Changing Jobs? Don’t Forget About Your 401(K)
One of the most important questions you face when changing jobs is what to do with the money in your 401(k) because making the wrong move could cost you thousands of dollars or more in taxes and lower returns.
Let’s say you work five years at your current job. For most of those years, you’ve had the company take a set percentage of your pretax salary and put it into your 401(k) plan. Now that you’re leaving, what should you do?
The first rule of thumb is to leave it alone. You have 60 days to decide whether to roll it over or leave it in the account. Resist the temptation to cash out. The worst thing an employee can do when leaving a job is to withdraw the money from their 401(k) plans and put it in their bank account. Here’s why:
If you decide to have your distribution paid to you, the plan administrator will withhold 20 percent of your total for federal income taxes, so if you had $100,000 in your account and wanted to cash it out, you’re already down to $80,000.
Furthermore, if you’re younger than 59 1/2, you’ll face a 10 percent penalty for early withdrawal come tax time. Now you’re down another 10 percent from the top line to $70,000.
If you separate from service during or after the year you reach age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan), there is an exception to the 10 percent early withdrawal tax penalty. This rule only applies to 401(k) plans. IRA, SEP, SIMPLE IRAs, and SARSEP Plans do not qualify for the exception.
In addition, because distributions are taxed as ordinary income, at the end of the year, you’ll have to pay the difference between your tax bracket and the 20 percent already taken out. For example, if you’re in the 32 percent tax bracket, you’ll still owe 12 percent, or $12,000, which lowers the amount of your cash distribution to $58,000.
But that’s not all. You also might have to pay state and local taxes. Between taxes and penalties, you could end up with little over half of what you saved, short-changing your retirement savings significantly.
What Are the Alternatives?
If your new job offers a retirement plan, the easiest course of action is to roll your account into the new plan before the 60-day period ends. A “rollover” is relatively painless to do. Contact The 401(k) plan administrator at your previous job should have all the necessary forms.
The best way to roll funds over from an old 401(k) plan to a new one is to use a direct transfer. With the direct transfer, you never receive a check, you avoid all the taxes and penalties mentioned above, and your savings will continue to grow tax-deferred until you retire.
Many employers require that you work a minimum length of time before you can participate in a 401(k). If that is the case, one solution is to keep your money in your former employer’s 401(k) plan until the new one is available. Then you can roll it over into the new plan. Most plans let former employees leave their assets several months in the old plan.
60-Day Rollover Period
If you have your former employer make the distribution check out to you, the Internal Revenue Service considers this a cash distribution. The check you get will have 20 percent taken out automatically from your vested amount for federal income tax.
But don’t panic. You have 60 days to roll over the lump sum (including the 20 percent) to your new employer’s plan or into a rollover individual retirement account (IRA). Then you won’t owe the additional taxes or the 10 percent early withdrawal penalty.
If you’re not happy with the fund choices your new employer offers, you might opt for a rollover IRA instead of your company’s plan. You can then choose from hundreds of funds and have more control over your money. But again, to avoid the withholding hassle, use direct rollovers.
Leave It Alone
If your vested account balance in your 401(k) is more than $5,000, you can usually leave it with your former employer’s retirement plan. Your lump sum will keep growing tax-deferred until you retire.
However, if you can’t leave the money in your former employer’s 401(k) and your new job doesn’t have a 401(k), your best bet is a direct rollover into an IRA. The same applies if you’ve decided to go into business for yourself.
Once you turn 59 1/2, you can begin withdrawals from your IRA without penalty, and your withdrawals are taxed as ordinary income. The IRS “Rule of 55” allows you to withdraw funds from your 401(k) or 403(b) without a penalty at age 55 or older.
With both a 401(k) and an IRA, you must begin taking required minimum distributions (RMDs) when you reach age 73, whether you’re working or not. As a reminder, beginning in 2023, the SECURE 2.0 Act raised the age that you must begin taking RMDs to age 73. If you reach age 72 in 2023, the required beginning date for your first RMD is April 1, 2025, for 2024.
What To Do if You Missed the Tax Deadline
Tuesday, April 18, 2023, was the deadline for most taxpayers to file their tax returns. If you haven’t filed a 2022 tax return yet, it’s not too late.
First, gather any information related to income and deductions for the tax years for which a return is required to be filed, then call the office. If you are owed money, the sooner you file, the sooner you will get your refund. If you owe taxes, file and pay as soon as you can, which will stop the interest and penalties you owe.
