Chapter 15

Mind Your Business

In This Chapter

Setting up a business using Quicken

Working with your customers

Bookkeeping whistles and bells in Quicken Home & Business

Doing payroll using Quicken

The preceding chapters of this little book talk about using Quicken for your personal bookkeeping. But you may be interested to know that Quicken also does a truly excellent job at small-business accounting.

If you want to use Quicken for small-business accounting, you need to do just a couple of things. First, you want to make sure that you’re working with the Home & Business version or the Quicken Rental Property Manager version of Quicken, because both these flavors of Quicken supply an extra menu of seriously useful business bookkeeping commands. Second — and this is only my humble opinion — you want to skim this chapter’s discussions so that you get the business bookkeeping stuff set up right.

If you’re not already working with Quicken Home & Business, you very possibly can upgrade to Home & Business by choosing Help⇒Add Business Tools or Help⇒Add Rental Property Tools. If those commands aren’t available or don’t make sense, contact Intuit by visiting http://quicken.intuit.com.

Setting Up a Business the Quicken Way

To use Quicken for small-business bookkeeping, you need to describe each business you or your spouse operates. If you work as a one-person consultant, and your spouse runs a tow truck business, you need to tell Quicken a little bit about both businesses. Quicken needs this information so that it can track each business separately and produce invoices for each business.

Describing your business(es)

To describe your business to Quicken, you need to give the business’s name and identify the owner. Here’s how you do this:

1. Choose the Manage Business Information command.

   Display the Business tab, click the Business Tools button, and choose the Manage Business Information command. Quicken displays the Manage Business Information dialog box.

   If you don’t have a Business tab, choose View⇒Tabs to Show and click Business, or choose Help⇒Add Business Tools.

2. Tell Quicken that you want to add a business.

   Click the Business Tools button and choose Manage Business Information from the menu Quicken displays. When Quicken displays the Manage Business Information dialog box, click Add. Quicken displays the Add Business dialog box, shown in Figure 15-1.

   

3. Enter your firm’s name in the Business Name text box.
4. (Optional) Enter a brief description in the Description box, which appears just below the Business Name text box.
5. Identify the business owner.

   Use the Owner option buttons (Self and Spouse) to indicate who owns the business: you or your better half.

6. Create a tag for the business.

   You want the tag to be a memorable yet short acronym or abbreviation that you can use to mark transactions as connected to a particular business. Suppose that your family operates a consulting business and a landscape design business. You might use the tags “Cons” (for consulting) and “Towing” (for tow truck).

7. (Optional) Specify that this business is the default business.

   You can tell Quicken that a particular business is the default business — in other words, that Quicken should assume that a business transaction relates to this business unless you tell it otherwise. To do this, select the check box titled Business Transactions without a Tag Belong to This Business.

8. Save your business description.

   Quicken returns you to the Manage Business Information dialog box, which now lists your newly described business venture (see Figure 15-2).

   

9. If you need to add more businesses, repeat Steps 2–8.
10. Click Done to close the Manage Business Information dialog box.

    The Manage Business Information dialog box provides two other useful buttons that I should mention briefly: Delete and Edit. You can click the Delete button to remove the selected business description, and you can click the Edit button to display the Edit Business dialog box, which allows you to change the selected business’s description.

Designing business invoices

You need to add your business’s name and address to the business invoice template that Quicken produces. To do this, display the Business tab, click the Business Actions button, and then choose the Invoices and Estimates⇒Design Forms command. When Quicken displays the Forms Designer window, click the Company Address Properties button (the button next to a double chevron) so that Quicken displays the Company Address dialog box. Then enter your business and address. Note: You may need to click the Let’s Get Started button the first time you want to access this dialog box.

I’m not going to discuss the Forms Designer window in more detail, but you may want to poke around the window a bit. You can use the window’s buttons and boxes to customize with abandon the invoice form that Quicken produces. Note, too, that you may need (or want) to create and customize multiple invoice templates — if, for example, you’re using Quicken for more than one business or if you want to use distinctly different invoices for different customers, products, or services. You can create a new invoice template by clicking the Forms Designer window’s Layout button and then choosing New from the menu that Quicken displays.

Identifying invoice items

The stuff that appears on invoices — product or service descriptions, standard prices, and so forth — needs to be provided up front to Quicken. To do so, you set up invoice items.

