QuickBooks Tip: Tracking Time in QuickBooks

When you sell a product to a customer, you know it. It goes away, and your inventory count in QuickBooks is reduced by one. This tracking helps you know what’s selling and what’s not, and it signals when a reorder is due.

If your business provides services to customers, though, you’re selling your employees’ time and skills. There’s no inventory count; you can sell as many hours as you have workers to fill them. Tracking time accurately and comprehensively, though, is as important as knowing how many hard drives or tote bags you’ve sold.

QuickBooks contains tools to help you record the hours employees spend doing work for customers, so you can bill them for services rendered. You can also use these same features to enter employee time for payroll purposes. The software offers two options here: single-activity records and timesheets.

Building the Foundation
We’ve discussed QuickBooks’ Preferences many times before. The software was designed to support small businesses with a wide variety of structures and needs, so it needs to be flexible. For that reason, we always recommend that you check in with your “Preference” options before you explore new features.

To get there, open the Edit menu and select Preferences. In the left vertical pane, click on Time & Expenses, then on the Company Preferencestab at the top. Here is a look at the top part of the window that opens:


The Company Preferences window for Time & Expenses displays multiple options.

To make sure that QuickBooks’ time-tracking features are turned on before you start, click the button next to Yes under Do you track time? Specify the First Day of Work Week by opening that drop-down list. If you know that all your time entries will be billable, click in the box in front of that statement.

There are other options in that window; we’ll talk about them next month.

Creating Service Items
Before you can start tracking billable time, you have to create a record for each service offered – just like you would for a physical product. Click the Items & Services icon on the home page or open the Lists menu and select Item List. The window that opens will eventually display a table containing all the items and services you’ve created.

To define a service item, click Item in the lower left corner, then New, to open a window like this:


You can create numerous types of items in QuickBooks; Service is one of them.

Click the down arrow in the field under Type to see your options here. There are many, ranging from Service to Inventory Part to Sales Tax Group. Select Service. In the field under Item Name/Number, enter a word or phrase and/or number that describes the service, and that won’t get confused with another.

If you had already created an item like “New Construction Services” and you wanted “Carpet Installation” to appear as a subitem of it, you’d click in the box in front of Subitem of to create a checkmark, then open the drop-down list below it and select “New Construction Services.”

Ignore the Unit of Measure section. If this designation is important to your business, talk to us about upgrading your version of QuickBooks. Connect with us, too, if the service you’re defining is used in assemblies or is performed by a subcontractor or partner, as these are more advanced situations.

Enter a brief Description in that box and your hourly charge—to the customer—in the field to the right of Rate. Click the down arrow in the field next to Tax Code to select the item’s taxable status.

It’s very important that you get the next field right. QuickBooks wants to know which account in your company’s Chart of Accounts should be assigned to this item. In this case, it would be “Construction Income.” If you’re not yet familiar with the concept of assigning accounts, let’s set up a session to deal with this and other basic knowledge you should have.

When you’re done, click OK.

If you have any questions related to this article, please give us a call.

How Small Businesses Write Off Equipment Purchases

From time to time, an owner of a small business will purchase equipment, office furnishings, vehicles, computer systems and other items for use in the business. How to deduct the cost for tax purposes is not always an easy decision because there are a number of options available, and the decision will depend upon whether a big deduction is needed for the acquisition year or more benefit can be obtained by deducting the expense over a number of years using depreciation. The following are the write-off options currently available:

  • Depreciation – Depreciation is the normal accounting way of writing off business capital purchases by spreading the deduction of the cost over several years. The IRS regulations specify the number of years for the write-off based on established asset categories, and generally for small business purchases the categories include 3-, 5- or 7-year write-offs. The 5-year category includes autos, small trucks, computers, copiers, and certain technological and research equipment, while the 7-year category includes office fixtures, furniture and equipment.
  • Material & Supply Expensing – IRS regulations allow certain materials and supplies that cost $200 or less, or that have a useful life of less than one year, to be expensed (deducted fully in one year) rather than depreciated.
  • De Minimis Safe Harbor Expensing – IRS regulations also allow small businesses to expense up to $2,500 of equipment purchases. The limit applies per item or per invoice, providing a substantial leeway in expensing purchases. The $2,500 limit is increased to $5,000 for businesses that have an applicable financial statement, generally large businesses.
  • Routine Maintenance – IRS regulations allow a deduction for expenditures used to keep a unit of property in operating condition where a business expects to perform the maintenance twice during the class life of the property. Class life is different than depreciable life.
    Depreciable Item Class Life Depreciable Life
    Office Furnishings 10 7
    Information Systems 6 5
    Computers 6 5
    Autos & Taxis 3 5
    Light Trucks 4 5
    Heavy Trucks 6 5


