Bookkeeping for Virtual Assistants and Entrepreneurs - archived VAF Chat with Lily Chambers

[VAF Admin]

Hi everyone! Thanks for being here tonight - we're very excited to welcome Lily Chambers, CPS, CQU, and President of http://www.virtualofficegoddess.com The Virtual Office Goddess, LLC. Lily is also an instructor at the Academy of Virtual Entrepreneurs (AOVE.org) where she teaches VA: 109 – Bookkeeping. Ms. Chambers has three decades of bookkeeping, executive secretarial, office management, and office support experience. She also holds a Certified Professional Secretary (CPS) designation through the International Association of Administrative Professionals (IAAP), a Certified QuickBooks User (CQU) designation through Intuit, the publishers of QuickBooks, and is a member of the American Institute of Professional Bookkeepers (AIPB).

Today, you'll be getting an overview of basic bookkeeping for your VA business including: accounting terminology, setting up and maintaining a small business bookkeeping system, and year-end requirements.

Thanks so much for being here Lily, there's been a lot of excitement around this chat - the subject matter is something every small business owner wants to get a handle on...

Office Goddess : Thanks for the warm welcome, Tess! Hello to all of you. Glad you’re here! I will be taking questions throughout the presentation but please hold your questions until I ask for them. Let’s get started! Although we all know we have to maintain our accounting records for our business, it can really seem intimidating. Part of what I do is try to make the whole process as painless as possible. To start out, let me tell you that I break basic bookkeeping into 4 stages:

Office Goddess : Stage 1 is “Bookkeeping Basics”, Stage 2 is “Bookkeeping & Accounting Records Setup”, Stage 3 is “Creating and Maintaining Bookkeeping Records” and Stage 4 is “Year End” which, of course, starts Stage 3 all over again each year! I will answer your questions following discussion of each stage.

Office Goddess : We are going to go over the ‘short version’ of entrepreneur bookkeeping during this event so please keep in mind that there is a lot more to your basic bookkeeping than we can cover in this short time frame! We’ll touch on each of the 4 stages in order, starting with Stage 1: Bookkeeping Basics.

Office Goddess : The first thing to know and understand is some basic accounting terminology. Although you should know more than just a few accounting terms, the most important ones are:

Office Goddess : Accounts Receivable – this is money owed to your company for providing services or products. Once the money is received, it becomes “income.”

Office Goddess : Accounts Payable – this is money owed by your company to vendors for services or products you received. Once the money is paid, it becomes an “expense.” A vendor can be a direct supplier, such as your phone company, or an indirect supplier, such as your credit card company; anyone to whom you owe money that will be paid promptly.

Office Goddess : Income – this is the money you receive that your company has earned. This can be from providing services to clients, or selling products.

Office Goddess : Expense – this is the money that your company has paid out for services or products.

Office Goddess : Net Income – this is the money remaining after subtracting expenses from income. A “Profit” is a positive balance and a “Loss” is a negative balance. Obviously, we are all trying to make a profit!

Office Goddess : Another absolute basic is a budget – a well thought out budget can make a big difference in running a successful business. If you don’t have the money to buy office supplies, pay for your website or phone line, marketing, etc. your business won’t last long, will it? A budget doesn’t have to be a big complicated structure, simply a straight-forward list of (anticipated) income and expenses. Keep in mind that a budget is critical for any properly run business.

Office Goddess : Now, on to Stage 2: Bookkeeping & Accounting Records Setup. Setting up your account records properly is also crucial to keeping track of how your business is doing financially.

Office Goddess : One of the first things you want to have in place is some type of time tracking process. I used Excel to create a time tracking sheet. Tracking your time will help you to see where your time is being spent; you may find that you are spending considerably more time than you had realized on client phone calls/ IMs/ emails, etc.

Office Goddess : You should also be tracking your admin time to be sure you are spending your time wisely. In addition, your timesheet information will assist you in billing your clients, calculating future project time estimates, and to estimate income which you need to help you properly set up a budget.

Office Goddess : To build a basic budget, start by making a list of all of the expenses you know you have to cover: website, phone line, insurance, etc. Next you need to estimate your income for each month. Your timesheet can help you to estimate how much your income will be based on the client time that you have already earned.

