How to Do Accounting for an LLC: All you Need to Know

Getting your business’s accounting in order has many benefits. Not only does it help with bookkeeping and taxes, but it’ll also bring peace of mind. Additionally, if you’re someone who isn’t detail-oriented, having organized financial records and accounting can be helpful for budgeting and business projections. 

Why should a business be registered as a Limited Liability Company (LLC)?

An LLC includes the features of a sole proprietorship, a partnership, and a corporation. The LLC, therefore, presents itself as the most flexible business structure. As opposed to a sole proprietorship, an LLC protects the individual from debts and lawsuits. When filing taxes, a single-person LLC can file taxes as a sole proprietor or as a corporation. Alternatively, an LLC with multiple owners can file taxes as a partnership or corporation. For example, if you’re looking to start an LLC in Florida please make sure to familiarize yourself with the local laws.

Does an LLC need to open a business bank account?

Laws mandate LLCs to open a bank account. Consider the following when deciding on the bank:

  • What type of account best meets your requirements?
  • The fee charged by the bank.
  • Choice of online/in-person services offered by the bank.
  • Network of branches of the bank in the area of the business’s operations. 

The types of accounts that need to be opened include:

  • Business Checking Account – For the business to receive customer payments and pay business expenses.
  • Business Savings Account – For the business to save a part of the income for tax obligations and unforeseeable business expenses. 

 

Why is it important to separate personal and business finances?

Separation of personal and business finances is vital. Business expenses should not be made from personal accounts and vice versa. Also, don’t transfer funds from the business account to a personal account. Separation of finances helps in consolidating business income and expenses in one place and makes it easier to calculate the business’s tax obligations accurately. One could also enroll in formal accounting/bookkeeping classes to learn the basics. 

 

What are the options in the choice of accounting methods for an LLC?

LLCs can choose to follow one of two options in accounting methods:

  • Cash accounting – In this method, income is recognized and recorded when money is received. Likewise, expenses are recognized and recorded when money is paid. 
  • Accrual accounting – Here, revenue is recognized and recorded when earned, not when received. Also, an expense is recognized and recorded when incurred, not when paid. The drawback of this accounting method is that it does not give a true picture of a business’s cash flow. On the other hand, it provides an accurate picture of its income and expenses during a specific duration of time. 

Whatever accounting method the business chooses, the business will need to stay with it for all future tax filings. 

 

Should the LLCs do their bookkeeping in-house or outsource it?

Bookkeeping is the tracking and recording of the business’s income and expenses. This must be done diligently to accurately track the business’s finances, prepare correct financial statements, and file correct tax returns. Depending on the size and maturity of the business, the available options for bookkeeping include:

  • In-house bookkeeping – Typically, in-house bookkeeping would not be required for early-stage businesses. As the business matures, it may decide to hire a team of bookkeepers to record the firm’s financial transactions. In-house bookkeeping, invariably, works out to be the most expensive option.
  • Outsourced bookkeeping – This bookkeeping method could be done by hiring a part-time bookkeeper or by subscribing to an online bookkeeping service. Businesses could consider services such as InsightsOfficer from PwC.

How should business expenses be tracked?

IRS stipulates and provides a detailed list of business expenses, income earned, and payable taxes that need to be tracked and recorded. The important ones include:

  • Business receipts for office supplies, work-related travel expenses, etc.
  • Bank statements
  • Bill for office utilities, internet/telephone expenses, etc.
  • Invoices
  • Financial statements
  • Payment proofs
  • Tax returns

IRS regulations also stipulate the length of time that each of the different types of records needs to be maintained. The length of time that the documentation needs to be stored varies depending on the type of financial record. Businesses have the option of choosing physical documentation or a cloud-based service.

What are the options available for the business to receive payments?

In addition to the traditional methods of cheque/direct deposits, other options available to the business for receiving payments are:

  • Online payments – Online receipt of payments helps in the faster clearance of invoices. If the business has opted for cloud-based accounting software, the software would normally be integrated with an online payment tool to manage the business’s payments.
  • Automated invoicing – To simplify their invoicing processes, businesses can opt for an automated invoicing system. Most cloud-based accounting systems integrate this feature for recurring invoices.

How should the LLC’s payroll be set up?

Setting up payroll is essential for any business that employs staff. The employees of the business need to be appropriately classified as permanent employees, contractors, part-time employees, etc. After the staff has been classified, the business must design the payroll by factoring in the different financial regulations specific to the different classes of personnel. Insights on payroll management from ADP are a useful source of information. One could also find other reliable resources on the subject.