Some taxpayers filing after the deadline may qualify for penalty relief. Those charged a penalty may contact the IRS by calling the number on their notice and explaining why they couldn’t file and pay on time.
For 2022 tax returns due April 18, 2023, some taxpayers automatically qualify for extra time to file and pay taxes due without penalties and interest, including:
- Some disaster victims. Individuals living or working in a federally declared disaster area have more time to file and pay what they owe.
- Taxpayers outside the United States. U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico, including military members on duty who don’t qualify for the combat zone extension, may qualify for a two-month filing and payment extension.
- Members of the military who served or are currently serving in a combat zone may qualify for an additional extension of at least 180 days to file and pay taxes.
- Support personnel in combat zones or a contingency operation in support of the Armed Forces may also qualify for a filing and payment extension of at least 180 days.
The military community can also file their taxes using MilTax, a free tax resource offered through the Department of Defense. Eligible taxpayers can use MilTax to file a federal tax return electronically and up to three state returns for free.
If You Don’t File, You May Miss Out on a Refund
Every year, more than 1 million taxpayers choose not to file a return and miss out on receiving a refund due to potential refundable tax credits. The most common examples of these refundable credits are the Earned Income Tax Credit and Child Tax Credit. For example, the IRS estimates nearly 1.5 million people did not file a tax return for 2019 and missed out on an estimated average median refund of $893 (i.e., half of the refunds are more than $893, and half are less).
Taxpayers usually have three years to file and claim their tax refunds. If they don’t file within three years, the money becomes the property of the U.S. Treasury. However, the three-year window for 2019 unfiled returns was postponed to July 17, 2023, due to the COVID-19 pandemic emergency.
How To Make a Payment
If you owe money but cannot pay the IRS in full, pay as much as possible when you file your tax return to minimize penalties and interest. The IRS will work with taxpayers suffering financial hardship. Taxpayers with a history of filing and paying on time often qualify for administrative penalty relief. A taxpayer usually qualifies if they have filed and paid promptly for the past three years and meet other requirements. However, if you continue to ignore your tax bill, the IRS may take collection action.
There are several ways to make a payment on your taxes: credit card, electronic funds transfer, check, money order, cashier’s check, or cash. If you pay your federal taxes using a major credit card or debit card, there is no IRS fee for credit or debit card payments, but processing companies may charge a convenience or flat fee. It is important to review all your options. The interest rates on a loan or credit card could be lower than the combination of penalties and interest imposed by the Internal Revenue Code.
What To Do if You Can’t Pay in Full
Taxpayers who cannot pay the full amount owed on a tax bill are encouraged to pay as much as possible. By paying as much as possible now, the interest and penalties owed will be less than if you pay nothing. Based on individual circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise. Don’t hesitate to call if you have questions about these options.
Direct Pay. For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.
Payment Plans. Most people can set up a monthly payment plan or installment agreement that gives taxpayers more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. You should pay as much as possible before entering into an installment agreement.
Cash Payments. Individual taxpayers who do not have a bank account or credit card and need to pay their tax bill using cash can make a cash payment at participating PayNearMe Company payment locations (places like 7-Eleven). Individuals wishing to take advantage of this payment option should visit the IRS.gov payments page, select the cash option in the “Other Ways You Can Pay” section, and follow the instructions.
What Happens if You Don’t File a Past Due Return
It’s important to understand the ramifications of not filing a past-due return and the steps that the IRS will take. Taxpayers who continue not to file a required return and fail to respond to IRS requests for a return may be considered for various enforcement actions, including substantial penalties and fees.
Need Help Filing Your 2022 Tax Return?
If you haven’t filed a tax return yet, don’t delay. Call the office today to schedule an appointment as soon as possible.
What Are Estimated Tax Payments?
Estimated tax is the method used to pay tax on income not subject to withholding, such as income from self-employment, interest, dividends, alimony, and rent and gains from the sale of assets, prizes, and awards. You also may have to pay an estimated tax if the income tax being withheld from your salary, pension, or other income is insufficient. Here’s what you should know about estimated tax payments:
Filing and Paying Estimated Taxes
Both individuals and business owners may need to file and pay estimated taxes, which are paid quarterly. The first estimated tax payment of the year is ordinarily due on the same day as your federal tax return is due.
If you do not pay enough by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.
If you are filing as a sole proprietor, partner, S corporation shareholder, or self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. If you are filing as a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.
If you had a tax liability for the prior year, you might have to pay estimated tax for the current year, but if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.
