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TAX Tips For QuickBooks Tips click here
Knowing Your Marginal Tax Rate
A key to tax planning is knowing your marginal tax rate. That's the rate that applies at the margin, to your top dollar of income. Under our graduated income tax rates, as income rises, not only does your tax bill go up but the percentage of that income claimed by the government also increases.
Your marginal rate is controlled by your filing status. For example, single taxpayers pay higher rates for taxable income over $7,300 than someone filing a joint return.
Knowing your marginal rate is essential because it lets you determine how much of any extra earnings - from investments, a raise or moonlighting - you get to keep. It also measures the saving power of deductible expenses. Only if you know your marginal tax rate can you pinpoint what a charitable contribution or business expense really costs you after your tax savings are taken into account.
The bottom line is this: knowing how high your tax bracket really is can greatly energize your tax-planning efforts by enhancing the potential rewards.
New Crackdown on Cash Donations without Receipts
The new law effectively ends deductions for out-of-pocket cash donations unless a receipt is obtained from the recipient organization. For example, a client who simply drops a $20 bill in the Sunday collection plate will no longer be able to deduct it.
Under prior rules, a deduction for a cash donation had to be substantiated by one of the following:
A canceled check.
A receipt (or a letter or other written communication) from the recipient organization showing the name of the recipient, the date of the contribution, and the amount of the contribution.
In the absence of a canceled check or a receipt, other reliable written records showing the name of the recipient, the date of the contribution, and the amount of the contribution.
So, under (3), clients who put cash in the Sunday collection plate or in Christmas kettles outside department stores could claim a deduction as long as they kept a log or other written record of their contributions.
The new law bars this practice by eliminating the third method of substantiation. Starting with 2007, a deduction for any cash donation is disallowed unless the donor retains a bank record or a written communication from the recipient organization showing the name of the organization and the date and amount of the donation [IRC Sec. 170(f)(17), as amended by 2006 Pension Protection Act].
New Limitation on Deductions for Gifts of Clothing and Household Items
If an individual donates property to a charitable organization, a deduction is generally allowed for the fair market value of the property. The President’s Advisory Panel on Federal Tax Reform and the staff of the Joint Committee on Taxation both have concluded that the fair market value-based deduction for donations of clothing and household items present difficult tax administration issues. As recently reported by the IRS, the amount claimed as deductions in tax year 2003 for clothing and household items was more than $9 billion.
Under the new law, no deduction is allowed for a charitable donation of clothing or household items unless the clothing or household item is in “good” used condition or better. The IRS is also given authority to deny by regulation a deduction for any donation of clothing or a household item that has minimal monetary value, such as used socks and used undergarments [IRC Sec. 170(f)(16) as amended by Pension Protection Act].
Household items include
furniture,
furnishings,
electronics, appliances,
linens, and
other similar items.
Food, paintings, antiques, and other objects of art, jewelry and gems, and collections are excluded from the new rules. Also excluded are clothing or household items if the deduction claimed is more than $500 and the donor files a qualified appraisal with his or her turn.
The new rules apply to donations made after August 17, 2006.
QuickBooks Tips
Top Ten Tips to Help Prevent Fraud (in Order of Effectiveness)
1. Send Bank and Credit Card Statements to a Separate Address. Do not send your bank statements to your business address. Have your bank statement sent to your home, PO Box, or lockbox address. Review each check both front and back for payee, signature, and endorsement. Even if you don’t allow your employees to use your credit card, make sure those statements sent to an alternative address too. Examine each statement carefully. Review each and every line item of both payments and charges.
2. Do Not Let Anyone Misrepresent Themselves as You. Do not let them use your password, sign your name, or use your credit card, ever. Never let an employee sign your name, use your credit card, or misrepresent themselves to your bank or credit card company. Reimburse their expense. Don’t reveal sensitive passwords. If you allow your employee to sign your name even on credit card purchases, it could compromise your legal recourse in case of fraud or embezzlement.
3. Reconcile Bank Accounts and Review Statements. Review every statement. Make sure all bank accounts and credit cards are reconciled. Afterwards, take time to review every reconciliation report. Notice stale checks or deposits that have not cleared the bank. Check for missing deposits. An increase in the number of reconciled items may also reveal mischief.
4. Assign Administrative Rights Effectively. Use the Administrative rights in QuickBooks to protect your data. The first person to set up QuickBooks is by default assigned as Administrator. This role has unique permissions. So the administrator should be designated to either an outside party, i.e., a CPA, a QuickBooks Certified Consultant, or the savvy owner. Make sure that every user is set up separately and that passwords are used. Lock down permissions to change or delete transactions. Especially important: Use passwords for closing dates.
5. Use the Audit Trail in QuickBooks. If you don’t have the latest version of QuickBooks, make sure you turn on the Audit Trail. Go to Preferences > Accounting and click on the box Audit Trail. Caution: the Audit Trail won’t tell you if a vendor name has been changed or merged. It is wise to maintain a strict paper trail. Supporting documents need to be readily accessible in your files and then archived according to the type of document.
6. Use the Voided/Deleted Transaction Report. After you have turned on the Audit Trail, and made its review part of your routine, periodically review the Voided/Deleted Transaction Report to see which entries which have been modified.
7. Establish Accounting Controls. The principle of countervailing power is the fundamental reason to use checks and balances in accounting. Split the responsibilities between staff members or outside accounting professionals. Warning Sign: If only one person writes the checks and reconciles the account, there is no double check. Separate the duties. Consider another person to do reconciliations so it is done by a person other than the staffer generating the checks. Perhaps a Certified QuickBooks ProAdvisor® or CPA can provide these services.
8. Adhere to a Numerical Sequence. Use a numerical sequence for all transactions. Invoice, bills, and checks which are numbered fall in a logical and chronological order. The reason: To identify missing documents. Look at the bank statement for large gaps. Secure paper checks. If you keep voided paper checks, remember to tear off the signature area to keep it from being misused. If your bank sends paper checks, sort them numerically.
9. Review Receivables and Payables. Look for adjustments to Receivables or Payables. Such adjustments could indicate subverted payments or vendor checks.
10. Back up Your Data. Repeat after me – Back up, back up, back up. Think redundant backups as a contingency plan for disasters of all sorts. Make scheduled copies. Rotate the media (tape drive or portable storage). If you use CDs, better buy the read-only variety. Store your backups at another location. Such diligence can come in especially handy if there is a disaster. In some fraud cases, the bookkeeper may delete all of the QuickBooks files to avoid detection. In such cases the business has to pay a large sum for data retrieval, in hopes of capturing any shred of evidence. Be smart; back up. It only takes a few minutes.
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