What’s the Best Way to Pay Yourself as a Business Owner?
There are roughly 28 million small businesses operating in the United States, according to data from the Census Bureau. Running your own small business certainly has its perks, such as the ability to be your own boss, set your own hours, and control your financial destiny. But it can also prove challenging for newcomers who are unfamiliar with the laws regarding business operations. One such question that’s often raised by new business owners is how to yourself — something that we’re going to tackle in today’s blog post.
Unfortunately, paying yourself as a business owner isn’t as simple as transferring money from your business account to your personal bank account. If you are an officer of a corporation, for instance, federal law states that you must receive checks like a regular employee, complete with withholdings for Social Security, Medicare, federal taxes and state taxes.
Owners of an S-Corp business must also receive paychecks with withholdings for Social Security, Medicare, federal taxes and state taxes. However, one of the key differences is that S-Corp business owners are allowed to draw additional money beyond their standard paychecks. This is done in as a draw or distribution, and checks written for them are not subject to the same withholdings as standard paychecks.
Of course, sole proprietors are given the freedom to pay themselves without the normal constraints of withholdings. Since there’s no corporate entity in a sole proprietorship, all revenue is acquired in the business’s owners personal account. This eliminates the otherwise confusing process of having to write a paycheck with the respective withholdings. Sole proprietors can simply use their earned money just like any regular money they have.
The downside to running a business as a sole proprietor, however, is that it doesn’t offer any type of liability protection. Unlike corporations, the owner of a sole proprietorship has no protection for his or her personal assets. In other words, if a disgruntled customer sues you, they could potentially take your personal assets, assuming the court sides in their favor. This is why many experienced business owners operate under a corporation or limited liability company (LLC), both of which offer liability protection.
Hopefully, this will give you a better understanding of the ways in which small business owners can pay themselves. The bottom line is that you need to understand your business entity type, at which point you can choose the best way to pay yourself.
How to Fix Quickbooks Error 6000
Have you encountered the error 6000 message when attempting to run the Quickbooks accounting software? It’s frustrating when you get ready to do some accounting, only to discover an error message such as this. But the good news is that Quickbooks makes it relatively easy to diagnose problems, as each error is given a specific code corresponding to its respective cause. So by analyzing your error code, you can find and fix the problem.
What Causes the Error 6000 Message?
There are a few different possible causes of the error 6000 message in Quickbooks, one of which is an incomplete Quickbooks installation. When you first install the Quickbooks accounting software, it will launch a “Wizard” that performs most of the steps automatically. It’s important that you allow the Wizard to finish the installation. If you abort the installation mid-way through, it may leave some files corrupted, which could in turn lead to this error message.
Another possible cause of the error 6000 message is a damaged company file. The company file used in Quickbooks has the extension .qbw, and if this file is damaged or otherwise corrupt, it may trigger this error code.
Even if the actual company file is fine, however, the folder in which the file is stored may be damaged, which can also trigger the 6000 error code.
Other possible causes of the Quickbooks error 6000 code may include incorrect permissions to access the company file, compatibility problems with different versions of Quickbooks, and the use of firewalls or other security software that blocks access to the company file.
How to Fix the Quickbooks Error 6000 Message
Being that there are several potential causes for the error 6000 message, the steps to fix it will vary depending on the root cause. If permission settings are causing the message, for instance, you should go back into your Quickbooks account to make sure that you have permissions to access the company file. Or if the installation was incomplete, it’s probably best to reinstall the Quickbooks software.
For most cases of the Quickbooks error 6000 message, however, you can fix it by using the File Doctor tool. This free-to-use tool will automatically scan your Quickbooks installation for errors, and if it finds any, it will offer to fix them. So if you haven’t done so already, download and run the File Doctor tool to see if it resolves your error 6000 message.
Did this resolve your Quickbooks error 6000 message? Let us know in the comments section below
Diagnosing Quickbooks Error -6190, -816
Have you experienced the error code -6190 -816 when attempting to run Quickbooks. Developed by Intuit, Quickbooks has become the world’s leading accounting software for small businesses, and rightfully so: it’s fast, versatile, easy to use, and loaded with features. But like all software, it’s susceptible to errors every once in a while, one of which is the error -6190 -816. So, what’s causing this error and how to you fix it?
