention Credit processing at the IRS. I can trust this team to make sure I’m getting the latest information, free from rumors and gossip, and that I’m able to both quell my clients’ concerns and also manage their expectations.
I had just been hearing some rumblings in one of my professional associations — someone had said, “seems inevitable that anyone who filed an ERC claim after September 2023 will need to file a lawsuit to get the claim paid,” and went on to suggest that it would be a great opportunity for a law firm, and wanted to know if we had referrals in this space.
First off, it made me nervous — our remaining ERC claims, all for deserving small business and non-profit clients of a colleague, worked really hard to make sure we had what we needed to submit their claims by January 31st, 2024, since there was pending legislation that might retroactively end the program after that date. They all were informed that it might be a year or more before they received the money, given the IRS moratorium — but certainly none of us expected to line the pockets of an attorney in order to get the claims paid out. And in fact, the claims were mostly small enough that my guess is most lawyers wouldn’t bother with them.
Secondly… it made me suspicious. On what basis was this guy saying a lawsuit would be “inevitable”? I attend every single AICPA Town Hall and hadn’t heard anyone suggest this. And what a sad thing to suggest it would be a “great opportunity” for a law firm — to specialize in making money off those desperate to finally receive what they and their accountants had already worked so hard to obtain.
As usual, I decided to quell those fears until the next AICPA Town Hall, and I’m so glad I did, as Lisa Simpson made ERC the first topic in her Technical Update. She explained the recent IRS news release that likely triggered the unfounded rumblings I was hearing, as well as referenced a new Journal of Accountancy article that delved deeper.
My takeaway was that: while 10-20% of claims are clearly fraudulent, and the IRS is in the process of denying them; and another 60-70% show an unacceptable level of risk and will be examined carefully — there are also between 10% and 20% of the claims show a low risk. The IRS “will begin judiciously processing” more of these claims, and, according to the release, expects some of these payments to be made later this summer.
To me, that’s all good news. It means they’re working through the piles and expediting the ones that have straightforward claims where the businesses played by the rules, processing the oldest ones first. The rest will be examined more critically, or in the case of blatant fraud, flat-out denied.
The one disappointing piece of information is that no claims submitted during the moratorium will be processed at this time. But at least we know the backlog is being cleared to make way for them. Since the moratorium was put in place, the IRS has received over 17,000 claims per week.
I’ve let my clients know that they shouldn’t budget for these dollars for at least another year, but that there’s no reason to presume they won’t eventually receive the claims that are due to them.
And yet again I learned that if something sounds sensational and suspicious… it might not be grounded in evidence and analysis. Rely only on your trusted advisors for the education and resources that will help you guide your small business clients. (And then provide links to those resources to the sensationalists who spread misinformation.)
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Tax season is over. Take a deep breath – whether you’re a bookkeeper or tax preparer, you’ve endured plenty of stress these past months, and now you’re in the perfect space between vacation and conference season to look back and figure out how to make it go better next year.
That’s what we do in our firm, anyway; I learned an amazing lesson from one of my favorite instructors, Tom Gorczynski, to plan for next tax season while the pain is still fresh in your mind! We schedule a company-wide zoom meeting, and everyone fills out a survey beforehand that asks about what worked, what didn’t, what they’d like to see go differently, who their favorite and least-favorite clients are, and why. This helps us incrementally improve year-over-year, and makes sure everyone has a voice. Then we send out cocktail kits and snacks to everyone, we celebrate, and we brainstorm. We even vote clients “off the island” together.
One of the themes that comes up every year is the need to move more clients off QuickBooks Desktop and onto QuickBooks Online. I know, groan… yet another talking head telling you to make the shift! At this point you’ve been bombarded with information on all the benefits of moving to QBO, so I won’t bore you with those. I’ll just share my own experience.
It was becoming more and more of a drag to coordinate with Desktop clients to review their books, and the new subscription structure made it confusing and frustrating to know who was on which version and how to make the most of what they were paying for. And of course, there were constant client fears around Intuit’s messaging, worrying they were going to stop supporting their product. But the biggest stressor for us was that it was actually getting hard to find junior bookkeepers who had ever worked with the Desktop program. (No joke. How about that for making a certain dancing accountant feel old?)
I assure you, I absolutely *hated* QBO for years; it was a clunky beast that didn’t have some of the most basic functionality that Desktop did – and I’m not just talking about the early days; this went on far too long and alienated many users. And while I held out for ages in moving to QBO, especially for certain types of clients that really benefited from what QBDT had to offer, I finally realized that it’s gotten to the point where the features I love about the Online version far outweigh its negatives. Between the concerted effort that Ted Callahan, Jessica McCracken and their team have made to actually listen to our community and implement some of the most-loved features; the fact that most third-party apps and tools no longer work with Desktop; and the advent of RightTool, an amazing browser extension by industry superstar Hector Garcia that supercharges what QBO has to offer… it’s time. It’s really time. QBO is now light-years ahead of almost anything that QBDT can do.
