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5 Things You Need to Know About Sales Taxes in QuickBooks Online

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Value MetrikThe most important thing you need to know about sales tax is that administering it correctly can be challenging.

If you sold only one type of product to customers in one city, collecting and paying sales tax would be easy. But most businesses have a wider reach than that.

QuickBooks Online offers tools that allow you to set up sales tax rates and include sales tax on sales forms. Further, it calculates how much you must pay to state and local taxing agencies.

This is one of the most complicated areas in QuickBooks Online because you may have to deal with numerous taxing agencies. If you’re not already working with sales taxes, we strongly recommend you let us help you get everything set up correctly from the start. Taxing agencies can audit your recordkeeping and you want to make sure it is set up correctly.

That said, here are five things we think you should know.

QuickBooks Online calculates sales tax rates based on:

  • Where you sell. Every state is different. If your business is located in Florida and you sell to a customer in Minnesota, you’ll be charging any sales tax levied by the state of Minnesota and possibly the city and county and other taxing authorities – if you have a connection, a “nexus” in that state (a physical location, active salesperson, etc.).
  • What you sell.
  • To whom you sell. Some customers (like nonprofit organizations) do not have to pay sales tax. You’ll need to edit their customer records to reflect this in QBO. Open a customer record and click the Edit link in the upper right. Click the Tax info tab and make sure there’s no checkmark in the box that says This customer is taxable. The Default tax code will be grayed out, and you can enter Exemption details in that field.

QuickBooks tips

Customer records for exempt organizations should contain details for that exemption. You’ll need to see their exemption certificate or at least know its official number.

Intuit now offers a revamped version of QuickBooks Online’s sales tax features.

At some point, you’ll be asked if you want to switch to the new, more automated system. The actual mechanics of the process are simple, but you’ll be moving historical and in-process data to a new structure. If you have sales tax set up right now and your situation is at all complicated, you’re going to want our help with the transition.

This enhanced feature only supports accrual accounting.

You can combine individual tax rates.

If you are required to pay city, county, and state sales tax rates for a particular customer, for example, you can create a Combined tax rate that contains all of the individual components. The customer will only see the total on an invoice or sales receipt, but QuickBooks Online will track each one accordingly for payment and reporting purposes.

QuickBooks tips

You can combine sales tax rates in QuickBooks Online (image above from current Sales Tax Center in QuickBooks Online, not the enhanced one).

Product and service records should contain sales tax information.

This is another area that will require some research. Just as some services are subject to tax, some products are not (like groceries in Arizona). So, you’ll need to find out what the rules are for what you sell. You can find this information on the website of the state’s Department of Revenue (sometimes called the Department of Taxation).

Once you know, you can record that status in QuickBooks Online. Open a product record by going to Sales | Products and Services and clicking Edit in the Action column or create a new one by clicking New in the upper right. Scroll down to Sales tax category in the record. You can choose between Taxable – standard rate and Nontaxable.

There’s a third option here: special category. This gets complicated. We can help you determine whether it applies to you.

QuickBooks Online tracks the sales tax you owe.

You can see what you owe to each agency by running the Sales Tax Liability Report, and record payments when you’ve made them. Summary and detail versions of the Taxable Sales report are also available.

Once you get sales taxes set up in QuickBooks Online, it’s easy to add them to the relevant sales forms. Getting to that point, though, takes time, study, and careful attention to detail. If you’re getting ready to sell, or you’re already selling and struggling with sales taxes, let us know. We can schedule an initial consultation to see how we can be of assistance.

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Did you know that QuickBooks Online can calculate and apply sales taxes to transactions? However, setup requires some upfront research. Here are a few things to get started.

Does your business have to charge multiple levels of sales taxes? QuickBooks Online allows you to combine them. Here’s how.

QuickBooks Online calculates sales taxes based on where and what you sell, and to whom. It’s a bit complicated and here is why. We can help you get through setup.

Did you know that Intuit has released an enhanced version of QuickBooks Online’s Sales Tax Center? Here are the details and we can help you make the transition

ValueMetrik CFO offers QuickBooks support as part of our package of accounting services for small and midsized businesses. Call us at 479-242-1236 now and find out how you can leverage QuickBooks to precisely track your finances or request your complimentary consultation online.

Investing for Tax-Favored Income

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Investing for Tax-Favored Income - Value MetrikIf you are seeking a steady income stream from your portfolio while trying to minimize the tax impact of that income, you may want to look into municipal bonds. Municipal bonds traditionally have had a relatively low default rate and may offer diversification benefits.1

What They Are

Municipal bonds are debt securities that are issued by states, cities, counties, and other government entities. Issuers use the funds to fund day-to-day obligations and to pay for capital projects.