  • Unlimited Expensing – The Tax Cuts and Jobs Act passed in December 2017 includes a provision allowing 100% unlimited expensing of tangible business assets (except structures) acquired after September 27, 2017 and through 2022. Applies when a taxpayer first uses the asset (can be new or used property).
  • Bonus Depreciation – The tax code provides for a first-year bonus depreciation that allows a business to deduct 50% of the cost of most new tangible property if it is placed in service during 2017. The remaining cost is deducted over the asset’s depreciable life. The 50% rate applies for new property placed in service prior to September 28, 2017 and, by election, to new or used property acquired and first put into use by the taxpayer after September 27, 2017 and before December 31, 2017.
  • Sec 179 Expensing – Another option provided by the tax code is an expensing provision for small businesses that allows a certain amount of the cost of tangible equipment purchases to be expensed in the year the property is first placed into business service. This tax provision is commonly referred to as Sec. 179 expensing, named after the tax code section that sanctions it. The expensing is limited to an annual inflation adjusted amount, which is $510,000 for 2017 and $1 million for 2018. To ensure that this provision is limited to small businesses, whenever a business has purchases of property eligible for Sec 179 treatment that exceed the year’s investment limit ($2,030,000 for 2017 and $2.5 million for 2018), the annual expensing allowance is reduced by one dollar for each dollar the investment limit is exceeded.
    An undesirable consequence of using Sec. 179 expensing occurs when the item is disposed of before the end of its normal depreciable life. In that case, the difference between normal depreciation and the Sec. 179 deduction is recaptured and added to income in the year of disposition.
  • Mixing Methods – A mixture of Sec. 179 expensing, bonus depreciation and regular depreciation can be used on a specific item, allowing just about any amount of write-off for the year for that asset.

For some individual taxpayers the alternative minimum tax (AMT) may be a concern. Bonus depreciation and Sec. 179 expensing are not preference items, and therefore their use will not trigger an AMT add-on tax. However, the difference between 200% MACRS depreciation, if claimed, and 150% MACRS depreciation is a preference item for AMT and could cause or add to the AMT tax.

If you have any questions related to this article, please give us a call.

Medical Deductions & The New Tax Law

Note: The is one of a series of articles explaining how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family, both in 2018 and future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

The Act’s final version retained the itemized deduction for medical expenses even though the original House version would have done away with this deduction altogether.

The medical deduction was not just retained; its adjusted gross income (AGI) floor was lowered from 10% to 7.5% for 2017 and 2018 (after which it returns to 10%). The AGI floor is meant to eliminate deductions for minor medical costs by only allowing those that are in excess of the given percentage of your AGI.

Example: You have wages of $100,000 for 2018 and no other income, losses, or adjustments, so your AGI for the year is $100,000. In this case, for the year, the first $7,500 (7.5% of $100,000) of your otherwise deductible medical expenses is not deductible. Thus, if you have $8,000 of medical expenses, only $500 ($8,000 – $7,500) is deductible. If you have the same amount of income and medical expenses in 2019, none of your medical costs will be deductible because of the 10% floor; 10% of a $100,000 AGI is $10,000, which is greater than the $8,000 of medical expenses. Of course, there’s always a chance that Congress will extend the reduced 7.5% floor beyond 2018, but you shouldn’t count on it. 

Here is where it gets a little complicated. Because medical deductions are itemized, to get any benefit from them, your itemized deductions must exceed the new standard deduction, which is $24,000 for a married couple filing jointly (or for a surviving spouse with a dependent child), $18,000 for a head of household, and $12,000 for anyone else.

Retaining the medical deduction is a necessary for the families of disabled individuals and for senior citizens who require extraordinary care. Without this deduction, those groups could have been saddled with enormous medical costs without any tax relief. However, this deduction is not just for disabled individuals, senior citizens, and their families. Regarding medical bills, you never know what will happen in the future.

Bunching Deductions – One strategy that works well for itemized deductions is to bunch deductions. That means paying as much of your medical expenses as possible in a single year so that the total will exceed the AGI floor and so that your overall itemized deductions will exceed the standard deduction.

Example: Your child is having orthodontic work that will cost a total of $12,000, and the dentist offers a payment plan. If you pay in installments, you will spread the payments out over several years and may not exceed the medical AGI floor in any given year. However, by paying all at once, you will exceed the floor and get a medical deduction.

Being Aware of Medical Deductions – Being aware of what is and is not deductible as a medical expense can also help you to maximize your medical deductions. Unreimbursed costs such as those from doctors, dentists, hospitals, and medical insurance premiums are deductible. The following is a list of some deductible medical expenses that you may not be aware of:

  • Adoptive children’s pre-adoption medical costs
  • Prescriptions for birth control pills
  • Chiropractors
  • Christian Science practitioners
  • Decedent’s medical costs
  • Adult diapers
  • Drug-addiction rehabilitation costs
  • Egg-donation expenses
  • Elderly devices
  • Medical equipment and supplies
  • Fertility enhancements
  • Guide dogs
  • Household nursing services
  • Impairment-related home modifications
  • In vitro fertilization costs
  • Lactation aids
  • Lead-based paint removal
  • Learning-disability tuition expenses
  • Medical-related legal fees
  • Meals from inpatient care
  • Medical-conference expenses
  • Medicare premiums
  • Nonhospital institution costs
  • Nursing-home expenses
  • Organ-donation costs
  • Smoking-cessation programs
  • Sterilization expenses
  • Weight-loss programs (limited)

Some of the foregoing have special requirements, so please call if you have any questions.