The point of outlining all this isn’t to convince you that you should migrate your remaining Desktop clients to QBO. It’s to suggest that when you do – follow my lead, and use exactly these reasons in your messaging. This became our mantra for communicating the value of converting, and it worked; at this point we only have one client left who needs to make the shift.
Think about it: your clients and your team members trust you, more than anyone else, to make smart and thoughtful decisions with everyone’s well-being in mind. If you convey the messaging that QBO is listening to us and responding to our requests, that RightTool will make you more efficient, and third-party apps will serve your clients’ needs better than the previous solutions, they will believe you, you’ll get buy-in, and in our experience, we found that clients were overwhelmingly positive and enthusiastic (though understandably still nervous) about the change.
Once you’ve got buy-in, it’s a simple matter of following some practical tips and advice to make sure the execution is done well.
Understand the Conversion Process Intuit came out with a free conversion tool a few years ago that they keep tweaking to make it better; the most recent improvements announced at last year’s QB Connect blew me away – you can now batch migrate clients, meaning “do a ton at once and be done with it”. To be honest, it kind of made me wish I had waited to convert some of ours! However, as straightforward as they make it to migrate data from QBD to QBO, you do have to ensure your QBDT file is ready for the transition. This means backing up, running a verification on the file, ensuring it’s under the maximum target limit, and cleaning up any weirdo issues that have been hiding or buried for years, especially if you don’t regularly do a verification and rebuild. And most importantly, reviewing your “all dates” financial statements beforehand, exporting them, and comparing the same reports afterwards is essential.
Technical Resources for Conversion
I mentioned Intuit’s Conversion Tool, which guides you through the process step-by-step; they also have a QuickBooks Conversion Toolkit with checklists, webinar links, guides, client materials, and even a link to book a call to have Intuit do the conversion for you – just head here and then click on the “How to migrate” button to download the toolkit or set up a call. If you prefer your info from a third-party source, Hector Garcia does a short walkthrough on his YouTube channel, and Alicia Katz-Pollock is offering an Earmark webinar on May 21st. And if you have any concerns whatsoever about the process, consider outsourcing the job. We worked with CMB Hero and had a good experience, and I know DL & Associates does migrations as well; there are probably hundreds of companies or even trusted colleagues who’ve gone through the process before and can help you make sure it goes smoothly.
Research Third-Party Apps Before Converting
There are some super-fabulous apps out there that we love to use for syncing daily Point of Sale data, such as Synder, Bookkeep, and Shogo. But you need to look at the client’s needs and determine how they’ll be met in the new QBO world before making the shift – not all sync programs work with all POS platforms. Do demos, consult with colleagues, and figure out the timeline for implementing – in other words, not only the migration of QBDT data to QBO, but setting up the new system to work with the POS and get it all running. Our experience has been that some up-front planning saves loads of effort on the far end (which is when you’re pressed for time so the client can get back up-and-running).
Prepare Desktop Clients For The Change
And sticking with the theme of up-front planning… a little client hand-holding goes a long way. What they’re looking for is to follow your lead as their trusted advisor. The more you can compare and contrast their existing workflows and procedures with the new system, the more comfortable they’ll be with your proposal to move to QBO. Ideally, you already have Standard Operating Procedures in place for each of your clients. I wince as I type this, because I get that this is the “ideal” and not necessarily your reality – in all honesty, we’re still in the process of making sure each client has clear and detailed SOPs for every scenario. But this is a golden opportunity. Your instructions – in Word, an Excel checklist, Loom videos, or a project management app like Keeper, Financial Cents, or Asana – will build trust, making it much easier for you to illustrate to the client that this is a manageable change and that you’ve anticipated their needs. Side bonus: way less stress when a client (or your firm) loses a trusted team member and a new one needs to be trained ASAP.
To illustrate: in going through all the steps that a client’s office manager would complete each month as part of her billing process, and reproducing/ rewriting them using QBO, I noticed that she would no longer be able to run a particular report – at this point I had to decide whether we would come up with a different way for her to perform the same task, or whether we would track the data with a different feature in QBO so that she could run the report she was used to. Both approaches were fair; but the point is that I wouldn’t have noticed this change without walking through the process of retooling the procedures. This built trust with the client and made them more open-minded about making the change, because they knew we were actively anticipating and removing any stumbling blocks.