Special rules apply to farmers, fishermen, certain household employers, and certain higher taxpayers. Please call the office for assistance if any of these situations apply to you.
Who Does Not Have to Pay Estimated Tax
You do not have to pay estimated tax for the current year if you meet all three of the following conditions:
- You had no tax liability for the prior year
- You were a U.S. citizen or resident for the whole year
- Your prior tax year covered a 12-month period
If you receive salaries and wages, you can avoid paying estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold. You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.
Calculating Estimated Taxes
To figure out your estimated tax, you must calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. If you estimated your earnings too high, complete another Form 1040-ES, Estimated Tax for Individuals, worksheet to re-figure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.
Try to estimate your income as accurately as possible to avoid penalties due to underpayment. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholding and credits or if they paid at least 90 percent of the tax for the current year or 100 percent of the tax shown on the return for the prior year, whichever is smaller.
When figuring out your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year’s federal tax return as a guide, and use the worksheet in Form 1040-ES to figure your estimated tax. However, you must adjust to any changes in your situation as well as recent tax law changes.
Estimated Tax Due Dates
For estimated tax purposes, the year is divided into four payment periods, each with a specific payment due date. For the 2023 tax year, these dates are April 18, June 15, September 15, and January 16, 2024.
If you file your 2023 tax return by January 31, 2024, and pay the entire balance due with your return, you do not have to pay estimated taxes in January.
If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.
Electronic Federal Tax Payment System
The easiest way for individuals and businesses to pay their estimated federal taxes is to use the Electronic Federal Tax Payment System (EFTPS). Make ALL of your federal tax payments, including federal tax deposits (FTDs), installment agreements, and estimated tax payments, using EFTPS. If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc., you can, as long as you have paid enough by the end of the quarter. Using EFTPS, you can access a history of your payments to know how much and when you made your estimated tax payments.
Saving for Education: Understanding 529 Plans
Many parents are looking for ways to save for their child’s education, and a 529 Plan is an excellent way to do so. Even better is that thanks to the passage of tax reform legislation in 2017, 529 plans are now available to parents wishing to save for their child’s K-12 education as well as college (two and four-year programs) or vocational school.
The SECURE Act of 2019 expanded the 529 Plan to include fees, books, supplies, and equipment for apprenticeship programs and repayment of principal and interest on student loan debt for the designated beneficiary or the beneficiary’s sibling, up to a lifetime limit of $10,000.
You may open a Section 529 plan in any state, and there are no income restrictions for the individual opening the account. Contributions, however, must be in cash, and the total amount must not be more than is reasonably needed for higher education (as determined initially by the state). A minimum investment may be required to open the account, such as $25 or $50.
Each 529 Plan has a Designated Beneficiary (the future student) and an Account Owner. The account owner may be a parent or another person and typically is the principal contributor to the program. The account owner is also entitled to choose (and change) the designated beneficiary.
Neither the account owner nor beneficiary may direct investments. Still, the state may allow the owner to select a type of investment fund (e.g., fixed-income securities) and change the investment annually as well as when the beneficiary is changed. The account owner decides who gets the funds (can pick and change the beneficiary) and is legally allowed to withdraw funds at any time, subject to tax and penalties (more about this topic below).
Unlike other tax-favored higher education programs such as the American Opportunity and Lifetime Learning Tax Credits, federal tax law doesn’t limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account. However, individual state programs could have a more narrow definition, so check with your particular state.
Tax-free Distributions
Distributions from 529 plans are tax-free as long as they are used to pay qualified higher-education expenses for a designated beneficiary. Distributions are tax-free even if the student claims the American Opportunity Credit, Lifetime Learning Credit, or tax-free treatment for a Section 530 Coverdell distribution – provided the programs aren’t covering the same specific expenses. Qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. Room and board also qualify for someone who is at least a half-time student. Also, starting in 2018, “qualified higher education expenses” include up to $10,000 in annual expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.
Qualified expenses also include computers and related equipment used by a student while enrolled at an eligible educational institution; however, software designed for sports, games, or hobbies does not qualify unless it is predominantly educational in nature.
Federal Tax Rules
Income Tax. Contributions made by the account owner or other contributor are not deductible for federal income tax purposes, but many states offer deductions or credits. Earnings on contributions grow tax-free while in the program. Distribution for a purpose other than qualified education is taxed to the one receiving the distribution. In addition, the taxable portion of the distribution will incur a 10 percent penalty, comparable to the 10 percent penalty in Section 530 Coverdell plans. Also, the account owner may change the beneficiary designation from one to another in the same family. Funds in the account roll over tax-free for the benefit of the new beneficiary.
Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them – thus, they qualify for the up-to-$17,000 annual gift tax exclusion in 2023 ($16,000 in 2022). One contributing more than $17,000 may elect to treat the gift as made in equal installments over that year and the following four years so that up to $85,000 can be given tax-free in the first year.
Estate Tax. Funds in the account at the designated beneficiary’s death are included in the beneficiary’s estate – another odd result since those funds may not be available to pay the tax. Funds in the account at the account owner’s death are not included in the owner’s estate, except for a portion where the gift tax exclusion installment election is made for gifts over $17,000 ($16,000 in 2022). Here is an example: if the account owner made the election for a gift of $85,000 ($80,000 in 2022), a part of that gift is included in the estate if they die within five years.
A Section 529 program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $85,000 ($80,000 in 2022) avoids gift tax and estate tax by living five years after the gift, yet has the power to change the beneficiary.
State Tax. State tax rules are all over the map. Some reflect the federal rules, and some are quite different. For an overview of each state’s program, see: College Savings Plans Network (CSPN).
Looking Ahead
Starting in 2024, 529 college savings plans maintained for at least 15 years can be rolled over to a Roth IRA. Any contributions (and earnings on those contributions) to the 529 plan made within the last five (5) years are not eligible. The rollover must be trustee to trustee, with a lifetime limit of $35,000 per account beneficiary. Rollovers are subject to Roth IRA annual contribution limits.
Seek Professional Guidance
Considering the differences among state plans, the complexity of federal and state tax laws, and the dollar amounts at stake, please call the office and speak to a tax and accounting professional before opening a 529 plan.
Check the Status of a Tax Refund Using This IRS Tool
Taxpayers can start checking their tax refund status within 24 hours after receiving an e-filed return. The easiest and most convenient way to do this is by using the “Where’s My Refund?” tool on the IRS website. The tool also provides a personalized refund date after the return is processed and a refund is approved.
There are two ways to access the “Where’s My Refund?” tool – visiting IRS.gov or downloading the IRS2Go app. To use the tool, taxpayers will need the following information:
- Their Social Security number or Individual Taxpayer Identification Number
- Tax filing status
- The exact amount of the refund claimed on their tax return
The tool displays progress in three phases: when the return was received, when the refund was approved, and when the refund was sent. When the status changes to approved, it means that the IRS is preparing to send the refund as a direct deposit to the taxpayer’s bank account or directly to the taxpayer in the mail, by check, to the address used on their tax return.
The IRS updates the “Where’s My Refund?” tool once a day, usually overnight, so taxpayers don’t need to check the status more often than that. Calling the IRS won’t speed up a tax refund. The information available on “Where’s My Refund?” is the same information available to IRS telephone assistors.
Taxpayers should remember to allow time for their financial institution to post the refund to their account or for the refund to be delivered by mail. As always, please contact the office with any questions about tax refunds, tax returns, or other tax matters.
IRS Tax Debt Could Affect Passport Renewal
As a reminder, individuals with “seriously delinquent tax debts” are subject to a new set of provisions courtesy of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. These provisions went into effect in February 2018.
Background
The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. It also requires the State Department to deny their passport application or renewal. In certain instances, the State Department may revoke their passport.
Taxpayers affected by this law are those with seriously delinquent tax debt, generally, an individual who owes the IRS totaling more than $59,000 (adjusted yearly for inflation) in back taxes, penalties, and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy.
What Taxpayers Can Do
Taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt by doing the following:
- Paying the tax debt in full
- Paying the tax debt timely under an approved installment agreement,
- Paying the tax debt timely under an accepted offer in compromise,
- Paying the tax debt timely under the terms of a settlement agreement with the
- Department of Justice,
- Having requested or have a pending collection due process appeal with a levy, or
- Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.
However, a taxpayer’s passport won’t be at risk under this program if an individual:
- Is in bankruptcy
- Is identified by the IRS as a victim of tax-related identity theft
- Has an account that the IRS has determined is currently not collectible due to hardship
- Is located within a federally declared disaster area
- Has a request pending with the IRS for an installment agreement
- Has a pending offer in compromise with the IRS
- Has an IRS accepted adjustment that will satisfy the debt in full
For taxpayers serving in a combat zone and who also owe a seriously delinquent tax debt, the IRS postpones notifying the State Department, and the individual’s passport is not subject to denial during this time.