There are several possible causes of this error code. Among the most common causes is a transaction log file not matching the user’s company file. Quickbooks automatically creates and saves a summary of the user’s transactions in a transaction log file. The system stores the file with the extension .qbw.tlg. When the transaction log is different from the company file, however, it will trigger the -6190 -816 error code.
To fix this problem, check to make sure the transaction log matches your company file. If it does not, you should edit your company file to reflect the appropriate transactions listed in the log.
Another possible cause of this error code is an update failure. If the company file is updated on a separate computer (not your primary computer) and you did not update the transaction file, it will create the error code -6190 -816.
A third possible reason for this all-too-common error code is a user accessing the company file in Single User Mode. Of course, a simple fix to this problem is to use the correct User Mode, which should resolve the error.
Regardless of what’s causing the -6190 -816 error code, you can often fix it, as well as other problems, by using the Quickbooks File Doctor tool. This free-to-use tool will automatically scan your Quickbooks installation for errors. And if it finds any, it will offer to fix them. Keep in mind, however, that you must be logged into your Quickbooks account as the administrator to run the File Doctor tool. Upon downloading and running the tool, you’ll have the option to check file damage or network connectivity. Choose the first option ad follow the on-screen instructions. The process should only take a couple of minutes, at which point File Doctor will reveal any errors that could be triggering the -6190 -816 code.
Did this tutorial work for you? Let us know in the comments section below!
Best Practices for Invoicing Clients
For many small-to-mid-sized businesses, invoices are a fundamental component of their daily operations. When a client or customer places an order, the business owner must send an invoice containing an itemized list of the purchased products and/or services, as well as the cost. But there are a few things you should know before blasting customers and clients with invoices.
Be Punctual!
In other words, don’t wait until a week after a customer has placed an order to send him or her an invoice. Invoices should be sent in a timely manner to facilitate the process and prevent confusion. Generally speaking, the sooner you send the invoice, the better.
Itemize
As previously states, invoices should contain a breakdown of all products and services purchased by the customer, along with their respective prices. If a customer orders five different products, you should itemize each of these products and their prices. Don’t just place the total amount due on the invoice, but instead break down each associated cost so the customer knows what he or she is buying.
Offer Multiple Payment Options
Of course, business owners and accountants should offer multiple payments options in their invoice. This may include cash, money order, check, credit card, debit card, PayPay, etc. If the customer is unable to pay using the “preferred” method, he or she can choose a different form of payment.
Emphasize Payment Amount and Due Date
The two most important elements on an invoice are the payment amount and due date. This doesn’t mean that you should omit other elements, but instead you should emphasize the due date and payment amount by making them bigger and bolder than the rest. Doing so will ensure that the customer sees them, reducing the risk of confusion.
Tracking
You should also set up some type of tracking for your invoices. The purpose of this is to confirm that the customer has received the invoice. If a customer says that he or she didn’t receive it, you can refer to the tracking.
Double-Check for Mistakes
Before sending an invoice, you should go back over it one last time to check for mistakes. Even the most attentive accountants and small business owners are bound to make a typo. Something as simple as an incorrect digit placement, however, could prove disastrous. So to prevent this from happening, double-check your invoices for mistakes before sending.
How to Create a Purchase Order in Quickbooks
As your business grows, you may want to use purchase orders. While there’s no rule stating that purchase orders must be used, doing so offers a few key benefits, the most important being a paper trail. Purchase orders are essentially permanent records of the purchased items. So if you’re buying a bulk supply of a product or item that is necessary for your business, using a purchase order will create a receipt that can used for tax purposes.
Quickbooks allows users to create purchase orders in just a few simple steps. First and foremost, you’ll need to access Vendors > Creator Purchase Orders, at which point a new window will open. Next, select the vendor from whom you are purchasing the item or items by clicking the drop-down menu. This will list all vendors in your vendor list; click the one from whom are making the purchase.
You’ll also see a drop-down menu for “Ship To,” which as the name suggests is used to specify where you would like the order shipped. This menu contains a list of your customers, vendors and employees. Go ahead and choose the address where you would like your order shipped.
You can now confirm the purchase order date. Quickbooks will choose the current system date as the default order date. You can change this, however, by entering a new date in the field.
