For the most part, 1099 rules remain the same this year, but there is one major change.  The IRS is now requiring third party payment processors to report payments made to you through their systems.  You’ll get a 1099-K for each person who paid you with a credit card, debit card, PayPal, etc.  Similarly, people you have paid via these methods will receive a 1099-K from the payment processor.  What does this mean for you?

You need to EXCLUDE from your 1099-MISC calculation any amounts you paid via a payment processor (for most people, debit/credit cards and PayPal).

Intuit is providing solutions to this issue for their QuickBooks products, but you may have to re-code some transactions to get the proper report from your system.  Please follow the appropriate links below to find out how to get the right information out of your accounting system.

QuickBooks Online: https://qboe.custhelp.com/app/answers/detail/a_id/4785

QuickBooks for Mac 2010, 2011, 2012: http://www.qblittlesquare.com/2011/12/1099_2010-2012/

QuickBooks for Mac 2009 and earlier: http://www.qblittlesquare.com/2011/12/1099_2009_and_earlier/

QuickBooks Pro/Premier:

• Information from Payroll Support
• How to use the new 1099 wizard in QuickBooks 2012

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© Rick Sargeant - Fotolia.com

Time tracking is an area that most creatives vehemently oppose.  “It’s a creative process, we don’t know how much time it will take.”  or “It depends on the person and the project.  Sometimes it’s quick and sometimes it’s not.”  These are valid arguments.  These arguments can be applied to other service based businesses as well.  I can assure you, I don’t like time tracking either and when I hire bookkeepers, some are faster than others.

Even though the argument is valid, you still have to find a way to price projects appropriately, track work in process, and measure profitability.  Like it or not, time is the best measure.  That’s not to say there aren’t other ways of estimating.  You have to figure out the easiest, best way to reasonably approximate how much effort each project takes.

In my own business, I quote similar projects a lot.  No two projects are exactly the same, so I never know exactly how long things will take or, when I use a contractor, how quick they will be.  The other big variable is the nature of my clients.  I work with creatives… I never know how much crazy is coming down the tracks.

There are many different variations in how creative firms are managed.  Some owners are pretty organized and/or have systems in place, some want to track down to the littlest detail (often out of fear of not seeing something…that’s a different article), and some have absolutely no processes or systems and are resistant to putting them in place.  So even if the project looks exactly the same, there could be an entirely different amount of cargo on that Crazy Train.

By tracking time and costs to each project and using my experience to scope out projects and understand the business in question, I can get a better handle on pricing the next similar project.  If you don’t collect information on each project, you’ll never be as good at pricing and understanding what’s coming down the tracks as you could be.  Of course, that can lead to lost profits.  How do you estimate how much cargo is on the next Crazy Train?

Most businesses have credit or debit cards to manage their non-check or automatic transactions.  But I still run into some businesses that are relying on old school cash for various transactions.  Don’t get me wrong, there’s nothing wrong with properly documented use of cash, but it’s rarely tracked well.

PLEASE, I beg you, do not randomly go to the ATM machine and take cash out for business use.  If you are traveling, you’ll need some cash.  If at all possible, pay for it personally, collect the receipts and/or keep a journal of how the cash was spent.  Then get reimbursed from the business.  This keeps your books clean, doesn’t raise eyebrows in the event of an audit, and gives you a great incentive to make sure you’re collecting those receipts.

Of course, the best action is to use a credit card as much as possible.  With the credit card, there’s a record of the transaction.  That means your bookkeeper knows to ask you for the receipts.  Debit cards can work for this too, but I really prefer businesses to limit their use of debit cards.  Unless you are keenly aware of the amount of money and the bank and on top of cash flow tracking, using the debit card can be a dangerous and expensive habit (overdrafts, inability to pay important bills, etc).

If the above methods don’t work, then take the following steps:

• For small items, you can set up a petty cash fund.  You and your employees will sign for receipt of the cash and must return receipts and change equal to the amount that was given to them.
• Similarly, you can “advance” travel cash which would go on the books as money owed to the business by the individual.   Once again, the recipient must turn in receipts equal to the cash given or will have to repay the advance.

Try to avoid using cash and, if you do, make sure every expense is documented and left over cash is returned to the bank.  A handwritten note stating “tips and stuff for California trip” is not adequate.

Like many others, I am in pursuit of the paperless office. There are many solutions out there, but finding the right solution is difficult. For my purposes, mac compatibility and an online solution were a must. In addition, I needed a solution that would accept emailed receipts, since75% of my receipts are in email format. I explored three solutions: Dropbox, Shoeboxed, and OfficeDrop. Keep reading to find out the pros and cons to each….

Initially, I really wanted Dropbox to work for me. I already have an account that I use to share files with clients. Dropbox is unique in that you can sync your files online as well as with other computers. You can adjust your sharing permissions on a folder by folder basis. In addition, you can place files in the “public” folder and share them with a link. Add to that an iphone app to get your docs on the go, and it’s a pretty slick tool. The downside with Dropbox is you can’t email docs to it without another application (Habilis and Send to Dropbox solve that issue).

The major downside of Dropbox for me was file structure. I want to be able to send files directly to the specific folder they belong in. In my case, I’ve already dealt with the accounting side of the receipts and I’m simply just looking to archive. The other issue is that I don’t really want the hard copy of the receipts taking up space on my hard drive. I like that it can sync to multiple computers and all, but I really want to limit things that are stored locally. Receipt archives don’t fit into the “must have” on my system.