Suppose that you’re using Quicken to keep the books for a one-person tow truck business and that you bill your towing services by the hour, charging people $125 an hour for your services and the truck. To describe this standard invoice information, you set up a “towing” item by following these steps:

1. Display the Business tab, click the Business Actions button, and then choose Invoices and Estimates⇒View All Invoice Items.

   Quicken displays the Customize Invoice Items dialog box (not shown).

2. Click the New button.

   Quicken displays the New Item dialog box (see Figure 15-3).

3. Name the item you’re creating.

   You might name an item for towing services “Towing” or an item for consulting services “consult.” You just need to use an item name that’s descriptive enough that you remember the item details when you see the item name.

4. Categorize and tag.

   Use the Category/Tag box to specify which income category should be used to account for the item.

   If you’ve set up two different businesses — consulting and tow-truck services — and use the tags “consult” and “towing” to differentiate, you enter the “consult” tag in the Tag field for consulting business items, and you enter the “towing” tag in the Tag field to specify tow-truck business invoice items.

   

5. Describe the item in more detail, please.

   Use the Description text box to provide the text you want to automatically appear on the invoice for the item. You can (and probably should) be quite descriptive. You can add more text to the invoice and edit the invoice item descriptions later, when you actually create the invoice, but Quicken automatically enters the item description for you. Therefore, you want to make Quicken type any long, detailed descriptions.

6. Flag any subtotal items.

   Okay, here’s a weird thing about items that appear on an invoice. Anything that you want to put in the body of your invoice is an item. Obviously, the services and products you sell need to be set up as items. But you also have to set up the other stuff that you want to put on the invoice — shipping charges, discounts, markups, and so on — as items.

   After you understand this weirdness, subtotal items become clearer (I hope). The Subtotal of the Preceding Items check box, if selected, tells Quicken that the item simply adds up the preceding items shown on the invoice. Probably, by the way, the right item name for a subtotal item is subtotal and the right description is Subtotal or Total.

   If you indicate that an item is a subtotal, by the way, you don’t provide a category or tag. But that makes sense: Quicken grabs the category and tag information from the individual “real” items getting subtotaled — not the subtotal item.

7. (Optional) Add a blank line after the item.

   To tell Quicken to add a blank line on invoices after an item, select the Print Extra Blank Line check box.

8. Set the item price.

   Use the Per Item Rate text box to specify a default price for the item. If you’re setting up an item for a service, for example, you might enter the hourly billing rate in the Per Item Rate text box.

9. Identify items that are subject to sales tax.

   If an item is subject to sales tax — in other words, if you’re supposed to charge sales tax on the item — select the Taxable check box.

10. Give the percentage for any percentage-based items.

    You may not need percentage items for your invoices. But if you regularly bill people for items that get calculated as a percentage of some other item on the invoice, you use a percentage item.

    Percentage items calculate an amount for your invoice by multiplying a percentage against the preceding item. If the preceding item shown on an invoice equals $1,000, a 10 percent “percentage” item adds another $100 to the invoice.

    Note that when you select the Percentage check box, the value you enter in the Per Item Rate text box isn’t a dollar amount, but a percentage value. You enter 10 percent, for example, as 10.

11. When you finish describing an item, click the New Item dialog box’s OK button.

    Quicken returns you to the Customize Invoice Items dialog box.

12. To add more items, repeat the preceding steps, or click the Customize Invoice Item dialog box’s Done button.

Working with Customers

You can invoice customers, record their payments, and monitor unpaid amounts after you’ve described your business, finalized your invoice form(s), and created an item list.

Setting up a Customer Invoices account

Quicken needs you to set up a Customer Invoices account to track the invoices you create. But this isn’t difficult to do. Simply display the Business tab, click the Business Actions button, and choose the Invoices and Estimates⇒Create Invoices command. When you do, Quicken checks to see whether you’ve already set up an account to track amounts that your customers owe you. If you haven’t, Quicken asks whether it can set up such an account. If you answer yes, Quicken asks whether it’s okay to use a name like Customer Invoices. When you click the “Sure, I don’t care what you name the account” button, Quicken sets up the account for you. When Quicken sets up the Customer Invoices account, it also sets up a sales tax-payable account to track any sales taxes you collect from customers.