After confirming and/or setting the purchase order date, you’ll need to confirm the purchase order number. The purchase order number, also known as “P.O.” is a unique identifier that’s tied to the specific order. The accounting software works by assigning sequential numbers to purchase orders, placing the next number in the respective P.O. number field. Double-check this purchase number to ensure it is correct. If it is not correct, update it with the right purchase order.
Next, describe the items that you are ordering in the “Create Purchases Orders” window. This includes the item, description, quantity, rate and customer. When you are finished, print a copy of the purchase order so you’ll have an actual paper document. You should also save the purchase order by clicking the “Save & Close button.”
Are You Creating Backups of Your Financial Documents?
If not, you should be. There’s an old saying that goes, “if something can go wrong, it will probably will.” Following this mantra with your financial documents and accounting records is usually a good idea. You should hope for the best but prepare for the worst. If your financial records were ever stolen or destroyed, would your business stay afloat?
Unfortunately, many businesses have been forced to close their doors due to poor financial records. In some cases, the records are lost. In other cases, they are stolen or destroyed. Regardless, you should take the necessary steps to protect your financial records, and business, from disaster by creating regular backups. Having backups of your records will give you peace of mind knowing that your business will continue to operate in the event of a disaster.
So, how do you create backups of your financial documents? For paper receipts, it’s best to create digital copies by scanning them and saving them to an external device or the cloud. For digital documents, you can simply create digital copies, also saving them to an external device or the cloud.
The key thing to remember is that you want to save your backups to a location other than the primary source of your financial documents. If your financial documents are currently stored on your computer hard drive, for instance, you shouldn’t create and store a backup copy on your hard drive. In the event that your hard drive is damaged, lost, stolen, etc., it could result in complete data loss of both your main documents and the backup copy. This is why it’s a good idea to store backup copies on an external device or the the cloud. USB flash drives may suffice, assuming you store them in a safe, secure location that’s away from your main computer.
But there’s actually an even easier way to create backup copies of your financial documents: use Quickbooks. Developed by Intuit, Quickbooks supports automatic backups, meaning you can schedule the software to create backups of your financial documents at specific dates and times. This takes the burden of having to manually create backups off your shoulders, freeing up valuable time that can be used for other aspects of growing your business.
How to Set Up Direct Deposits for Employees in Quickbooks
Tired of creating paychecks for your employees manually? Assuming you use the Quickbooks accounting software, you can have their checks directly deposited into their bank accounts. Quickbooks supports the use of direct deposits, facilitating the otherwise tedious and time-consuming task of paying your employees.
Note: if you wish to use this feature, you’ll need to sign up and active direct deposits in Quickbooks. Requirements for direct deposit include the following:
- A supported version of Quickbooks
- Active Quickbooks payroll subscription
- Federal Employer Identification Number (EIN)
- Internet access
- Bank account that supports Automated Clearing House (ACH) transactions (there are no ‘wire’ fees associated with ACH transactions for most banks)
To set up direct deposits, log into your Quickbooks account and choose Employees > My Payroll Services > Active Direct Deposit. From here, you’ll need to review and complete the form regarding your direct deposits. Proceed to enter the appropriate information, including the 5-digit zip code for your respective region. When you are finished, click the Submit button.
There are a few more steps left before direct deposit can be activated. After clicking the Submit button, you’ll need to read and agree to the terms and conditions at the bottom of the page. Tick the box labeled “I have read and agree to the terms of the service agreement,” at which point you can click the Sign-up button.
Last bit not least, print the “Direct Deposit Getting Started Guide” and then click the “Return to Quickbooks” button. After reading the following the guide, you should be ready to create direct deposits. Keep in mind that all payroll information must be submitted to Intuit prior to 5:00 PM PST at least two days before the check day. Intuit allows business owners, however, to submit their payroll information up to 45 days in advance. Direct Deposit also requires an Internet access to function. If you do not have an active Internet connection, or if your connection has a tendency to go in and out, you may want to skip this feature and look for an alternative payment method.
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Net vs Gross Income: What’s the Difference?
Small business owners must pay close attention to their financial transactions, including both expenses and income. While income may come from a variety of different sources, there are generally two different forms of income: net and gross. Some accounting software and systems automatically decipher this information, whereas others require the business owner to manually update his or her net and gross income.
So, what’s the difference between gross and net income? Gross income refers to the total amount of income before deductions are made, whereas net income refers to the total amount of income after deductions are made.