What are the tax obligations of an LLC?

LLCs are bound by law to comply with tax regulations at the federal and state levels. The leadership enrolling in a course to learn the basics of preparing tax returns will help adhere to compliance requirements. The taxes that the LLC needs to pay include:

  • Income tax – Tax to be paid on the income earned by the business.
  • Employment tax – Federal Insurance Contributions Act (FICA) mandates LLCs to pay employment tax, including contributions towards social security and medicare. 
  • Sales Tax – This tax varies depending on the state in which the business is based. 

Also, to manage its accounting needs the business can decide to either hire or consult with a professional business accountant. A trained business accountant can advise the business on the appropriate legal structure for the firm, tax-related obligations, and financial strategy and oversee financial reporting. 

Accounting plays a critical role in running a business by helping track income and expenses and enabling statutory compliance. It also provides the business’s management and investors with the financial information required to make informed business decisions. 

 

Author Bio:

Matt Horwitz is the founder of LLC University, a website that teaches people how to form LLCs. Matt is the leading authority in LLC education and is featured in CNBC, Yahoo Finance, Entrepreneur Magazine, and the US Chamber of Commerce. Matt holds a Bachelor’s Degree in business from Drexel University with a concentration in business law. LLC University®, established in 2010, was the first company to create free LLC courses in all 50 states.

The Advantages of Virtual Bookkeeping

Virtual bookkeeping means freedom and efficiency; freedom from client visits and having your tools of the trade close at hand.

If there is one thing we learned from the 2020-21 Pandemic is that effective work can be done without a commute and travel.  We all became adept at using online communication to do our job and maintain relationships.  This, of course, includes providing bookkeeping services.

So, how is it done?

First, I’m assuming you are a trained bookkeeper with accounting software.  Although QuickBooks Online (QBO) isn’t the only software to use, it is one of the better ones that can be mastered as a QuickBooks Specialist.  It permits downloading transactions from the client’s bank account directly into the software so that you don’t need to rekey much of the data.  The software is even able to assign a category to common charges and income items.

Getting the source data and backup is probably the most complicated process.  There are a few things you can do:

1)      For income, as much as possible, the process should be computerized in a fashion that you can access.  If that’s not possible, a snapshot will work.

2)      For expenses, train the owners and anyone that works with invoices/credit card charges to send you a snapshot of any documents.  These pictures can be attached to the QuickBooks charge as backup.

3)      If you will be preparing the payments to vendors, have the invoices sent to your address or emailed to you.

Once all the information is entered into the accounting software, you can print all reports into a pdf document and email them, as an attachment, with a note of their contents, concluding with an invitation to call you if the client should have any questions.

Using a document management system to exchange documents and pictures, such as eFileCabinet will reduce paper and time.

Having an in-person meeting once a quarter is a nice touch, if practical.  This will enable you to sell your services, seek any recommendations for new clients, and refresh your professional relationship.

To learn more about how to start and run a successful virtual bookkeeping business, be sure to check out Universal Accounting’s Professional Bookkeeper program as well as the Virtual Bookkeepers Roadmap.

Why is Bookkeeping Important?

The absence of bookkeeping in a business is like a road without signs because you’re likely to arrive at a different place than intended. Any large business learned the value of financial records produced by bookkeepers is crucial for proper management.

Bookkeeping is essential to every business for both financial and legal reasons. Without record keeping, it is difficult to get a business loan, and impossible to do taxes. Even more importantly, without the information that bookkeeping provides, wise decision-making is tricky and can lead to disastrous conditions.

There is a close correlation of success with those that realized the importance of bookkeeping and those that did not. Those that thought bookkeeping was an unnecessary luxury judged the success of their business by the amount of money in their bank account. Their thinking was “If I have money, I must be doing well.” That assumption, all too often, caused them to always be in the “fire-fighting” mode of management. Unfortunately, a lack of a bookkeeping system would end disastrously for the owner, with mortgages on their home, and bill-collectors hassling them. It even led to bankruptcy too many times.

Certainly, bookkeeping does not guarantee success. Nor is it all that is needed. Yet it leads us to information that can help us make well-informed decisions. Allen Bostrom, in his book “In the Black”, states “You hear a lot about the importance of making decisions based on data. What I have learned is that decisions should be based on wisdom, not necessarily data alone.” He goes on by describing the Wisdom Pyramid which is a triangular shape with “Data” at the bottom and topped by “Wisdom”. In other words, data leads to information, information leads to knowledge, and knowledge leads to wisdom.