I’m not going to talk a bunch more about the Customer Invoices account, but let me make just three quick points:

• The Customer Invoices account is a regular Quicken account — sort of like a bank account. You see the Customer Invoices account listed, for example, on the Accounts bar and in the Accounts List window.
• You can enter or edit transactions directly by viewing the account in a register window (the same sort of register window I describe in detail in Chapter 4). Typically, however, you don’t work directly with the register, because Quicken provides easy-to-use tools for recording customer invoices and payments (as described a bit later in this chapter).
• The Unpaid Invoices List is an easy way to see which customer invoices are open. (Often, these invoices are the only ones you truly care about.) To display this list, display the Business tab, click the Business Tools button, and then choose the Unpaid Invoices List command.

Invoicing your customers

To invoice a customer, follow these steps:

1. Display the Business tab, click the Business Actions button, and choose Invoices and Estimates⇒Create Invoice.

   Quicken displays the Invoice dialog box (see Figure 15-4). The Invoice window in Figure 15-4 shows a bit of information in its boxes, but don’t get confused about that. In the steps that follow, I describe how to enter this information.

2. Identify the customer and provide the address, if necessary.

   If you’re invoicing a customer for the first time, type his or her name in the Customer box in the upper-left corner of the Invoice window. Quicken copies the company name to the Bill To box. You can complete the address by adding the street information, city, state, and ZIP code.

   If you’re invoicing a customer for a second (or subsequent) time, open the Customer box and select the customer from the list that Quicken displays.

   You can add customers on the fly — which is what I describe in the preceding step, and which means that you describe your customers with sketchy vagueness. Alternatively, you can also go hog-wild and describe each and every customer in painstaking detail. To go the painstaking-detail route, choose the Business⇒Customers⇒Add Customer command. When Quicken displays the Edit Address Book Record dialog box, use its boxes to describe your customer. Note that you can use the Add Customer command at any time. You don’t need to wait until you’re ready to record an invoice.

3. Tag the transaction.

   If you’re using Quicken to track more than one business, and you’ve (very rightly) created a tag for each business, enter the appropriate tag in the Business Tag box.

   

4. Provide the Date, Due Date, Invoice #, and P.O. Number information.

   Use the Date box to indicate the invoicing date. (Typically, the invoice date is the actual date you create the invoice.) Use the Due Date box to specify when you expect payment. Use the Invoice # box to give the invoice a unique number. Finally, if you’re billing on purchase-order numbers, use the P.O. Number box to enter the customer’s purchase-order number.

5. Describe the individual items you’re invoicing the customer for.

   To enter an invoice item, click the Item column for the line you want to add and then select an item from the list Quicken displays. Quicken adds the category and description information you provided for the item, but you can edit this information, if you want. Next, specify the item quantity and verify the rate.

   You can initially fit ten items into an invoice, but if you need more room, click the Add Lines button.

6. Add sales tax, if applicable.

   If items on the invoice are subject to sales tax, enter the sales tax rate in the Tax box. Quicken calculates the sales tax for you by multiplying the sales tax percentage against each of the taxable items on the invoice.

   Note: Quicken tracks the sales tax you’ve collected by using a liability account. Quicken shows the liability account in the Tax Account drop-down list box at the bottom of the window.

7. (Optional) Add customer messages or memo descriptions to the invoice.

   If you want to add a message to the invoice, enter the message in the Customer Message box.

   If you want to record a bit of extra information about the invoice — information that won’t appear on the invoice — enter that in the Memo box.

8. Save the invoice.

   You can save the invoice and close the Invoice window by clicking Save and Done. Or you can save the invoice and redisplay an empty Invoice dialog box so you can create another invoice by clicking Save and New.

Printing invoices

You can print invoices as you create them. Simply click the Print button on the Invoice dialog box. The Print button looks like a printer and appears in the lower-left corner of the dialog box. When you click the Print button, Quicken displays the Print Invoice dialog box. Click its OK button to print the invoice.

You can also print invoices in batches. To use batch printing, first create your batch of invoices (obviously). Next, display the Business tab, click the Business Tools button, and choose the Print Invoices/Invoices List command. When Quicken displays the Invoices List, verify that each invoice you want to print is marked with a check, click the Print button so that Quicken displays a menu of print commands, and then choose the List command. Quicken displays the Print dialog box. Click its OK button to print the selected invoices.

The Print Invoice and Print dialog boxes provide a bunch of buttons and boxes you can use to control how Quicken prints your invoices. If you have questions about how these printing options work, refer to Chapter 5. Chapter 5 describes how to print checks and check registers, but the process for printing those items closely resembles the process for printing invoices.