Client & Staff Training and Familiarization
As you know, transitioning to QBO doesn’t just involve moving data; it’s also about adapting to a new user environment. You’ll want to invest time in training sessions provided by Intuit or certified trainers like Royalwise (my personal favorite – I’ve been studying from Alicia for as long as I can remember). Intuit also offers an ongoing monthly session called QBO In The Know, which I encourage all my team members to attend as part of their paid training hours – this ensures that you don’t just get up-to-date, but that you stay that way, as the QBO ecosystem is constantly improving and new features are released every month. Hector Garcia’s YouTube channel is an endless wealth of information (I once hired a senior accountant with no degree and no certification based on the fact that she learned QBO by watching every single one of his videos. She’s now our Senior Accountant). Lastly, remember that QBO has a demo company! It’s a sandbox – have at it, and let your team practice without the risk of affecting real data.
Start by getting your client and team members’ buy-in. Take advantage of the available resources, and invest in training. With communication and planning, both your firm’s and your clients’ bookkeeping experience will end up better than it was with Desktop – we don’t have a single client that regrets having migrated, despite the fact that we all miss this-or-that feature (everyone’s got their favorite). But I promise it will be replaced by a new favorite. Remember, the goal is not just to convert data, but to enhance the overall efficiency and effectiveness of your accounting practices and those of your clients.
So… take that deep breath, plan for the future, and enjoy the heck out of that moment next tax season when you hear someone go, “oh wow, this really is so much better than it used to be!”
Note! As my readers know, I am downright fanatical about transparency and full disclosure (often to my detriment, as you may have noticed that I have a wildly popular award-winning blog that is non-monetized). Though this particular post is a paid partnership with Intuit, I want you to know that a) I wanted to write an article on QBDT–>QBO conversions anyway, but couldn’t find the time; getting paid allowed me the break from client work I needed to make it happen; and b) they didn’t delete a single thing when I presented it. In fact, they were totally cool with all my Intuit-bashing… which made me pretty impressed with them, to be honest. That’s twice now — let’s see if they go for a three-fer!
For years, we have stressed the importance to our clients of making quarterly estimated tax payments. And unlike many tax preparers, we also do bookkeeping, accounting, and consulting for our small business owners — so we’ve also encouraged them to have us do a quarter-by-quarter calculation of how much to pay.
There were many reasons for this: · Making sure the client had their books up-to-date and reconciled for the quarter, so they can be used for real-time managerial decisions; · Matching the cash flow of a given quarter (or the actual sales and vendor invoices, for accrual-basis clients) to the related tax liability; · Preventing the common situation of getting to tax-time and having a huge refund or balance due.
However, times have changed. We still want folks to make quarterly payments (see my related IRS & Illinois posts for how to do it online), but for the first quarter, at least, we’re asking everyone to use “safe-harbor” calculations.
Why Use 1Q Safe-Harbor Calculations Instead of Annualizing?
For one, the immense number of changes to our tax code since the Tax Cuts & Jobs Act (TCJA) took effect in 2018 has made tax planning substantially more complex than it used to be. The amount of time it takes to do a “back of the envelope” or “paper napkin” calculation has tripled. (And in case you’re curious — we use tax software and Excel, not used envelopes and paper napkins in our firm. That’s how you know you’re working with a real professional.) Both the effort involved and the cost to the client have increased accordingly.
Relatedly, first-quarter estimated tax payments are due on the same day as personal 1040 and C-Corp 1120 taxes are due. And since our tax-time work is a deeper dive than it used to be, and the estimated tax calculations are more complex as well, there simply isn’t enough time to do a full-on calculation for each and every client that requests it — at least, not if we also want to be well-rested and in good health, so we can do our very best on the remaining annual tax returns.
There’s good news, too, however — the state of Illinois — and many other states, used legislation to create a loophole for getting around a pesky TCJA limitation on the State And Local Tax (SALT) deduction. I won’t explain it all here, but the result is that all of our S-Corp and Partnership (aka “Pass-Through Entity”, or PTE) clients are paying their personal state taxes through the company. This is a very easy and predictable calculation, as Illinois charges a flat tax (not socially progressive, but it certainly is simple) and requires the annual liability to be divided by four and paid evenly across the quarterly deadlines.
(Side note: the deadlines are not actually quarterly. Due to the timing of the federal government’s fiscal year-end and individuals’ calendar year-end, they are skewed such that they’re not even the same number of months per quarter. You would think that of all the government departments that could count properly, it’d be the IRS, but apparently not. The due dates are 4/15, 6/15, 9/15 and 1/15 — though many are better off making the final state tax payment by 12/31.)