Office Goddess : If you do not have timesheets to go by, you can estimate how much income you will need based on your expenses. Once you have these numbers you can begin to build your budget.

Office Goddess : Again, I created an Excel spreadsheet that I use for my budget, to track when my bills are due and paid, when my estimated tax payments are due, how much I need to deposit for my estimated taxes, and a reminder to reconcile my bank/credit card accounts.

Office Goddess : I have both a checking account and a savings account, and I put long-term expenses (such as tax deposits, future marketing and office supply expenses, etc.) into savings until they need to be paid. The savings funds are also tracked in an Excel spreadsheet.

Office Goddess : I recommend you use financial accounting software as well as Excel spreadsheets to help track your accounting. Intuit QuickBooks Simple Start has free version at http://quickbooks.intuit.com/qb/prod...load/email.jsp. Although this is basic software, it is a great way to set up and maintain your books when you first start out.

Office Goddess : You will most likely want to upgrade to QuickBooks Pro once your business is more established; you can up-convert your software from QSS to Pro very easily.

Office Goddess : The next thing to keep in mind is that if you have or are likely to pay more to a vendor than $600 during the fiscal year you will need to issue them a 1099 at the end of the year. To do this, you will need their Federal Tax ID Number (TIN or EIN).

Office Goddess : I recommend you obtain the tax ID number from every vendor you pay before you make your first payment to them. To get their tax id number, send the vendor a W-9 form; if they refuse to complete this form and return it, DO NOT pay them and find another vendor. You can download a blank W-9 from http://www.irs.gov/pub/irs-pdf/fw9.pdf.

Office Goddess : Your clients will need your tax id number as well, if they will be paying YOU more than $600 (which is what we all hope for, right?) I recommend you fill a W-9 out for your company and save it electronically somewhere convenient to send out on request. I include mine in my ‘new client welcome package.’

Office Goddess : If you have not done so already, be sure and apply for an EIN (Employer ID Number) from the IRS. You can apply for it at http://www.irs.gov/businesses/small/...=98350,00.html. You DO NOT have to be an employer to obtain this.

Office Goddess : I highly recommend getting an EIN as, especially in the day and age of identity theft, you don’t want to be giving out your Social Security number if you can avoid it! The EIN will be ‘attached’ to your social security id with the IRS and you will need to reference it on your year-end taxes.

Office Goddess : The next area of importance is taxes. Sole proprietorships, partnerships, and LLCs are not considered separate from their owners for tax purposes and if you are set up as one of these entities you need to make Federal Estimated Tax Deposits.

Office Goddess : Deposits are made to the IRS through E.F.T.P.S (http://www.irs.gov/efile/article/0,,id=98005,00.html) which will need to be set up at least two weeks prior to when your first deposit is due.

Office Goddess : You will set up your E.F.T.P.S. account online using your name and social security number if you are a sole proprietor, LLC, or partnership; you will use your company name and EIN number if you are incorporated.

Office Goddess : Last but not least in setting up your accounting files, client records and vendor records should be scanned and kept in an electronic format as well as a paper filing system. In addition, keep all e-mails and IMs from your clients in an electronic form as well as printing them out for a hard copy backup.

Office Goddess : This completes the ‘short version’ of Stage 2. What questions do you have about Stage 2?

KMartin : I love the idea of a savings account for long term expenses

intercovbc : What is an LLC?

Office Goddess : Limited Liability Corporation - this protects some of your personal assets from lawsuits, etc. I did a chat on LLC previously, you can find that archived http://www.virtualassistantforums.co...orum-event-997here.

VAHadry : When applying for an EIN number is there any charge associated with that or is it free to apply?

Office Goddess : EINs are free to apply for and should just take a few minutes...

RhondaHolscher : I recently applied for mine and got it on the spot online.

VAHadry : Would you say that a LLC would be a better fit for one's company is a sole prop. just as good?

Office Goddess : I chose LLC because of the liability protection (although they CAN sue you personally as well) but also because it gives IMHO more 'business presence' to potential clinets.

Shaheda : With regards to tax filing, is it mandatory to file quarterly or can it be done at the end of the year? Are there penalties for a sole proprietorship to file at the end of the year?