Recording customer payments

To record a customer payment, follow these steps:

1. Display the Business tab, click the Business Actions button, and choose Invoices and Estimates⇒Receive a Customer Payment.

   Quicken displays the Payment dialog box (see Figure 15-5).

   

2. Select the customer.

   Open the Customer drop-down list box and select the customer for whom you want to record a payment. After you select the customer and move to the next box, Quicken displays a list of any unpaid invoices the customer owes.

3. Describe the payment.

   You should enter the payment amount in the Amount box. That, I’m sure, represents a big surprise.

   Also, you probably should record the payment date in the Date box and the customer’s check number in the Check Number box.

4. Select the bank account into which you’ll deposit the check.

   This is easy. Open the Deposit To drop-down list box and select the bank account.

5. Identify the open invoices that the customer is paying.

   Quicken attempts to guess which unpaid invoices the customer is paying, marking each of those invoices with a check. Often, Quicken guesses correctly, but verify that each correct invoice shows a check mark. You can select and deselect invoices by clicking the check mark.

   If a payment pays partial amounts of unpaid invoices, you can click the Payment column in the Outstanding Invoices list and then edit the amount.

6. Record the payment.

   After you describe the payment and apply it to the correct open invoices, click the Enter button. Quicken records the payment and updates the invoice open balance(s).

Issuing credits and making refunds

Quicken provides commands and windows for issuing credits and for making refunds to customers.

To record a credit — a credit is essentially a backward invoice that says you owe your customer money rather than the other way around — display the Business tab, click the Business Actions button, and choose the Invoices and Estimates⇒Issue a Credit command. When Quicken displays the Credit dialog box (which is a mirror image of the Invoice dialog box), record your credit memo. You won’t have any trouble using the Credit dialog box if you’ve previously used the Invoice dialog box. But if you have questions, refer to the steps for invoicing your customers earlier in this chapter.

To refund money to a customer because of an earlier credit memo, display the Business tab, click the Business Actions button, and choose the Invoices and Estimates⇒Issue a Refund command. When Quicken displays the Refund dialog box, identify the account you’ll write the refund check on, specify the customer to which you want to issue a refund by entering his or her name in the Customer box, and then click Enter. Quicken records a check for you in the appropriate bank account register.

Business Bookkeeping Whistles and Bells

Quicken Home & Business (which I’ve spent the preceding paragraphs of this chapter talking about) provides a handful of additional business bookkeeping tools. I’m not going to describe these tools in any detail in this book because I don’t think you’ll use them. Nevertheless, I do want to give you a quick overview.

Jobs and projects

If you’re really alert and have good eyes, you’ll have noticed a Project/Job box in some of the figures of this chapter and some of the Quicken Home & Business windows. Just a quick note to explain: Most small businesses probably bill customers. But in some industries, you can find yourself billing jobs or projects that are in turn owned or managed by a customer. If this situation sounds like yours, you’ll want to use the Customers⇒Create Project/Job command (available when you click the Business Actions button on the Business tab) to set up jobs or projects below your customers. When you invoice, you’ll want to include not only the customer name on the invoice, but also the project or job.

Using finance charges, estimates, and statements

Three customer-invoicing commands (available on the Business tab when you click the Business Actions button and choose the Invoices and Estimates command) deserve a quick description: Create Estimates, Create a Finance Charge, and Print Statements.

The Create Estimates command allows you to create a dummy invoice you can give to a customer as a preliminary cost estimate of a job or service. The Estimate dialog box, not surprisingly, mirrors the Invoice dialog box. In fact, if you ultimately need to invoice the customer for something you previously estimated, you display the Business tab, click the Business Tools button, and choose the Estimates List command. When Quicken displays the Estimates List window, select the estimate from the window that Quicken displays and click the Convert button.

The Create a Finance Charge command allows you to assess a finance charge on a past-due invoice. In essence, when you use the command, Quicken creates an invoice for the customer with a single item on it for the finance charge.

The Print Statements command lets you print customer statements that show the open invoices for a customer at a specific point in time. If you have customers for whom you need a statement, obviously, you need to use this command.

Managing vendor bills

If you display the Business tab, click the Business Actions button, and choose the Bills and Vendors command, Quicken displays a menu of commands that let you create a simple accounts-payable system for tracking your unpaid bills from vendors.