Under certain circumstances, you may even be able to deduct the medical expenses that you pay for others.

Medical dependents – This applies only if you had a dependent (a qualified child or other relative) either at the time the medical services were provided or at the time the expenses were paid. For medical purposes, an individual can be a dependent even if his or her gross income precludes qualification as a dependent.

Divorced parents – A child of divorced parents is considered a dependent of both parents for the purpose of medical expense, so each parent can deduct the medical expenses that he or she pays for the child.

If you have questions related to the deductibility of specific medical expenses or about how such deductions apply to your tax situation, please give us a call.

Nine Best Ways to Start a Business Budget to Spur and Guide Growth

Building a business is a process that requires careful attention to many individual points, all with the goal of increasing customers, improving products, and building profit. There are many elements that contribute to the ability of a company to grow. One key area to focus on is the budget. From the foundation of the business, a well-planned budget can create a financially sound business with clear directions. To achieve that, consider these nine key ways to create an effective budget that spurs and guides the growth of your company.

#1: Know what you are spending first
It is impossible to create a budget without knowing where your money is going. To that end, business owners need to pay careful attention to every expense the company has. This should include expenses related to running the business such as marketing, employee costs, and property costs. Create a system where every dollar spent for the company is carefully tracked. While this type of oversight may seem intense, it gives you a foundation from which to build.

#2: Analyze each expense carefully
Now that you know where your money is going, the next step is to know if you are overpaying in any area. For example, you may be able to reduce your overhead on employee labor by improving your scheduling methods. You may be able to reduce your inventory purchases to be more in line with what you need right now to improve your working capital. Look at each item to determine if it is worthwhile or if there is a less-expensive solution.

#3: Build an expense-based budget
With this information in hand, it becomes possible to then build a budget. A variety of software programs, as well as the help of an accountant, can help you to do this. The goal here is to ensure that the amount you allocate to each expense matches what you are currently paying or your revised amount. In short, it is accurate. When changes occur over the month, you can spot them easily and take action to rectify your budget.

#4: Hire a tax professional for timely reports
You cannot know how well your business is doing or how it can grow without having access to in-depth information. Clear, accurate reports delivered to you can show your current profit and loss. They can help you understand sales patterns. They can also break down information based on the specific types of profit margins various items bring in and which do not pay for themselves. A tax professional is more than just a pro to file your end-of-the-year taxes.

#5: Create a cash flow projection
Now that you have a professional on hand, you can use this team to help you build a realistic, accurate cash flow projection for the next month. You can extend that to include cash flow goals for the next six months and then for the year. By having this present, you can see where your growth is occurring as well as any limitations within the process.

#6: Create a savings plan
It sounds like a personal money management step, but one of the most costly components of growing a business is expanding assets, building space, marketing, or other large investments. Your business has working capital, but do you have a growth account? This is an account that you are saving in to allow your business to make large purchases down the road. It can also help a company to manage costs in financial emergencies or situations where they need a significant amount of cash on hand. By having these funds, you do not have to tap into costly credit and loans to grow.

#7: Tackle debt with a lot of effort
Debt is one of the most taxing of components in managing a business. Debt is expensive. Every dollar you spend on interest payments is money not going toward helping your business to grow. Work with your tax professional to understand your company’s current debt, cash flow needs, and allowances that could be used to pay down debt faster. Create an aggressive plan to reduce your company’s debt so that you can free up more capital for short-term and long-term investments.

#8: Begin moving profits toward growth goals
Companies that have their financials in line are likely to begin to see profit more readily. With that comes the ability to grow. Some companies may wish to be aggressive here. Instead of borrowing for another location or launching a new product based on costly debt, begin to move a percentage of all profits toward the business’s growth plan and investments. It’s important for companies to recognize growth as a cost of doing business. For example, if a company has a 25 percent margin for profit on every sale, recognize that to just 20%. Tuck the remaining 5% into an investment for future growth. In other words, see investing in future growth as an expense for your company now. This way, you begin to readily put money aside.

#9: Develop a growth plan
What is your goal? How does your company foresee growing revenue, providing more services, or otherwise scaling? Work with an accounting firm to create a solid plan of action. This should include outlining all goals for the company (for a year, five years, and so on). Then, create financial expectations for the next six months and year. Your growth plan should also include all costs of growth – as well as any expected investments necessary to build that long-term picture.

By focusing on each one of these areas, with the help of accounting professionals, it is possible to build a solid growth plan that addresses every need the company has. You cannot simply say you want to increase customers by 100%. You need a plan based on your financials to get you there.

If you have any questions related to this article, please give us a call.