As a result, quarterly calculations for the state simply aren’t necessary for the first quarter (possibly even the first three quarters, depending). Given that the states seem to live for assessing penalties and interest for underpayment of estimated taxes (they are wildly aggressive about it), this is the best approach to take.
But it’s not just the states that issue penalties and interest for underpayment of taxes — the IRS does, as well. Much less aggressively, however, and they do still have the notion (that the new Illinois PTE tax law does not) of “annualizing” your quarterly taxes. This means that you presume the amount you made year-to-date is representative of the whole year, and paying quarterly tax based on that projection. It works great for small business owners who have lower income in the first three-quarters of the year and then make most of their profit in the final quarter.
Just to be clear: we still do this for our clients… but we wait until the second or third quarter, and in some unusual cases, we wait until November and then do a thorough analysis of the year thus far. It’s just that there’s little point in running these calculations for the first quarter anymore — it’s almost never representative of the rest of the year, and it places them into a precarious situation where they may end up underpaying by too much and then owing penalties and interest. Or, at the very least, having to pay us at tax-time to fill out the complicated annualization schedule on the tax return. If you want to be more accurate with your calculation, because you expect your income to be substantially higher or lower than last year, then ask to book a May tax-planning session to get squared-up for the 2Q payment, due June 15.
Last, but not least — we’ve decided to have all our clients commit to a monthly bookkeeping and accounting contract with us. Doing annual clean-ups during tax season simply is no longer sustainable (to be honest I’m not sure it ever was, which is one of many reasons so many CPAs are burned out), and isn’t cost-effective. It’s also not fair to our other clients — who are on a monthly schedule — to have to wait in line while we work on those who swing through just once-a-year. And most importantly, we truly believe that all small business owners should be looking at their financial statements regularly to help them make impactful decisions throughout the year — ones that can sometimes be the difference between turning a profit or enduring a loss. And since everyone will be on a monthly schedule, the motivation no longer exists to do quarterly reviews for estimated tax purposes, purely as a way to get clients motivated to catch up on their books.
Where To Find Your Safe-Harbor Amounts and How To Pay Them
If you’re a client of ours, or of pretty much any tax professional out there, calculating safe-harbor quarterly estimates can and should be a part of preparing your annual tax return.
After reviewing and signing your return, your CPA (or EA, JD or non-credentialed preparer) will e-file it, and once it’s accepted by the IRS and state agencies, they will either send over vouchers (which I wouldn’t bother using, because we want to pay taxes online almost every time that’s an option), or a list of required payments — whether that’s in a letter or a little chart form where you can check ’em off. However you get them — put them in your calendar now. Do not rely on your tax preparer to remind you. This is not their job. You are a grown person running your own business, surrounded by technology that is designed for precisely this kind of thing.
And if you’re in a panic and can’t find the amounts, the general rule is that you want to pay 1/4th-ish of your total tax liability for the prior year (a bit higher for some states, such as Illinois). Again, if we do your taxes, you should have already received these totals for 2024, or will be receiving them as soon as your return is finalized.
Frequently Asked Questions
1) What if I have an extension? Two options here: a) provide your tax preparer all the docs you already have and ask them to do their best to give you an estimate; they can even add that to the amount you’ll need to pay with an extension — which means if your extension payment estimate is short, the 1Q estimate will make up the difference, and either way, you’ll just apply the balance to the current tax year; or, b) go ahead and keep paying the same amount you paid for last year’s quarterly taxes; some payment is better than none.
2) What if I don’t have a tax preparer? All the DIY tax programs out there can do this, too — they’re not very helpful for the tax planning that we do with our clients for 2Q & 3Q, and certainly not for 4Q — but they do a perfectly fine job with safe-harbor estimates. Alternatively, check out my colleague Hannah Smolinski‘s great YouTube primer on how to calculate estimated taxes.
And since you asked, here’s a fabulous photo of Hannah and me at QuickBooks ConnectFest.
3) What if I can’t afford to pay my quarterly estimates? Pro tip: Did you know you can break your quarterly payment into smaller chunks? Let’s say you owe $2400 per quarter and you’re worried that you won’t have enough set aside by the time the due date arrives, because it’s so hard not to raid your own savings account when opportunities call. Just go online and pay $800 per month instead. Or $200 per week. It gets tricky with the weird quarterly tax due dates, but you are a smart cookie and can figure out the math. The point is that you don’t have to save it all up and then make the payment. If you have cash on hand, you can go in there now and do it while it’s on your mind, even if it’s a partial payment. Something is better than nothing.
4) What if I forgot to pay for a quarter? Go in there and make a payment now. The penalties are per day, so the sooner you make up the difference the better.