I’m not going to describe these commands here. You really shouldn’t need to set up an accounts-payable system for a small business except in the special case in which someone foolishly decided that your business should use accrual-based accounting rather than cash-basis accounting. (If that’s your situation — my apologies, but you need to get help from the nabob who sent you down the accrual-based-accounting path.)

If you record expenses just by writing checks — this is the way that Chapters 4 and 5 describe — you essentially keep your books by using cash-basis accounting. Cash-basis accounting usually works best for small businesses. It delays your income tax expenses, and it keeps your bookkeeping simpler.

Vehicle Mileage Tracker

Quicken Home & Business provides a handy utility you can use to keep a log of your business auto or truck use. As you’re probably tired of hearing your accountant say, you need to keep such a log to prove your business-vehicle use.

I’m not going to describe the Vehicle Mileage Tracker here, though. You’ll find the tool very straightforward to use. Simply display the Business tab, click the Business Tools button, choose the Mileage Tracker command, and poke around a bit.

Quicken Dirty Payroll

A lot of people who own small businesses or who have a household employee (a nanny, for example) need to deal with payroll. Although Quicken Home & Business doesn’t provide payroll tools, I still want to provide some quick-and-dirty instructions for handling simple payroll situations with Quicken. Oh, sure, the instructions won’t be fancy, but I promise you they will be fast and cheap.

Getting ready for payroll

To do payroll in Quicken, you need to set up a couple of payroll expense categories. Fortunately, doing so isn’t particularly difficult.

I’m going to describe how you do this task for purposes of U.S. federal income and payroll taxes. If you employ people in a state that has a state income tax — California, say — you may also have to deal with state payroll taxes. But you can track and process these taxes the same way you process federal taxes. (Some counties and cities even have income taxes, but these taxes should also work the same way.)

Setting up the wages expense category

You need to set up a payroll expense category for tracking the wages you pay employees. Here’s all you do:

1. Choose Tools⇒Category List.

   Quicken, with no hesitation, displays the Category List window.

2. Click the New button.

   Quicken displays the Set Up Category dialog box (see Figure 15-6).

3. Enter Wages as the category name by moving the cursor to the Category Name text box and typing Wages.

   If you told Quicken during setup that you’ll use Quicken to track a business, Quicken may have set up the Wages category automatically.

4. (Optional) Enter a description of the category.

   If you want, you can type a description in the Description text box.

5. Select the Expense option button.

   This choice tells Quicken that you’re setting up an expense category.

   

6. (Optional) Describe the tax characteristics of this category.

   To further describe taxable income and tax deduction categories, click the Tax Reporting tab and then select the Tax-Related check box.

   Optionally, if you want to be super-nit-picky and don’t care about wasting your time, select the Standard List Item List or Extended Line Item List option button on the Tax Reporting tab and then choose the exact tax form and form line number the category gets reported on when you prepare your federal tax return. One caution: You won’t know for an absolute certainty which forms and line numbers are used until the end of the year.

7. Click OK.

   Quicken adds the category to the category list and redisplays the Category List window.

Setting up the payroll tax expense category

You also need to set up a payroll tax category to track payroll taxes that the employer pays, including the company’s share of Social Security taxes, the company’s share of Medicare taxes, and any other employer payroll taxes (such as federal unemployment tax or the equivalent state employer taxes).

To set up a payroll tax expense category, follow the same steps I give you for setting up a wages expense category (in the preceding section). You can name the category payroll taxes, taxes-payroll, or something else that’s even more clever.

Getting the taxes stuff right

You also need to do a couple of other things if you want to do payroll the right way in the U.S. of A.

Requesting (or demanding) an employer ID number

First, you need to file an SS-4, or Request for Employer Identification Number form, with the Internal Revenue Service (IRS) so that you can get an Employer Identification Number. You can get this form by calling the IRS or by visiting the IRS website (www.irs.gov).

In one of its cooler moves, the IRS allows you to apply for and receive an Employer Identification Number right online. Visit the www.irs.gov website, and click the Apply for an Employer Identification Number (EIN) Online link located on the left side of the page.

So what about Social Security, Medicare, and withholding taxes?

You need to do two things before you can figure out how to handle all those taxes. First, you need your employees to fill out W-4 forms to let you know what filing status they’ll use and how many withholding allowances, or personal exemptions, they’ll claim. You can get blank W-4 forms from the www.irs.gov website, too.