Office Goddess : The IRS can penalize you up to 10% of your tax liability if you don't make deposits. You should treat your sole-prop the same as a LLC

AJ326 : I have an LLC and I have an EIN do I set up my E.F.T.P.S. account online using my name and ssn or my name and ein? Please clarify...

Office Goddess : You will set up EFTPS using YOUR name since you are a llc - the IRS doesn't recognize a llc as a separate entity

KMartin : Good to know about the LLC and the IRS

InTraining : Comment. Quickbooks is great but Peachtree has a free fully functioning edition as well. Would you recommend it? Too much?

Office Goddess : I use QuickBooks mostly because I have been trained in it but also because it is the most used software in the US. Peachtree is great! I just recommend using some type of software. Because QB has a free starter version, it's a good place to start

AnnaLisa Michalski : I thought there was a bottom-earning threshold for being required to pay quarterly taxes (over a certain percentage of total income?). Is that (gulp) not true? Have I just been lucky not to be penalized so far?

Office Goddess : You should make deposits on your NET income (income less expenses). I recommend you make deposits if your liability is at least $100 for the quarter. Once you start making deposits, the IRS will look for them on a regular basis

AnnaLisa Michalski : Liability meaning TAX liability, right?

Office Goddess : Some banks REQUIRE you to sign your sig card as yourself, but the account should be in the llcs name

Office Goddess : Yes, tax liability

AJ326 : I was told by a business atty that if you sign your signature card at the bank as yourself you pretty much void your llc protection. he suggested you signed as acting manager on behalf of the llc.

AJ326 : clarification on my last statement. you still have to sign your name, but your title should be acting manager, not owner, not ceo, not prez, etc.

Office Goddess : Gotcha - I signed mine as 'president'

Office Goddess : because the bank required it. Not sure where your attorney got his info as I've never heard that before and have worked for several attorneys...

Office Goddess : Wouldn't hurt to verify it, though, as I am NOT an attorney and can't/don't give legal advice

KMartin : The formula for figuring tax liability is income minus expenses X 10% equals what you pay?

Office Goddess : We'll get into the % in a minute...

KMartin : ok

Office Goddess : Now it’s time to start Stage 3: Creating and Maintaining Bookkeeping Records. Once you have completed work for a client, you need to create an invoice in order to request payment. This is where accounting software can really help you out. Your invoices will look very professional and you can track them through your software.

Office Goddess : You can use your accounting software to keep track of when client payments are due to you and, if you use a retainer system, the software will also help you keep track of how much you received and how much is left unused. You CAN use an Excel spreadsheet for these processes, but accounting software will make it much easier and quicker!

Office Goddess : You will use your accounting software to enter vendor bills when they are received, track when they were paid, and how much your expenses were for the year.

Office Goddess : I also use an Excel spreadsheet to track that I received and paid all expected bills, which seems redundant, but if you don’t receive a bill (and/or pay it on time), it can hurt your business (and personal) credit rating. Redundancy in accounting can sometimes save a lot of grief. (This is included in the zip-file that 2 of you will win tonight!)

Office Goddess : Be sure and keep all receipts for any purchase you make, whether a physical or online purchase. If there is no receipt available, (e.g. parking meters) create a hand-written ‘receipt’ with the date, amount, and vendor name on it.

Office Goddess : Write on the back of each receipt what the receipt is for (supplies, marketing, etc.) and for what job the items were purchased (if applicable). You will need these if your tax return is audited by the IRS.

Office Goddess : Back to Federal Estimated Tax Deposits. These are due April 15, July 15, September 15, and January 15 (note that these dates ARE NOT quarterly!). Each deposit should be ¼ of your estimated annual tax liability based on your annual NET income (income less expenses) for the year.

Office Goddess : Check with your State for their estimated tax deposit requirements (if any) and the process of making those deposits.

Office Goddess : I recommend you deposit 18% for Federal and save 7% for state...

Office Goddess : This concludes the basics of Stage 3. Questions, anyone?

KMartin : Got it now - thanks

VAHadry : Are there any softwares out there that handles all of the stuff you do -- I know you said you use quickbooks and excel and to avoid going back and forth between softwares can this be done by just using quickbooks?