Regardless of niche/industry, all small businesses will have some form of operating expenses. This may include employee payroll, utilities, building rental, marketing and advertising, customer acquisition, accounting, etc. Even if the business earns $300,000 in annual revenue, it may only “profit” $150,000 after deducting all of its related operating expenses. In other words, its gross revenue would be $300,000, while its net income would be $150,000. It’s a rather simple formula that should become second nature to business owners and entrepreneurs.
Both gross revenue and net income are equally important when tracking your financial transactions, although net revenue is indicative of your business’s profits.
In addition to gross revenue and net income, there’s also gross margin, which is the percentage of profit earned after adjusting the gross income. Using the same example cited above, a business with a gross income of $300,000 and a net profit of $150,000 would have a gross margin of 50%. $150,000 is 50% (half) of $300,000; therefore, the gross margin is 50%. If a business notices a decline in its gross margin, it may want to reevaluate its operations to try and turn this number back in a positive direction.
Hopefully, this will give you a better understanding of gross revenue, net income and gross margins. Generally speaking, gross income is the total amount of income that a business (or individual) has earned before taking into account deductions. Net income is the total amount of income after deductions have been made. And gross margin is the percentage of profits that a business has earned, calculated by diving gross margins and net profits, expressed as a percentage.
The Home Office Tax Deduction: What You Should Know
With tax day right around the corner, business owners across the country are scrambling to find those last-minute deductions. While the exact deductions for which you are eligible will vary depending on your type of business, one of the greatest deductions is often the home office. Assuming you work from home, either partially or fully, you can deduct this expense from your taxes.
For tax years 2012 and prior, business owners were required to use an old method for calculating their home office deduction. This consists of calculating the actual expense of their home office, including mortgage/rent, insurance, electricity, gas, water, repairs, etc. But keep in mind that only the portion used for business-related activities can be deducted. So if you only work from your home office — and your office is 1/4 the size of your entire home — you would calculate the deduction by adding up all of the aforementioned bills and dividing it by four. As you may have guessed, this method was somewhat confusing and tedious, which is why the IRS began offering an alternative method for calculating home office deductions for tax years 2013 and later.
The new method simplifies the process by eliminating the need to calculate all of your expenses (e.g. mortgage/rent, utilities, etc.). Instead, business owners can calculate their home office deduction based on the square footage of the space used for business-related purposes and activities. If you work in a home office that’s 250 square feet, for instance, you simply multiply 250 by the prescribed factor, which for the tax year 2015 is $5. 250 by 5, is $1,250, which is how much you can deduct for your home office.
Of course, business owners can still use the old method if they prefer. However, the new method simplified the process by clearing out the otherwise confusing task of having to calculate all of your home office expenses. This is why it’s generally the preferred choice for small business owners who work at home.
To learn more about the home office deduction and how it works, check out the official IRS webpage here.
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How to Change Sales Tax Rate in Quickbooks
Looking to change the sales tax rate in Quickbooks? If you are reading this, I’m assuming the answer is yes. Quickbooks has become the world’s most popular accounting software account, offering a simple and convenient way for small business owners to keep track of their expenses and income. But if you move into a new state, or if you existing state updates its tax code, you may be required to adjust your sales tax. To learn more about changing the sales tax in Quickbooks, keep reading.
Thankfully, there’s a quick and easy way to change the sales tax in Quickbooks. After logging into your Quickbooks account, add the new sales tax item to the item list. This is done by accessing Lists > Item Lists. Keep in mind that the item name must be different from the name that you are currently using. If you happen to use more than one sales tax item, you include all of them here. ALso, you cannot delete the rate of your existing sales tax item sinc you’ll need the item to calculate your sales tax return — and that’s okay. Just add the new sales tax as an item list and proceed to the next step.
The next step is to change the sales tax preferences so it uses the new item. To perform this operation, access Edit > Preferences > Sales Tax > Company Preferences. Whenever you create an invoice, sales receipt or credit memo, this sales tax item will be used instead of the old sales tax. You can even set your sales tax item before the tax is actually changed. So if you are expecting your state to change its sales tax rate, it’s a good idea to go ahead and create the sales tax item in your Quickbooks account.
The last step is to make your old sales tax item inactive. This is done by accessing the item list and double-clicking on the old sales tax item, at which point you can choose to make it inactive. You should perform this step on the date on which the new sales tax takes effect.
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