5) What if I have additional questions about the process? Throw whatever you can at the quarterly estimates and contact a CPA to help you… after Tax Day. Please be respectful of the plight of tax preparers right now. It will not serve you long-term to try to wedge yourself onto someone’s calendar last-minute: almost all the good ones had a deadline for submitting tax materials weeks ago; we’re all exhausted and likely to make mistakes this time of year if we’re taking on too much and not taking care of ourselves; and you want to start off on a good foot when building a relationship with a trusted advisor. The amount of penalties and interest that will be due if you underpay slightly is not that significant if you’re going to be making up the difference in a month, so just pay what you can and get on-track later.
Now, get yourself online and go make those first-quarter safe-harbor quarterly tax payments, already!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
As my readers and colleagues know, I’m a huge proponent of leveraging technology to remove the drudgery from our jobs and those of our small business clients. We all have enough on our plates already!
As a CPA whose company works with loads of small businesses that need to process payroll, I’ve used quite a few payroll systems through the years… and Gusto has become our favorite. It’s not without its quirks and issues, but overall it does a great job for a great price, and — key for the work we do — it syncs nicely with QuickBooks Online, as well as with Guideline Retirement, saving us oodles of time that we used to spend on benefit reconciliations. (In my recent MSN article about choosing the best state-mandated small business employee retirement plan solution, I cite this as one of the main reasons to go with Guideline.)
This week, I discovered a gift that Gusto created for tax preparers with clients that use the Gusto+Guideline combo — a reporting tool that will literally prepare the Form 8881 “Credit for Small Employer Pension Plan Startup Costs” for you. No joke. And it works!
I want to shout it from the rooftops, because it’s a massive timesaver. The previous SECURE Act credit was super-easy to claim, but this year, the Form 8881 was updated for SECURE 2.0 to include loads of information that most CPA firms are simply not going to have access to — not only current tax-year payroll information, but prior-year data on a per-employee basis; as well as information on how many employees qualified to participate (whether or not they actually participated), again both in 2022 and in 2023.
It was such a balm on my tired tax-preparing soul to know that they were looking out for us and trying to make our lives better through technology. The only thing I can’t figure out is why no one told me about it sooner. (Honestly, I randomly stumbled on it when I went into my own Gusto account to run weekly payroll.)
Not only did we end up using these reports for our own tax clients, but we also sent them over to our colleagues who prepare the tax returns for certain bookkeeping clients of ours, to help them out. And now we’re superstars to them. In fact, here’s a great idea for all the bookkeepers reading: run this report for all your clients, prepare a zip file for each of the tax preparation firms you work with, and send them this beautiful present all tied up with a pretty virtual bow. I’m always talking about collaboration and co-firming between bookkeepers and CPAs (come see me this June at Scaling New Heights for “The Tax-Ready Bookkeeper”) and this is a great example of it! Who do you think they’re going to recommend when a tax client needs accounting and bookkeeping assistance? You!
Keep in mind that these reports are only accurate if a) the client was on Gusto and Guideline, and b) were on them both for all of 2023.
These are the steps I walked through and the screens I clicked on to make this magic happen.
Sign into Gusto and go into a client that used Gusto+Guideline for all of 2023. (No other payroll, no other retirement company.)
On the left side bar, click on “Tax credits”.
3. Under “Available credits”, find the one that says “401(k) tax credit” and click the “Learn more” button.
4. Check out the overview and the FAQ, and then click the “Get started” button.
5. Fill out the short questionnaire. The information below was correct for my own company, but may not be the same answers for yours or for your clients, so make sure to answer accurately. Then click the “Continue” button.
6. At this point, Gusto will provide you with the amount of the credit, as well as all the information you need to prepare the Form 8881. Review it carefully. This is particularly important if you have employees who are not represented in Gusto because you are using another payroll provider simultaneously. And as I mentioned above, if the client switched retirement companies from another provider to Guideline part-way through the year, this information will not be accurate. Once you’ve reviewed the data, then click the “Generate credit form” button at the bottom of the page.
7. On the next screen, you will have two options:
If you click the “Download” button it gives you an incredible PDF with not only all the information you need to know to prepare the 8881, but a copy of the IRS form itself, filled-out exactly as it should be, according to their records + Guideline’s records.
If you click “Review Details” (to the right of the amount of your credit) you’ll get a screen pop-up from the right that you can scroll through to review the same information they noted above. From here, you can click “Reset credit form” if some of the information looks incorrect and you need to edit the questionnaire, or simply click “Close” if you’re done.