Shoeboxed allows you to scan, email, or mail receipts and business cards into their system. It’s online only, so there are no hard drive concerns. It also has an app for the iphone that allows you to take a picture of your receipt and submit it. You can upload your restaurant receipts while still at the restaurant…no chance of losing them. The big deal with Shoeboxed is it pulls information out of your receipt (the amount, vendor, card used…) and it integrates with QuickBooks. You can select a “category” for the receipt to keep it organized…and it can even automatically categorize some items from specific vendors. The mail in service is great if you don’t want to spend your time doing the scanning. Another nice feature is the email address. Just use your Shoeboxed email address when you’re shopping online and your receipts will automatically go to your Shoeboxed account. Anything that doesn’t look like a receipt goes to your “shopping inbox” for you to deal with later. There’s a new “documents” section for all those non-receipt papers too.

I really like Shoeboxed, especially the iphone app. I don’t like that the QuickBooks export puts everything in one debit and one credit account. It seems as though some manipulation within QuickBooks will be needed or you’ll have to do an export for each category and just use one payment method. If this is a feature you plan to use, make sure it works for your needs. Scanning and email attachments are a little awkward…you still have to enter some data and preview the pdf. It’s a little more cumbersome than the other options, but it does give you good information.

Like Shoeboxed, OfficeDrop allows you to scan, email, or mail receipts for upload. I really like the file structure options in OfficeDrop. You can setup a traditional file structure and you can set up your email subject lines to automatically send files to the right folders. I almost chose OfficeDrop just because of this option. It also translates your documents via OCR into searchable pdfs.

OfficeDrop is missing the slick QuickBooks integration and iphone app, however. Those aren’t deal breakers for me, but I certainly prefer to the iphone app Shoeboxed offers. OfficeDrop seemed great at the beginning and I planned to use it, but it didn’t work as well in practice as I had hoped. I began sending emails to my account and 3 of the first 6 were not able to be processed. Since so many of my receipts are in email format, this was unacceptable.

The Winner

**Note I am an affiliate of these programs and may receive a commission, if you click the links in this post.

At this time of year, a lot of my conversations revolve around tax saving strategies. I’ve spoken with several CPAs recently and the advice for cash basis tax payers is consistent. If you are showing a net profit for the year, here are the top 3 strategies for reducing your 2010 tax bill:

1. Defer income – If you can, push income into 2011. Delay the invoicing, ask your clients to hold payment until January, and/or be less aggressive with your collection efforts.
2. Accelerate Expenses - Buy needed items before the end of the year and pay down your accounts payable. Cash basis tax payers don’t get deductions until the money is spent, so pay as many of your outstanding bills as possible. Some accountants caution that prepaid expenses (like rent) are not deductible until the period they are used. Check with your tax accountant before pre-paying regular bills.
3. Buy Needed Equipment – If you are going to need equipment next year, buy it before year end to take advantage of the Section 179 deduction.

Of course, talking with your tax accountant and reviewing your specific tax situation is advised.

Want more tips? Check out these articles:

http://kiplingercpas.wordpress.com/2010/11/26/2010-year-end-tax-planning-opportunities-for-businesses/

http://sbinformation.about.com/b/2010/12/15/year-end-tax-tips-small-business.htm

http://www.i-padgett.com/year-end-tax-planning-for-2010

http://www.kiplinger.com/businessresource/forecast/archive/end-of-year-business-tax-planning-tips-for-2010.html

http://biztaxlaw.about.com/od/businesstaxdeduction1/tp/10-For-10-Save-On-Business-Taxes-In-2010.htm

A relatively simple Microsoft Excel spreadsheet is usually the best tool for predicting cash flow.  This spreadsheet will track when you expect your revenue to hit the bank account and when your bills and payroll will leave the bank account.  The first column (each column represents a time period, usually a week) in your spreadsheet will begin with your bank account balance, then add incoming cash, subtract outgoing cash, and finally total to what you expect to have left in the bank.  That ending bank balance will be the beginning bank balance in the next column (time period)…wash, rinse, repeat.

Most business owners have too much on their plate, so much in fact, they end up throwing cash and profit away. It’s not that they are so profitable and have so much cash they don’t know what to do, it’s that they “save time” by skipping the financial review. Here are 3 common places to quickly reclaim lost cash and profit (it’s like looking between the couch cushions for your business!):

1. Forgotten Subscriptions – Free trials and automated renewals are often forgotten. Almost every business I have ever worked with has some automatic charges happening on their credit or debit card for subscriptions they don’t even use.

Solution: Review all bank and credit card statements. Have your bookkeeper research any charges that are questionable. Also ensure that the subscriptions you want to keep are for the right amount. If you’ve changed the number of users, for example, you might not be on the right rate plan.

2. Late Fees and Penalties – Busy entrepreneurs often incur late fees because they are too busy to facilitate the payment process.

Solution: Simplify the process. Utilize a service like Bill.com, so you can quickly approve new bills and payments without digging through a stack of emails or piles of paper on your desk. You’ll still have to ask for details on things that seem out of place, but the process for normal bills will be much easier. You’ll also be able to keep up with the process while you’re on the road.

3. Unmanaged PayPal Accounts – PayPal is an easy way to accept credit cards, but it’s also an easy way to lose money. Many subscriptions are hidden in your PayPal account. They auto-renew and take money out of your PayPal balance. If that account isn’t managed and reconciled like a bank account, there’s a good chance money is being spent and it may not show up in your financial statements.

Solution: Treat the PayPal account like a bank account (instructions here: http://www.crackerjackaccounting.com/2010/08/paypal/). If you accept credit cards frequently, have your bookkeeper shop around for a merchant account with lower fees to save even more cash.

The solutions above are the best first steps to discovering your hidden profits. To avoid further problems, proper financial accounting controls and reviews are necessary.