Municipal bonds come in two basic types: general obligation bonds and revenue bonds. General obligation bonds are backed by the issuer’s taxing power. Revenue bond payments are funded by the revenues from a specific project or source.

Why Buy Municipal Bonds?

The interest investors earn on most municipal bonds is exempt from federal income taxes.2 In addition, many states do not tax their residents on interest earned from municipal bonds issued in the state. The tax-exempt feature of municipals may mean that, after taking into account tax considerations, you can earn a better return on a municipal bond than you would from a higher-yielding taxable bond.

The value of this tax benefit depends on your tax situation and is highest for investors in higher tax brackets or those who reside in high-tax jurisdictions.

Additional Benefits

You can potentially enjoy several other advantages apart from tax-exempt income when you invest in municipal bonds:

  • A predictable income stream for the life of the bond;
  • Marketability should you need to sell the bonds before maturity; and
  • Choices as to issuer, quality, and geographic location.

Municipal Bonds Are Not Risk-Free

Like all investments, municipal bonds have their own set of risks. The financial health of an issuer and its ability to make timely payments of interest and principal is something you should investigate before buying. Various credit rating agencies, such as Moody’s Investors Services, assess the credit rating of the governmental entities that issue municipal bonds. Generally, issuers with lower credit ratings tend to offer higher yields on their municipals to compensate for the added risk to your principal.

Municipals, like other bonds, are subject to interest rate risk. Rising interest rates cause bond prices to fall. In a period of rising interest rates, selling a municipal bond before it matures may mean having to accept a lower price than you paid for it. In addition, municipal bonds can be impacted by other market forces.

Despite credit, interest, and market force risks, municipal bonds may have a role to play in a carefully structured, diversified fixed-income portfolio. We invite you to call our office at 479-242-1236 to learn more or request an introductory consultation through our website.

1Diversification does not ensure a profit or protect against loss in a declining market.

2The interest on certain “private activity” bonds must be included in income for federal alternative minimum tax purposes.

A message to small business owners seeking Payroll Protection Program loans… Appreciate your banker!

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Business people discussion advisor conceptWe at ValueMetrik CFO want to send a shout out to all our community bankers here in the Arkansas River Valley and across the country.  We all know that healthcare professionals around the country are on the front line of this war against COVID19 and that they are our true heroes.  However, our bankers have been brought into the battle of helping small businesses survive over the last couple of weeks, and they have emerged as our “small business heroes.”

Bankers have been put in a very difficult position recently.  It’s almost as if there’s no way for our community bankers to win in this situation.  Their small business customers are flooding in loan applications requesting funding immediately while banks generally are not staffed to handle the surge in volume and the rules surrounding the new loan program have been a challenge to digest.

It’s been a “pressure-cooker” situation for bankers to be sure.  We at ValueMetrik CFO, like many other financial management consultants and accountants have been coordinating with many bankers and small businesses in our area to help arrange loans under the new Paycheck Protection Program (PPP) recently.  Throughout, we’ve witnessed bankers going above and beyond to do everything they can to be responsive to the needs of their small business customers. Bankers have been working long days. Most of them worked all weekend last weekend, so many have been working for 10 days, straight, as of the date of this message.

Bankers will get this job done for their customers. But even after doing all the work and figuring out all the new rules, let’s face it, this is not a hugely desirable rush of business for banks.  That is, bankers are straining to make all these loans that stand to generate only very low amounts of interest income. The interest rates are extremely low and many of the loans may only be on the books for two or three months.  As a former banker, I know that’s not a way for banks to make money, so it seems there’s little, if any, financial upside for banks in making PPP loans.

That being the case, PPP loans are one thing bankers are working their butts off for really just to serve others, and we want them to know we appreciate them for that.  Concerning is that, instead of receiving praise and “thank you” right now, we suspect most of them are just on the receiving end of frustration and complaints from impatient, if not desperate, business owners.

It’s understandable because small business owners are nervous, upset, and scared about the uncertainty surrounding us right now.  But we at ValueMetrik CFO have been so impressed by the efforts we’ve witnessed recently by our community bankers to rise to the challenge.  We appreciate their efforts and we know they are doing their best to take care of our small business community. In our view, they are motivated not by an opportunity to make money, but by their sense of duty to our community and their desire to be a part of the solution.  Bankers are working to do the right thing regardless of the unprecedented risk they may be taking in making these loans and regardless of a general lack of appreciation for their efforts.