That’s it. It was simply that easy. The process of figuring out all this information prior to discovering Gusto’s beautiful gift took about two hours — which doesn’t count the digging through reports in Gusto and Guideline to figure out which ones told us what we needed to know, reaching out to Guideline support and asking for a custom report to be generated for each client that would show which employees qualified (turns out they are completely unaware that Gusto has this great resource, too — someone should definitely let them know)… and it definitely doesn’t count the ridiculous amount of time we spent figuring it out for our last remaining ADP client hold-outs — their reports can’t even be exported into Excel! PDF-only, you heard me. I’ve been warning those two clients for years that one day I’m going to issue an ultimatum. That day might be coming soon.
One small glitch: for some clients, it shows an extra month of Guideline service fee payments compared to what is in QuickBooks Online, which I think is simply a timing issue. It’s also a small-enough amount that if it gets claimed in 2023 instead of 2024, that’s not a huge deal. However, we manually edited ours accordingly, and hope that this gets cleaned up for next tax year.
And while we’re here — did you know that our Gusto referral link will get you a $100 prepaid Visa card when you sign up and run your first paid payroll? Or — $200 if you have over 10 employees! And for accountant partners, signing up through this link will earn you $500 once you’ve added and run payroll for three clients. Next year, you too can be reveling in the glory of pre-prepared small business retirement credits!
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
QB Ledger was announced at QB Connect a few months ago.
If you’re like me, March is that special month from hell where clients that have ignored your pleas for four quarters in a row suddenly show up again… and lucky you. Because now they’ve got a new AirBnb rental property in tow! Or yet another side gig! Or even better: an estate that they have to manage until it settles, and it’s caught up in probate!
To be honest, I’ve been slowly weeding these folks out of our client list – and I feel like a jerk about it – but it just doesn’t make sense for us to spend time during our busiest season getting them caught up on a year’s worth of transactions. Especially because these are the same characters that tend to be super price-conscious, and are somehow convinced that because they have a low volume of transactions, they shouldn’t have to pay for the monthly QuickBooks Online subscription – “can’t you just use our bank statements or a spreadsheet?”
For anyone reading this who isn’t intimately familiar with these classic dance moves already – no, we can’t just use bank statements or a spreadsheet. There’s no double-entry bookkeeping, no debits and credits, no Balance Sheet, and far too many potential lurking mysteries to be uncovered only after all the manual data entry is already complete. At some point we put a stop to these shenanigans… only to find ourselves sitting in QB Desktop, doing all the write-up work on behalf of our clients – a total reconstruction job. More reliable, but not less effort. (And moot at this point, since QB Desktop has gone subscription and is slowly asphyxiating.) And yet – I was a tiny startup at one point, too! I get not wanting to spend big bucks on a full-featured bookkeeping package for an activity that’s not earning much money.
By this point we’ve filtered out most of these types of clients, raising our minimum to price out some of the potential clients we really did (in theory) want to help – itty bitty start-ups or serial entrepreneurs, those that can’t resist a good deal on real estate, or people who sadly lost a loved one and are adrift as to how to handle the demands of bookkeeping for the estate. (I did this for both of my grandmothers back in the day, using my accountant’s copy of QuickBooks Desktop. It was not fun, but boy was my family relieved that they had a knowledgeable QB ProAdvisor handy.) But some remained. Clients who we really like who have been with us for ages, or who have another full-on business that we support, or whose side-gig really serves our community and they deserve a break.
(You read the title, right? I mean… you can see where this is going?)
Those who know me know that I don’t mince words about Intuit as a company. They’ve created a core product that I love, which I’ve been using in some form or another since 1993 (oof, that dates me) – but when they cross me (and they do, more than I’d like), I call ‘em out on it. I don’t like the constant price increases (though I do see the constant improvements), nor the aggressive marketing of corollary products to us and to our clients. I don’t understand why they haven’t fixed some basic functionalities we’ve been asking about for literally years. But the only reason I bother complaining is that I truly believe in QuickBooks products, and the ecosystem they’ve built, and that other software companies have built around them. Which is why it was delightful to be there when QB Ledger was announced at QB Connect in November (see photo above), and all the more delightful that since then, I’ve been able to honestly say I’m in love with this new product.
Why? What’s the hype?
Nothing. There’s no hype. That’s what’s so great about it. It’s just plain old reliable QB Online that we know and love, but without all the bells and whistles, and therefore totally affordable for uncomplicated files. It basically strips down the system to the core functionalities but retains the tools that are the most timesaving. And therefore, they only charge you for the basics. It’s $10/month per client.