Office Goddess : Yes, you CAN just use qb - but again, redundancy is important...

AJ326 : 1. is there a limited $ amt for handwritten receipts ?
2. what if you just started out the in the 1st qtr and didn't make any $ ?
3. do you still need rprt it to the IRS ?

Shaheda : If your net income is less than 1/4 of estimated tax liability, is that a sign that you're headed for financial trouble?

Office Goddess : How can net income be less than estimated tax liability when tax liability is based on net income?

Office Goddess : I'm not aware of a limited $ for handwritten receipts. I use the 'giggle' test. If it makes you giggle at the amount, you probably shouldnt include it

RobnT08 : What if you lost a client? Then you r net income could possibly be less couldn't it?

Office Goddess : Of course, income will be less. I use my excel spreadsheet to track ACTUAL income prior to making deposits

RobnT08 : But you are estimating your income, this is confusing...

executive_assist : If your net income goes down, so does your tax liability.

Office Goddess : O.k., let's say your income was $100 for the first quarter, then you would deposit $18

Office Goddess : Second quarter income was $50, you would deposit $9...


[Chat text continued in next post]

[VAF Admin]

Business-Bytes : I think AJ meant are there any IRS filing requirements...even if you have a zero liability you would fill out a 941 and efile it with 0 income.

Office Goddess : Yes, Jules - if it's 0 you report

Shaheda : what happens if you file after the scheduled dates?

Office Goddess : if you file late, they will notify you of the penalty amount

executive_assist : It always helps me to look at the money as someone else's or something from a text book. I'm only challenged with money when it's my own!!!

Tess : You can get the IRS instructions with dated vouchers for free download in the VAF Document Library http://www.virtualassistantforums.co...mploy-tax-2498

Office Goddess : I treat Goddess as a client

cbranch : Wow Goddess I like that I have to remember to treat my business as a client

AJ326 : I will remember to treat my business like a client...thanks.

Shaheda : I apologize if you addressed this already... Since its filed quarterly, on 1/15, am I filing my earnings thru 1/14 or is it still through 12/31? And what if there is no income?

Office Goddess : You are filing the final quarter of the prior year on 01/15 That's when you can calculate the actual final amount due and only deposit that much

executive_assist : So then the April 15 would be from 1/2010 to when?

Office Goddess : 01/15 to 03/31

RobnT08 : How does filing jointly with your spouse play into all of this? Is it a must to treat your business separate from personal income?

Office Goddess : Treat your business $ separate from your personal money, that way the spouse's income doesn't affect deposit amounts
Again, I treat my business as a separate entity from my personal income.

RobnT08 : I keep it separate, but as far as filing my husband has always done our small home businesses on a Schedule C form, so has this been wrong?

Office Goddess : no - schedule c is correct for your business

executive_assist : Lily, do you pay yourself?

Office Goddess : Yes - I DO pay myself but since I am a llc it is taken as an owner's draw rather than an employee

AJ326 : "I DO pay myself but since I am a llc it is taken as an owner's draw rather than an employee" Glad you said that Office Goddess, because I didn't know that.

VAHadry : After you pay yourself by taking the owner's draw aren't you taxed again on your personal income tax?

Office Goddess : No - remember income is pass-through so the business is not taxed separately

RhondaHolscher : What if there is no income? Do you still have to file quarterly?

Office Goddess : If you have no income, there is no required filing - although you SHOULD file a zero income form.

RhondaHolscher : Is it ok to use PayPal instead of a bank until you get enough income?

Office Goddess : Yes, but I recommend you get a bank account and transfer paypal funds to it on at least a monthly basis

RhondaHolscher : I have a personal account, but did not want to mix the two and I don't have enough money for a business account. So I have been using PayPal to help keep it sep.

Office Goddess : Last, but not least, is Stage 4: year-end! The fourth Federal Estimated Tax Deposit of the “fiscal year” is due no later than January 15 of the following year, so you will want to have all of your income/expenses tracked in time to calculate and make that final ‘quarter’ deposit.