For those reasons, we think our small business community should see our bankers as the small business heroes they are and go out of their way to support and thank our community bankers for putting forth so much effort to help us fight this battle.  But, hey, don’t pick up the phone and call our bankers to thank them right now… they don’t have time to chit chat. Don’t flood their inboxes with long “thank you” emails. Instead, just be patient. Know they are working hard for you right now. They are very aware of how time is of the essence in getting PPP loans out to small businesses.  Respond to their requests for information as quickly as possible and be kind and courteous in your communication. Let them know you appreciate them by the way you interact with them while they’re working their butts off for you. Then, when the moment is right… and you’ll know when that is, please be sure to express appreciation for all their efforts.

Take Care and Be Safe,

Darren Brewer, ValueMetrikCFO

Smart Pricing Strategies

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It’s a given that businesses need to be profitable to survive. A key element in making a profit is pricing. Here are some suggestions that can help you get your pricing right.

Identify Your Costs

If you don’t know what your product’s or service’s total costs are, you can’t price them accurately. What makes up total cost? The components may include:

  • Cost of materials or merchandise
  • Labor costs, including salaries plus benefits
  • Overhead costs, such as taxes, rent, insurance, marketing, utilities, and transportation

Determining how much you need to charge just to cover your costs is an essential first step in setting prices. Be sure to reevaluate your costs regularly. If you are experiencing difficulty moving certain products at an acceptable profit, your costs could be too high.

Know Your Customers

Customers generally fall into distinct categories. Some are very price sensitive. Others focus less on price and more on convenience. The implied status or exclusivity of certain goods and services is very important to certain other customers. Once you identify the type of customer you are targeting, it becomes easier to set your prices accordingly.

Know Your Competitors

Knowing what your competitors charge for similar products or services helps you position your business in the marketplace. For example, if you determine your competitors focus on low prices, you can decide if you want to differentiate your business by focusing on superior service.

Leveraging service as a value proposition may justify charging higher prices than your competition. Or there may be other differentiators that allow you to charge higher prices, such as exclusive merchandise or highly knowledgeable employees.

Experiment and Monitor

Look for ways you can sell options, service contracts, and add-ons to a primary product or service, perhaps by offering several “packages” at different prices. Or consider applying discounts based on the quantity ordered.

Continuously monitor your prices and your profitability. Knowing which products or services are making you money allows you to make data-driven decisions about inventory and pricing.

We invite you to call our office at 479-242-1236 to learn more or request an introductory consultation through our website.

How QuickBooks Online Can Improve Your Company’s Financial Health

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QuickBooks Online is more than just an online bookkeeper. It can help improve your cash flow, your customer relationships, your inventory readiness, and your future.

 

If you’re already using QuickBooks Online, you know how much impact its bookkeeping abilities have had on your company’s accounting operations. You’re saving time, which in-turn saves money, and you’re reducing errors. When a customer or vendor calls with a question, or you yourself need to track down a critical detail to solve a problem, you’re able to find solutions quickly.

 

You may already have learned, though, that QuickBooks Online’s benefits include much more than simply getting the numbers right. When you take advantage of all it can offer, you’re likely to notice more far-reaching effects.

 

The Specifics

 

Let’s look at how QuickBooks Online accomplishes all of this. You can do much of it on your own, but we’re trained to help small businesses get the most out of QuickBooks Online. We can help you maximize the effectiveness of your accounting time so your company can:

 

Better balance between income and expenses.

QuickBooks Online provides quick, real-time overviews of your sales status.

 

You can’t begin to improve your company’s cash flow until you understand where the financial bottlenecks are. QuickBooks Online provides that information for both income and expenses in a variety of ways. In the image above, you can see that there are seven past-due invoices. Click on the orange bar to see a list of them, and you can automatically send reminders. QuickBooks Online also automates the process of sending statements.

 

You can also run accounts receivable and accounts payable reports that will show where you stand with customers and vendors, like Open Invoices, Uninvoiced Time, Unpaid Bills, and Accounts Payable Aging Detail. If you determine that one of your consistent problems with cash flow is late customer payments, you can set up a merchant account through QuickBooks Online to support credit card payments and bank transfers.

 

More repeat business because of improved customer interaction.

 

Your customers are like gold. To build the best relationships possible with them, you need a clear, updated picture of their transactions, their payment details and history, and your interaction with them. QuickBooks Online provides templates for Customer Information records that provide all of that, along with their contact information and a real-time update of the status of their invoices and payments, estimates, time activities, etc. The latter is provided in the form of an interactive list with links to immediate actions you can take.

 

A more stable, profitable inventory of products.

 

If your business sells products, you know that you have to be smart about inventory levels. Stock too much and you have too much money tied up unnecessarily. Too little, and you’ll be turning customers away and possibly losing their future business. QuickBooks Online’s inventory-tracking tools help you achieve and maintain that balance, so you know both when and how much to reorder.