While you’re visiting the IRS website, you also need to get a Publication 15 Employer’s Tax Guide booklet (popularly known as Circular E). The Circular E booklet tells you how much you should withhold in federal income taxes, Social Security, and Medicare from employees’ salaries, based on what they say about their filing statuses and the number of withholding allowances they claim on the W-4 forms mentioned in the preceding paragraph.

Paying someone for a job well done

After you set up the two needed expense categories within Quicken and after you collect the necessary tax information, you’re ready to pay someone.

Figuring out the gross wages figure

Determining how much to pay your employees should be pretty easy. Does Raoul make $15 per hour? Did he work 40 hours? Then you owe him $600, because $15 times 40 equals $600. Is Betty’s salary $400 per week? Then you owe her $400 for the week.

Calculating that deductions stuff

Your next step — after you know how much you’re supposed to pay Raoul and Betty — is to figure out what Uncle Sam says you must withhold.

To determine this amount, you need both Raoul’s and Betty’s W-4s to find out their filing statuses and personal exemptions. Then just flip to the page in the Circular E that describes withholding for people claiming those filing statuses and weekly pay.

If Raoul is single and claims just one personal exemption, for example, you need to flip to the page that shows appropriate withholding amounts for single people receiving weekly payroll checks. That page shows a table that clearly indicates what you’re supposed to withhold from Raoul’s check for federal income taxes. The table might say that a single person making $600 a week who claims one withholding allowance should have $79 withheld for federal taxes, for example.

And Betty? Remember that fictional Betty’s pay is $400 per week. If (say) Betty’s filing status is married, she is filing jointly, and has three personal exemptions, you need to need to flip to the page in the Circular E that shows withholding amounts for a married person filing a joint return when the person claims three withholding allowances. Pretend, just for the sake of illustration, that the Circular E says you’re supposed to withhold $18 from Betty’s check each week.

You determine Social Security and Medicare amounts by multiplying the gross wage figure by a set percentage. Social Security is 6.2 percent of the gross wages because in 2014 (for example), the 6.2 percent applies on wages up to $117,000. The Medicare tax is 1.45 percent of the gross wages unless the Affordable Care Act “surtax” comes into play (as it does for a single person at $200,000 in wages), in which case the Medicare tax equals 2.35 percent of wages above this limit.

Figuring out someone’s net wages

Table 15-1 summarizes the payroll calculations based on the examples developed in the preceding paragraphs.

Does Table 15-1 make sense? If it doesn’t, quickly skim the preceding four or five paragraphs. All I’ve really done in the table is reorganize some information, calculate the Social Security and Medicare taxes, and show how Raoul’s and Betty’s gross pay gets nickeled and dimed by the various taxes they owe.

Working with other taxes and deductions

If you have other taxes and deductions to make, and you know how the federal income taxes, Social Security taxes, and Medicare taxes work, you won’t have any problem working with other taxes — whatever they are.

State income tax withholding, for example, works like federal income tax withholding. (You need to get the state’s equivalent of the Circular E guide, of course.)

In general, you treat other taxes and the amounts that the employee pays similarly.

In fact, the only thing that you need to be careful about is what affects your employees’ gross pay for income taxes but not their Social Security taxes — things such as 401(k) deductions and certain fringe benefits. If you have these kinds of things to deal with, and you need help, just ask your accountant. (Providing general answers that will work for everyone who reads this paragraph is just too difficult — and actually kind of dangerous, too. Sorry.)

Recording a payroll check

After you make the tax deduction and net wages calculation, you’re ready to record the check. Suppose that you’re going to record the check by using the Write Checks window. After you display the window, follow these steps:

1. Enter the date of the payroll check in the Date field.
2. Enter the payroll check number in the Num field.
3. Enter the employee name in the Payee field.
4. Enter the net wages amount in the Payment field.
5. Describe the payroll details using Click the Split button.

   Click the Split button. Then, when Quicken opens the Split Transaction dialog, describe the payroll details for the employee. Figure 15-7 shows how Betty Ready’s payroll detail information from Table 15-1 should look. The $400 of gross wages shown in Table 15-1, for example, appears on the first line of the Split Transaction dialog box. After you complete describing the payroll details using the Split Transaction dialog box, click OK to close it.