At this price, and with the connected bank feeds, rules and reconciliation features, we can blow through an entire year of transactions on a cash-basis filer in literally a couple hours, and still make it affordable for the client, while maintaining plump margin for our firm. Since the bank and credit cards are connected, we don’t have to rely on the client for statements before we get started, so we can take care of most of the work well before tax-season begins. In most cases, the client won’t ever need access to the system, because it’s not about managerial insights and analytics – it’s just a compliance engagement that gets us to the point where we can file an accurate return. But unlike QB Self-Employed, this is real accounting software that gives us double-entry accounting, adjusting journal entries, and spits out proper financial statements. And also unlike QBSE, it allows for a full-on easy upgrade should the side-hustle turn into a more full-fledged business, or the real estate toe-dipper turns full-on house-flipper. (And yes, two accountants can be connected, just like the other QBO products, so if you’re not doing CAS and tax in-house like us, you can have a bookkeeper firm and tax prep firm both connected.)
Things to know before you dive in: – It seems like QB Support staff haven’t all been trained yet on what it can and can’t do, how many and which types of users can be attached, and which use-cases make the most sense, so be aware of that. It’s also sometimes tricky to get the client added (to set up the bank feeds) because the accountant user gets assigned both as accountant and admin; as with other versions, when this happens it can bea pain to switch that over to the client. So, make sure not to check the box to make yourself primary admin when setting it up. – And… they’ve got a weirdo situation where you can’t use a Customer name anywhere in the file (presumably they deactivated this because there’s no invoicing, which is fine… but we still need that field). I’ve got it on good authority that this isn’t a bug. I suspect this was done with the expectation that those who have customer reporting needs will just upgrade, but I don’t personally think that it will serve the purpose of moving them to Simple Start. They’ll just use an external invoicing or scheduling program to track income by customer instead of upgrading – especially because those third-party apps do in fact create these customers in the app – and then they’ll be hooked on that invoicing feature… instead of tracking things by customer in QB Ledger and eventually upgrading to Simple Start. I have clients in all walks of QBO and there are startups that can’t initially afford Simple Start who will eventually get there… but they’re going to need customers to make that happen. Another workaround: some folks are using the Vendor field with a “-Cust” after the name to get around this. – And lastly, bummer – you can’t downgrade, you can only start a new QB Ledger file or upgrade that file. (Yeah, they were thinking about all the reluctant clients who we had to talk into paying for Simple Start that don’t actually need A/R and A/P and would be fine on Ledger… really wishing they’d released this version years ago.)
Hector Garcia just released a half-hour complete tutorial on QB Ledger for accountants and bookkeepers, so if you want a deep dive on the specifics, then you’ve found your instructor.
Start-ups, trusts, estates, once-a-year write-up or tax prep clients, small side-hustles, AirBnB and other rentals, your glam diva marching band (ok, maybe my glam diva marching band)… the list goes on. Intuit has finally taken the core functionalities that are the reason we celebrate QuickBooks Online, and packaged them into an affordable option. It’s earning them goodwill, providing a pipeline for future upgrading customers, and will surely make the switch from Desktop to Online more attractive for the masses. For us, it fits seamlessly into our strategy to shift away from once-a-year rush work. For bookkeepers just getting their start, it allows them to take on small freelance and hustle clients. Welcome to the QB family, Ledger! We’re glad you’re here.
(What’s that, you want to learn more about QB Ledger? I knew you were gonna want to know how – so I’ve conveniently set it up for you to check out this page here.)
Note! As my readers know, I am downright fanatical about transparency and full disclosure (often to my detriment, as you may have noticed that I have a wildly popular award-winning blog that is non-monetized). Though this particular post is a paid partnership with Intuit, I want you to know that a) I wanted to write an article on QB Ledger anyway, but couldn’t find the time; getting paid allowed me the break from client work I needed to make it happen; and b) they didn’t edit a single thing when I presented it. In fact, they were totally cool with all my Intuit-bashing… which made me pretty impressed with them, to be honest. I might just do this again sometime. We’ll see.
I first came across the concept of “Open Book” management (OBM) for restaurants back in 2009, when I purchased Zingerman’s Guide to Good Eating from a local food & wine retail client of mine and we were discussing their recent adoption of this business philosophy — first popularized by Jack Stack in his excellent 1992 book, The Great Game of Business. Having lived in Ann Arbor for 10 years and attended the University of Michigan, I was of course a fan of their world market and pricey-but-delicious deli salads and sandwiches. But it wasn’t until 2012, when I took a deep dive into restaurant accounting and attended a series of seminars by the former Restaurant Seminar Institute, that I made the deeper connection between healthy financial communication and healthy small businesses. The class instructor had referenced various approaches to management, and included OBM among others on the list. A year later, I began working with local restaurant Honey Butter Fried Chicken — whose owners, as it turns out, had taken Zingerman’s OBM course and were in the process of implementing it in their fledgling project.