Office Goddess : You will need to research and issue 1099s to the vendors to whom you paid more than $600 for the year, verify and file your received 1099 forms, verify your available small business tax deductions have been tracked, organize and send your records to your tax accountant, close out your end-of-year bookkeeping accounts, archive your fiscal year accounting files, and create accounting files for the new year. Whew! Done! Now you get to start all over with Stage 3. And, that finishes us up with Stage 4.

Office Goddess : This presentation has covered bare-bones bookkeeping information for your business. I teach a bookkeeping class which 'fleshes out' this information as well as how to use the free version of QuickBooks Simple Start to set-up and maintain your bookkeeping accounts.

Office Goddess : Now, what final questions can I answer for you?

The Office Virtuoso : If a client paid me more than $600 for the year I thought I should get a 1099, but they said they don't need to give me one since I used my EIN instead of my SS#. Is that correct?

Office Goddess : No, they should issue you a 1099 unless you are incorporated.

Excellence : I did work under $600 so they did not give me a 1099, I report it as income on my taxes this year...so what happens on the other end?

Office Goddess : Yes, you need to report your income even if you did not receive aa 1099. Nothng will happen on their end - it is the client's resposibility to send the 1099. If they don't, you still report the income.

RobnT08 : I am still not clear about the quarterly payments if the schedule C is correct, does having a lot of dependents affect that issue?

Office Goddess : the schedule c is for BUSINESS income so does not have anything to do with your personal income

RobnT08 : Ok, so how does quarterly payments play into that again?

Office Goddess : quarterly deposits to the feds are for estimated total tax liability for the year. because there are 4 deposits, you should deposit 1/4 of your total estimated liability

RobnT08 : but why is that? I am completely missing something because this is just not clicking in my brain

Office Goddess : The feds want to make sure you can pay your full tax liability on time. Therefore, you are supposed to pay it mostly up front. so they break the deposits into 4 pieces. You deposit each piece on an approximate quarterly basis and then at the end of the year you deposit the final piece totally the full tax liability.

RobnT08 : And this is required for all businesses?

Office Goddess : Yes, all businesses have to make deposits. Depending on income, some of them are required to deposit monthly

RobnT08 : We have never made any quarterly deposits for our home businesses because we've never had the state take any taxes out

RobnT08 : This is why this is confusing because I am worried that we are doing something wrong

Office Goddess : The tax deposits are FEDERAL not STATE

RobnT08 : But we haven't paid any federal taxes in years because of the amount of dependents we have

vballiances : Doesn't the Schedule C reconcile what you have paid in during the year against what your total liability is for the whole year?

Tess : We pay Federal AND State taxes quarterly. After we registered our company with the state they sent us quarterly paperwork to make payments.

Business-Bytes : The IRS has a worksheet for Federal estimated taxes: http://www.irs.gov/pub/irs-pdf/f1040es.pdf

Office Goddess : Then you probably don't need to make deposits. I would suggest you consult with a tax attorney or CPA about your situation Yes, the sched c allows you to list your deposits which then reduces your final tax deposit

RhondaHolscher : How do you pay STATE taxes quarterly?

Office Goddess : Every state has it's own tax laws and requirements. It's always best to go to your State's dept of revenue website to verify what they require from your business.

RhondaHolscher : I have an EIN? This is going to sound stupid...but, what do you mean exactly by registered with the state?

Office Goddess : You should register your company with your State's secretary of state dept

Your Virtual Wizard : Lily, this is the first year I'm using DBA my business name. Do I use this instead of my legal name when filing?

Office Goddess : Use your legal name when filing - there should be a place to put your DBA in


You can learn more about Lily's Bookkeeping Courses at http://www.aove.org

[Business-Bytes]

This was a SUPER chat!! I enjoyed it immensely, Lily! Great turnout, too.

...even if you have a zero liability you would fill out a 941 and efile it with 0 income.

Oh my. You can tell my brain was on Payroll when I said this. It should be 1040-ES voucher (or via EFTPS), not 941 - and efiling your estimated tax payment through EFTPS would be a moot point if zero liability is calculated (you don't need to file for that quarter). With Payroll, yes, you do still have to file a zero 941 even if no employee wages, etc. (exception is seasonal employers).

Oy. How embarrassing!! But did I redeem myself a bit with this explanation?