   

6. To record the payroll check, click Record Check.

   Figure 15-8 shows how the completed payroll check looks. Note that the Category field shows the word Split.

You did it! You recorded a payroll check. Maybe it wasn’t all that much fun, but at least it wasn’t very difficult. (Chapter 5 describes how to print checks, just in case you’re interested.)

Depositing taxes

Make no mistake: Uncle Sam wants the money you withhold from an employee’s payroll check for federal income taxes, Social Security, and Medicare. Uncle Sam also wants the payroll taxes you owe — such as matching Social Security and Medicare taxes, and federal unemployment taxes.

Every so often, then, you need to pay Uncle Sam the amounts you owe.

Making the payments for these taxes is easy.

Depositing the employee withholding

To remit the payroll taxes you withhold from an employee’s check, follow these steps:

1. Sign up for the U.S. Treasury’s electronic funds tax payment system, also known as EFTPS.

   You should visit the www.eftps.gov website a few weeks (at least a couple of weeks and preferably more) before you want to process payroll. Find the link that lets you sign up for the service, and carefully follow the onscreen instructions to create your EFTPS account. Note that you need to take this step only once.

2. Log on to www.eftps.gov.

   This is easy. Click the link that indicates that you want to log on to the website and then provide three bits of information: your employer identification number, your PIN (personal identification number), and your password. Both the PIN and your password come in the letter that welcomes you to the EFTPS system.

3. Indicate that you want to make a payment equal to the payroll taxes that you withheld from the employee’s check.

   In the example case of Betty — in which withholding includes $18 of income taxes, $24.80 of Social Security taxes, and $5.80 of Medicare taxes — you initiate an EFTPS payment for $48.60. Again — and sorry to be so anal about this — but within Quicken, you need to categorize the check in the Wages expense category.

   Don’t categorize the check that remits the employee’s portion of his or her taxes as falling into the payroll tax category. That would be a mistake. Yes, I know: It seems that payroll tax expense would be the right category. The withheld taxes are tax expenses of the employee, however — not tax expenses of the employer. The money represents a wage expense to the employer.

   Betty’s true earnings were $400: the $351.40 net payroll check plus the $48.60 of payroll-related and income taxes that she owed but that you, the employer, withheld.

Paying employer payroll taxes

You have to match any Social Security and Medicare taxes paid by the employee. To record the payment of these payroll taxes, you follow a similar set of steps to those in the preceding section. Indicate that you want to make another EFTPS payment equal to the payroll taxes you owe as the employer. (In the example case of Betty, in which withholding included $24.80 of Social Security taxes and $5.80 of Medicare taxes, you make a payment for $30.60 payable to the local bank.)

When you pay the employer’s payroll taxes — such as the matching Social Security and Medicare taxes — you want to categorize the check as a payroll tax category. This money absolutely does represent a payroll tax expense to the employer.

Tax deposit tips

Let me make a handful of suggestions about making tax deposits easier and less painful. On the subject of tax deposits, let me also tell you that my fast-but-fancy payroll method has a weakness you should know about.

Tax deposit tip #1: Combine payments

Here’s my first tip. In the preceding discussion, I suggest that you use one payment to pay the employee’s taxes and another payment to pay the employer’s taxes.

Specifically, I describe how to initiate a $48.60 EFTPS payment categorized as a wage expense and then how to initiate a second EFTPS payment for $30.60, which gets categorized as a payroll tax expense. But you could, in fact, save yourself a bit of fiddle-faddling by initiating one payment for $79.20 that combines both payments. If you do this, just be sure to split the transaction with $48.60 categorized as a wage expense and $30.60 categorized as a payroll tax expense when you go to record the tax deposit within Quicken.

Tax deposit tip #2: Combine employees

In the running example in this chapter, I describe how to deal with payroll taxes for a single employee.

I feel sort of dumb saying this, but you would (of course) often have more than one employee. And in that case, you probably would combine the payroll tax deposits for all the employees.

If you have multiple employees, you probably want to consider using a small-business accounting system such as QuickBooks or an outside payroll service bureau. Most of the payroll calculations and bookkeeping are pretty easy, but figuring out what you owe in terms of payroll tax deposits can be a bit messy if you have more than one employee to pay at a time.