I spent the next few years working with them as they fine-tuned their metrics, delivery, and compensation structures, as well as trained their managers and the rest of the staff on why any of it mattered. First-hand, the benefits of this transformative approach were made apparent, and I became an eager proponent of OBM. Later, as I began to specialize in co-ops, I saw the same lessons filtered through a lens of cooperative management and policy governance that in some cases fit nicely with the OBM framework (though not always — check out this excellent Columinate article on lessons learned the hard way; an illuminating quote: “Getting the responsibility into the hands of the staff each week is an important transition in making it successful. Yet, many times, we see managers hanging on to the reporting lines for too long, which leads to disengagement and disinterest on the part of the staff. They won’t learn it or care about it until they are responsible for it”).
So imagine my delight when I read this month’s Plate online magazine and saw that my former clients are participating in a free webinar on Open Book Management — and how to determine whether it’s a fit for your restaurant! From PlateTalks: “These owners will talk about what it takes to get your books in order, how they share key data points with their teams, and what their staff has gained from the model.”
According to Zingerman’s — and this lines up with my personal experience — OBM can lead to better results: but more importantly, it lines up with the values of many small business owners. Side benefits include building commitment, better business decision-making, and teaching everyone to think like an owner.
Open Book Management isn’t something that can be implemented in a silo, however — a concept summarized well in a case study by the non-profit International Council on Hotel, Restaurant, and Institutional Education (CHRIE), “…small to medium enterprises can greatly benefit from open book management, the creation of a strong and qualitative mission statement, and a cohesive organizational culture that blends well with the external macro culture. Any one of these elements appears to be dependent upon another. For example, Zingerman’s, or any other company could have an open book management style of operation – but without a clear mission, the company would not do as well in the marketplace. Zingerman’s could have a great organizational culture, but without open book management, employees would not take ownership of their jobs, and therefore the bottom line would suffer.”
There are loads of articles and courses out there on Open Book Management — and plenty of restauranteurs who are glad to network and share their experiences. For a short introduction, I encourage you to check out Josh and Christine and their colleagues, as well as the folks at Plate, on March 5, 2024 from 1-2 pm Central. This is not a referral link — I’m just excited to get the word out, to help as many small business restaurants as I can in my time. I’ve always maintained — and as our mission goes — we believe the vibrancy and character of our neighborhood depends on thriving small businesses lending their unique vision to our communities.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
If you’re a regular reader, you already know that I’m a huge fan of the National Association of Tax Professionals (NATP), for a bunch of reasons:
Fabulous and affordable education with top-notch instructors
Straightforward “how-to” resources
Practical monthly newsletter with case-studies
On-demand “pay as you go” research service
And a very fun group of folks at the annual conference! (That last one’s a teaser for the final photo in this post.)
I’m especially indebted to NATP because when I first started doing taxes, I wasn’t a CPA yet — and spoiler alert: they don’t really teach you that much about tax preparation when studying for your CPA exams; in fact, three-quarters of the test aren’t related to taxes at all. In those early days, NATP education was the best-quality, most affordable that I could find without being a member of AICPA. (And I tried *all* the groups out, to be clear.)
Anyway, point here is that not only do you not have to be a CPA or EA to take and benefit from their classes — in fact, you don’t even have to be a tax preparer. I am a passionate proponent of teaching bookkeepers what they need to know about taxes to be better at their jobs, coordinate and communicate effectively with their clients’ tax preparers, and level-up by providing value-added advisory services to their clients.
To that end, here’s an upcoming NATP webinar that I suspect will be pretty dang useful for anyone doing client accounting work — bookkeeping, tax, advisory, CAS, and so on. You don’t even have to be a member to attend.
I get a lot of questions and see a great deal of misinformation out there about entity choice… here’s an opportunity to learn more about how to help your clients decide which entity structure is the best choice for them.
(Note: this is *not* a referral link — I’m just really excited about this education getting out there into the world. The presenter, Larry Pon, is a great guy and super-knowledgeable about all the ins-and-outs of this topic.)
From NATP:
Proficient knowledge in selecting the optimal entity structure is vital as it directly shapes a business’s tax outcomes. Strategic choices can enhance deductions, reduce liabilities and ensure regulatory compliance, contributing significantly to a business’s financial well-being and long-term success.
We know you want the best for your clients, so we want to arm you with the knowledge to do so.
As clients start new businesses, one of the major decisions to make is what entity type is best for them? Limited liability companies are by far the most commonly selected type, but did you know, the IRS doesn’t recognize LLCs as an official entity? LLCs can default to a disregarded entity or a partnership depending on the number of members they have, or they can select S or C corporation status.