In summary, the difference between achieving entrepreneurial dreams and disaster for a small business owner is often based on their appreciation or lack of appreciation for the information coming from a bookkeeping system.

10 Reasons to Start a Solo Bookkeeping & Tax Business

Are you thinking about starting a tax services or solo bookkeeping business of your own? The time is right for entrepreneurs with these kinds of skills. Here are some of the reasons an accounting-related startup makes sense.

Clients Are Plentiful
No matter what niche of the wide field of accountancy you choose to specialize in, you will not be at a loss for customers. In every kind of economy, people who can keep accurate financial records, prepare individual or commercial taxes, or offer an eclectic menu of services are in high demand. The trick is deciding where your skills lie and what you enjoy doing. This is where solo bookkeeping comes in.

You Can Earn a Degree While Working
When you run a one-person solo bookkeeping enterprise, you make your own schedule. That means it’s much easier to earn a college degree even while working full-time. Many solo bookkeeping and tax practitioners use weekends and evenings for taking online or in-person courses, and pay all the expenses with a student loan from a private lender. Tuition and fees can add up, even if you’re just needing to add an extra year of credits to sit for the CPA exam. Private lenders offer competitive rates and their online applications easy to fill out.

Business is Year-Round
Because many individuals file their returns in April every year, there’s a misconception that the entire field of accounting is highly seasonal. Nothing could be more inaccurate. For example, among entrepreneurs, most filing is a quarterly affair. Many other in-demand services are enjoying year-round demand, like bookkeeping, tax planning, preparation of financial reports, loan applications, and countless more. Even the personal taxation season is much longer than it used to be in the days when the majority of citizens waited until the last minute to transmit their returns. In the digital age, when online filing is simple and quick, and when most working adults receive W-2s electronically, the busy season for preparers now runs for nearly four full months.

You Can Specialize in Tax Resolution
For better or worse, there are thousands of individuals and businesses that are facing huge bills from the IRS. Sometimes, their best hope is to get an OIC (offer in compromise) or one of several other settlements that prevents payment of the entire amount owed. This niche of the taxation services sector is highly specialized but also quite lucrative for practitioners who want to hone in on a narrow field of operation. And because there’s never a shortage who owe large sums in back taxes and penalties, accountants who do resolution work rarely have difficulty keeping their schedules full.

Adding EA and CPA Credentials Will Expand Your Clientele
If your business card carries an EA (enrolled agent) or CPA (certified public accountant) designation, clients will notice. Even though the EA designation is newer and not well-known to individuals, the letters are familiar in the world of small businesses. Having both credentials prove to prospective clients that you are adept in the wide field of accounting but have special expertise in preparing tax returns such as a Professional Tax Preparer (PTP) and/or Professional Bookkeeper (PB).

Most Entrepreneurs Avoid Taxes and Bookkeeping
Except for the occasional startup or small business owner who majored in accounting, few entrepreneurs want anything to do with filing tax returns, keeping books, or installing purpose-designed software for the job. Like legal, payroll, and security functions, most small business owners prefer to hire someone else to take care of their monthly books, maintain tax records, and handle core accounting functions. That’s one of the central reasons that accounting service providers of all kinds have done well as solo operators and small partnerships for more than a century. It’s just a fact of human nature that people who are good at sales, management, and entrepreneurship don’t want to be bothered with number crunching.

You Have Full Control
As an owner, you make all the key decisions about what kind of clients to seek out, how many hours to work, what combination of tax, bookkeeping, and other services you wish to provide. If you choose to take on a partner, that too is your decision, as is the choice of office location, what software programs to use, and what functions to outsource. Solo owners have 100 percent control of the operation, which is one of the most attractive aspects of working alone for the vast majority of people who choose to do so. As a solopreneur (a solo bookkeeper), you dictate who to work for and when, and what to charge.

Long-Term Industry Prospects Are Excellent
Unlike many other entrepreneurial business sectors, taxation-related services will be in high demand for many years to come. No matter which political party is in power, the constant tax law changes, amendments, and enhancements mean that the entire body of the legislative code is not static. Individuals and small business owners need professional guidance and are willing to pay for the best advice possible.