Payment Options for Delinquent Taxes
Taxpayers who are behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS and may qualify for one of several relief programs, including the following:
- Taxpayers can request a payment agreement with the IRS by filing Form 9465, Installment Agreement Request. Taxpayers can download this form from IRS.gov and mail it with a tax return, bill, or notice. Some taxpayers may be eligible to use the online payment agreement to set up a monthly payment agreement for up to 72 months.
- Financially distressed taxpayers may qualify for an offer in compromise, an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay.
If you owe back taxes and are worried your passport could be revoked because of unpaid taxes, please call.
Certain Taxpayers May Need to File an Amended Return
Taxpayers who reported certain state 2022 tax refunds as taxable income may need to file an amended tax return. Affected taxpayers include those who filed before February 10, 2023, and meet certain requirements. Taxpayers who used a tax professional should consult with them to determine whether an amended return is necessary.
Background
Details clarifying the federal tax status regarding special payments made to taxpayers by 21 states in 2022 were clarified by the IRS on February 10, 2023. During their review, it was determined that the IRS would not challenge the taxability of state payments related to general welfare and disaster relief in the interest of sound tax administration and other factors. As a result, taxpayers in many states did not need to report these payments on their 2022 federal tax returns.
Which Taxpayers are Affected?
Taxpayers in the following states do not need to report these state payments on their 2022 tax return: Alaska (applies only to the special supplemental Energy Relief Payment), California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island.
Also, many people in Georgia, Massachusetts, South Carolina, and Virginia will not include special state 2022 tax refunds as income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and the recipient either claimed the standard deduction for tax year 2022 or itemized their tax year 2022 deductions but did not receive a tax benefit.
Taxpayers can also view a listing of individual states and the federal tax treatment of their special state refunds or rebates listed on this State Payments chart at IRS.gov.
What Taxpayers Should Do Next
Before filing an amended return, taxpayers who filed before February 10 in these areas and met these requirements should check their tax return to make sure they paid tax on a state refund. If an amended return is needed, taxpayers who submitted their original 2022 tax return electronically can also file their amended return electronically and may select direct deposit for any resulting refund. Electronic filing cuts out the mail time, and including direct deposit information on an electronically submitted form provides a convenient and secure way to receive refunds faster.
Taxpayers also have the option to submit a paper version of Form 1040-X, Amended U.S Individual Income Tax Return, and receive a paper check. Direct deposit is not available on amended returns submitted on paper, however. Taxpayers should follow the instructions for preparing the paper form and mail the amended return to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0052
As always, don’t hesitate to contact the office if you have questions about this or any other tax topics affecting your tax situation.
Small Business: Choosing a Payroll Service Provider
When choosing a payroll service provider to handle payroll and payroll tax, employers should choose a trusted payroll service to help them avoid missed deposits for employment taxes and other unpaid bills. Typically, these clients remain legally responsible for paying the taxes due, even if the employer sent funds to the payroll service provider for required deposits or payments.
Employers are encouraged to enroll in the Electronic Federal Tax Payment System (EFTPS) and make sure the payroll service provider uses EFTPS to make tax deposits. EFTPS is free and gives employers safe and easy online access to their payment history, provided they make deposits under their Employer Identification Number (EIN). Using the EFTPS enables them to monitor whether their payroll service provider meets its tax deposit responsibilities.
Employers have two options when finding a trusted payroll service provider:
- A certified professional employer organization (CPEO). Typically, CPEOs are solely liable for paying the customer’s employment taxes, filing returns, and making deposits and payments for the taxes reported related to wages and other compensation. An employer enters into a service contract with a CPEO, and then Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement, is submitted to IRS. Employers can find a CPEO on the Public Listings page of IRS.gov.
- Reporting agent. A reporting agent is a payroll service provider that informs the IRS of its relationship with a client using Form 8655, Reporting Agent Authorization, that the client signs. Reporting agents must deposit a client’s taxes using the Electronic Federal Tax Payment System (EFTPS) and can exchange information with the IRS on behalf of a client if issues arise. They are also required to provide clients a written statement reminding the employer that it, not the reporting agent, is ultimately responsible for the timely filing of returns and payment of taxes.
Employers should contact a tax professional about any bills or notices received, especially payments managed by a third party. They can also call the phone number on the bill, write to the IRS office that sent the bill, or contact the IRS business tax hotline at 800-829-4933.