Tax deposit tip #3: Don’t delay your deposit

The system I describe in the preceding paragraphs doesn’t keep track of what you owe in payroll tax liabilities (the withheld taxes, the company’s matching of Social Security tax, and so on). And that’s bad, obviously. You shouldn’t just foolishly ignore any of your business or personal debts, of course. If you just deposit your payroll taxes immediately after every payroll, you should be fine.

Tax deposit tip #4: Know the De Minimis rule

While I’m talking about federal payroll tax deposits, I should cover another general but very useful rule related to when you need to make the deposit: If your accumulated federal payroll taxes are less than $2,500 for the quarter, you can pay the taxes with your quarterly 941 payroll tax return. (This is called the De Minimis rule — named after Congresswoman Dee Minimis, I think.) Don’t rely on this rule, however, without checking with the IRS or your tax advisor.

Filing quarterly payroll tax returns

At the end of every quarter, you need to file a quarterly payroll tax return. (Specifically, you must file a Form 941 — which is a form you fill out to say how much you paid in gross wages, how much you withheld in federal taxes, and how much you owe for employer payroll taxes.)

If you don’t own a business but have household employees — such as a nanny — you file a Form 942. You fill out this form to say how much you paid in gross wages, withheld in federal taxes, and owe in payroll taxes.

To get the gross wages totals and the balances in each of the payroll tax liability accounts, print a Cash Flow report for the quarter you need to report. You can do this by choosing Reports⇒Banking⇒Cash Flow. Quicken displays the Cash Flow report, but the dates will probably be wrong, so click the Customize button. Quicken displays the Customize Cash Flow dialog box.

Specify the range of dates as the start and end of the quarter for which you’re preparing a quarterly report. Then click OK. Quicken produces a Cash Flow report, which you can easily use to fill out the quarterly payroll tax return.

You also need to report on the 941 tax form how much money you withheld from the employee’s checks for federal withholding. You can do this manually (by looking through the payroll records) or algebraically (by comparing whatever the 941 or 942 shows as the total Social Security and Medicare taxes amount with the total payments made to the IRS).

You know what, though? If your accountant fills out the 941 or 942 for you, you don’t even need to read the stuff in the preceding three sections. Your accountant won’t have any problem completing the quarterly payroll tax return by using the Quicken report, and in fact — I kid you not — he or she will probably even enjoy it.

Even if you want to do payroll returns yourself in the future, have your tax accountant prepare the first return. Then you can use that return as a template for correctly preparing any future returns.

Computing annual returns and wage statements

At year end, you need to file some annual returns, such as the 940 federal unemployment tax return and the W-2 and W-3 wage statements. (You need to prepare these by hand. Perhaps to protest all the work that small businesses have to do to comply with tax laws, you could prepare these forms by hand, using a cheap ballpoint pen. Just an idea.)

As a practical matter, as long as you’re doing payroll for a single employee, the only thing that’s different about filling out these reports is that you need to use a Cash Flow report that covers the entire year — not just a single quarter. So you need to enter the range of dates in the Cash Flow report dialog box as January 1 and December 31.

The 940 annual return is darn easy if you’ve been wrestling with the 941 or 942 quarterly returns. The 940 annual return works the same basic way as those more difficult quarterly tax returns. You print the old payroll report, enter a few numbers, and then write a check for the amount you owe.

You need to prepare annual state unemployment summaries before preparing the 940. The 940 requires information from the state returns.

For the W-2 statements and the summary W-3 (which summarizes your W-2s), you just print the old Cash Flow report. Then, carefully following directions, enter the gross wages, the Social Security and Medicare taxes withheld, and the federal income taxes withheld in the appropriate blanks.

If you have a little trouble, call the IRS. If you have a lot of trouble, splurge and hire someone to do it. Again, any experienced bookkeeper can do the job for you.

Doing the state payroll taxes thing

I haven’t talked about state payroll taxes — at least not in any great detail. I wish I could provide this sort of detailed, state-specific help to you. Unfortunately, doing so would make this chapter about 150 pages long. It would also cause me to go stark raving mad.

You still need to deal with state payroll taxes, however. State payroll taxes follow the same basic mechanics that you apply to federal payroll taxes. state income tax works the same way federal income tax works, employer-paid state unemployment taxes work the same way employer-paid federal unemployment taxes work, and employee-paid state taxes work the same way employee-paid Social Security and Medicare taxes work.

If you’re tuned in to how federal payroll taxes work in Quicken, you really shouldn’t have a problem with the mechanics of state payroll taxes.