It’s easy to evaluate your inventory status very quickly in QuickBooks Online.

 

QuickBooks Online also offers multiple inventory reports, like Inventory Valuation Detail, Physical Inventory Worksheet, and Sales by Product/Service Detail.

 

Readiness for growth.

 

You may never want to acquire another company, or move into more spacious offices, or employ dozens of individuals. However, it’s not often that a company doesn’t want to be in a position to grow. And you never know when an opportunity will present itself that would require additional capital. Would you be ready?

 

If you’ve never applied for a business loan or tried to attract investors, you don’t know how much financial information you’ll need to provide, or in what format. There are very specific reports your potential lenders or investors will want to see, standard financial statements. QuickBooks Online includes templates for these, which include a Balance Sheet, Profit and Loss, and Statement of Cash Flows.

 

Like the reports we mentioned earlier, they’re easy to generate on the site, thanks to intelligent, customizable templates. Analyzing them, though, and making sure they’re ready to be seen by third-parties takes professional expertise. We can provide that for you. We can also help you better understand and use other elements of QuickBooks Online so that you’re taking advantage of all of its benefits. Contact us soon to set up an initial consultation.

 

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Cash flow problems? Before you can solve them, you need to learn where the bottlenecks are. QuickBooks Online can help. Contact us to find out how.

 

Is your company ready to grow? You’ll need reports to show lenders and investors. QuickBooks Online can create them, and we can analyze them for you.

 

How well do you know your customers? Could you assemble a quick, thorough overview of their history with you? QuickBooks Online can, and we can show you how. Are you dealing with product inventory problems due to overstocks or insufficient orders from vendors? QuickBooks Online can help.

ValueMetrik CFO offers QuickBooks support as part of our package of accounting services for small and midsized businesses. Call us at 479-242-1236 now and find out how you can leverage QuickBooks to precisely track your finances or request your complimentary consultation online.

Reviewing Your Business Structure After the Tax Cuts and Jobs Act

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Business structure matters. If you plan on starting a small business, you will have to choose how it will be legally organized. This decision has been made a little more complex as a result of federal tax law changes made by 2017’s Tax Cuts and Jobs Act (TCJA). In fact, even owners of companies that have been operating for some time may want to evaluate whether their existing business structure puts them in the best position to benefit from the tax law changes.

C Corporations and Lower Corporate Taxes

Traditionally, owners of small businesses organized as C corporations have faced a potential double taxation issue. The corporation pays taxes on its profits, and if those profits are distributed to the owners as dividends, the dividends are taxed to the owners individually. Because dividends are not tax deductible by the corporation, corporate profits are essentially taxed twice.

Prior to the TCJA, C corporations paid federal income taxes on a graduated scale up to 35% of taxable income. Personal service corporations paid taxes at a flat 35%. The TJCA reduced the corporate income tax rate substantially — to a flat 21%. The corporate tax rate reduction is a significant benefit for C corporations and their owners. Moreover, a C corporation can fully deduct state and local income taxes, whereas the TCJA limits an individual taxpayer’s itemized deduction for state and local taxes to $10,000 ($5,000 if married filing separately).

Pass-Through Entities

Generally, the net taxable income from pass-through entities — S corporations, partnerships, limited liability companies (LLCs) taxed as sole proprietorships or partnerships, and sole proprietorships — is taxed to the owners individually at their regular income tax rates. With limited exceptions, a corporate-level tax does not apply.

The TCJA lowered the top regular income tax rate for individual taxpayers from 39.6% to 37% through 2025. Additionally, thanks to the TCJA, individuals who own interests in pass-through business entities may be eligible to deduct up to 20% of their qualified business income. The 20% deduction is subject to significant limitations that apply to owners at higher income levels. However, for business owners who can qualify, the 20% deduction lowers the top effective tax rate on their qualified business income to 29.6%.

To Switch or Not?

The 21% corporate income tax rate may prompt small business owners to consider switching to (or starting) a C corporation. There are various factors to weigh before making a decision. For example, switching to a C corporation may make more sense for companies that expect to reinvest capital for business needs than for companies that intend to distribute profits to shareholders in the form of taxable dividends. However, should the owners contemplate a future sale of the business, double taxation would still be a potential issue were the transaction to be structured as an asset sale.

Professional Advice Is Necessary

This is a complex issue and there are numerous variables — both tax and nontax — that will come into play. Be sure to consult your legal and tax advisors before making a move to switch to a different business structure or to select an entity type for a new business.

Discover how our insights and experience can translate into a better bottom line for your business. Call us today at 479-242-1236 to learn more or request a consultation through our website and we’ll reach out to you to set up an appointment.