Most payroll service providers provide quality service, but some don’t. Each year, a few payroll service providers don’t submit their client’s payroll taxes, close down abruptly, and leave employers on the hook.
Don’t get caught short. Choose a payroll service provider you can count on – and don’t hesitate to call the office with any questions about payroll and other business-related taxes.
5 Tips for New and Confused QuickBooks Users
Learning new software is always a challenge. You have to learn the lay of the land before you can start working with it. How do I do this? How does the menu system work? How can I enter data without making a mistake?
The learning process for financial software for your small business can be especially unnerving. Your livelihood depends on getting everything right. A mistake in an invoice you’re creating is more serious than using incorrect grammar or punctuation in a letter.
That is why a good introduction to QuickBooks is necessary. You’ll need to set up the program correctly and learn the most basic, often-used functions. You can contact the office any time if you need help with this, but in the meantime, here are five things you can do to start getting your feet wet.
Familiarize Yourself With QuickBooks’ Lists
You’ll consult and use lists a lot in QuickBooks. Transaction forms offer access to data you’ve already created and will use. For example, when you need to select a customer, you can just open a drop-down list and click on one.
QuickBooks also provides free-standing lists that you might need to use outside of transactions, though they’re often available there, too. Open the Lists menu to see them. They include Item List, Sales Tax Code List, and Class List. Click on one to open it, and you’ll see a series of menus running across the bottom of the window. They allow you to, for example, add or edit items, take actions like entering a sales receipt, and run related reports.
Figure 1: The Item List
Troubleshoot Transactions
What do you do when you know you’ve entered a transaction but can’t find it? QuickBooks has good search tools, but sometimes you don’t have enough details to hunt effectively for the missing invoice, bill, etc. Two reports can help.
The transaction you’re seeking may have been accidentally voided or deleted. Open the Reports menu and select Accountant & Taxes | Voided/Deleted Transactions Summary or Detail. If you know when the original transaction was entered, change the date range at the top of the screen. You really shouldn’t have many of these. If you do, you must determine why this is happening so frequently. You can get into trouble if you void or delete transactions to solve a problem that should be resolved another way.
While you’re in the Accountant & Taxes report list, open the Audit Trail to view a listing of transactions that have been entered or modified, when, and by whom. You should get to know this report if you have multiple users accessing and working with QuickBooks data.
Work With Windows
Every time you open a window in QuickBooks, it stays open. You can always close it by clicking the X in the upper right corner of the window – not the program X in the farthest upper right corner. If you have a lot of windows open, all of that clicking can become tiresome.
Open the Window menu to see your options there. You’ll see a list of all the open windows. Click on one to go there. You can also “tile” the windows vertically or horizontally so they overlap on the screen or “cascade” them, which places them on top of each other with only the window label showing. And you can close all of them at once by clicking Close All.
Use “Local” Menus
Most QuickBooks windows provide ways to take related action. But most also offer “local” menus or right-click menus. Open an invoice form to see how this works (Customers | Customer Center | Transactions | Invoices). Right-click in the header of the invoice. Your menu options here include:
- Duplicate Invoice
- Transaction History, and
- Receive Payments.
You’ll also find these commands and more in the toolbar at the top of the window.
Figure 2: The Basic Customization window also displays these options for your forms.
Practice With a QuickBooks Sample File
Before you enter real data in QuickBooks, or if you’ve already done so and want to try out a new feature without risking an error, use one of QuickBooks’ sample files. That’s why they’re there.
You can open one of these when loading QuickBooks. You’ll see a window labeled No Company Open. Click the arrow in the box on the lower right that says Open a sample file. You can choose between a product – and service-based business.
Once you’re in QuickBooks, you can switch back and forth between your company file and a sample file by opening the File menu. Click Open Previous Company and select from the list. It should be obvious, but be sure you’re in the correct QuickBooks file before doing anything.
How’s It Going?
If you’ve been using QuickBooks for a while, how are you doing with it? Are you struggling with any functions? Feeling like you’re not using as much of the software as you should? Thinking that you’re outgrowing it and need to move up to a more senior version? Or are you having a hard time upgrading to QuickBooks 2023? Help is available for all of these situations. Contact the office to set up a meeting or a series of them to make your accounting experience more productive, effective, and faster.
Tax Due Dates for May 2023
May 1
Employers – Federal unemployment tax. Deposit the tax owed through April if more than $500.
Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2023. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return.
May 10
Employees who work for tips – If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.
Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2023. This due date applies only if you deposited the tax for the quarter in full and on time.
May 15
Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.
Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