You Can Outsource Tax Season Overload
One challenge many new owners face is the deluge of work that appears from early January through mid-April. How best to handle tax season if you run a one-person shop and manage perfectly well the rest of the year? Often, the most effective approach is to hire as many temp workers as needed. Or, you can simply outsource your overload to a local firm that accepts batch jobs during the busiest months of the year. The main thing is to be prepared for several weeks of intense work and identify temps or outsource assistance before the filing wave hits.

Office Expenses Are Minimal
If this is your first foray into solopreneurship, it’s important to know that you can handle a sizeable number of clients from a bare-bones office setup. It’s fully up to you whether that means renting a small office or operating from home. In fact, for many one-person-shop bookkeepers and tax specialists, rent isn’t even close to being the primary expense. Expect to spend more, especially during the first year, on software, new computers and peripherals, and advertising. Of course, if working alone is not something you enjoy, or if you see an advantage in teaming up with a partner, consider other options besides going it alone. But, of all the business professions, accounting is perhaps the one that most readily lends itself to a solitary pursuit of profits.

Don’t wait, get started now on your journey.

How to Become a Bookkeeper: An Overview

Bookkeeping has been a critical part of our world, from the importance of record-keeping for early trading cultures along the Silk Road to helping to anthologize information throughout the Industrial Revolution and the rise of capitalism. All along the way, we have had bookkeepers manage accounts, produce reports, monitor spending, track revenue, invoice, and serve other vital organizational needs. Bookkeepers are essential.

It is important to distinguish between a bookkeeper and an accountant; bookkeepers record daily financial transactions for a business, whereas an accountant’s job is to interpret the financial transactions. As a bookkeeper, you will use software to process spreadsheets and record the entirety of the financial data.

There is a lot of appeal to becoming a bookkeeper today, especially compared to how bookkeeping has changed with the rise of technology. One of the main reasons that bookkeeping is an excellent option for a career is that you can work remotely if desired. Many companies have shifted to remote work to accommodate the global medical crisis, but there is a slim percentage of other remote full-time jobs that would provide better pay than working as a bookkeeper. Another appeal of becoming a bookkeeper is the ability to pursue a career in the world of accounting without a mandatory college education.

Education

If you’re interested in starting your career as a bookkeeper, you will need to meet some fairly typical standards for education, starting with a high school diploma or GED.  Do not be intimidated by getting your GED. No matter what your age, there are programs designed to help you succeed. Attending a university is a great experience, but most companies do not require it when hiring bookkeepers. However, an associate’s or a bachelor’s degree in business administration or accounting does allow you to work for employers who expect a higher level of education.

You need to be savvy and confident in math skills and problem-solving, have thorough attention to detail, and be highly organized to be a thriving bookkeeper. There are plenty of other options in the world of information than traditional education via a college or university as long as there is a strong will to learn. If you are particularly self-motivated, you can obtain a lot of the same information through textbooks pertinent to accounting, but the cost of this literature is usually relatively high.

The more you are willing to invest in your future career, whether monetarily or temporally, the more desirable results you will find. At Universal Accounting School, you’ll have access to personalized assistance.

Training

To become a trained and well-prepared applicant, you will want to familiarize yourself with accounting software. We offer a Professional Bookkeeping certification designed in response to the increasing demand for small business bookkeepers. Using our educational content, you can become a self-taught bookkeeper in a relatively short time, depending on your schedule and how much time you are willing to put into the process. If you are willing to invest in your future within this field, starting with our Professional Bookkeeper certification course is a step in the right direction and is compacted into a few lessons. This course is designed to take three to four months, and you will be able to start looking for work after you complete the course.

If you are eager and have taken steps to prepare yourself, entry-level bookkeeping jobs are pretty ubiquitous in our society, as businesses are everywhere, and they all require the attention of bookkeepers. Many full-time starting positions will offer a training period of up to six months to get their employees up to speed on the software they use, their clientele, and other factors that contribute to their work environment.

Work Environment

There is no better training than direct experience. Although it can be intimidating to find work in the large world of business administration and accounting, many employers are willing to train individuals who are committed to becoming successful bookkeepers. Confidence, a positive attitude, and a plethora of applications will eventually land you a position with a company.

After you are hired as a bookkeeper for the first time, you should plan to stay with a company long enough to become a professional in your field. That amount of time can look very different to different people, but typically, new bookkeepers will want to spend a few years with the same company. However, this does not mean you should continue to offer your time to an employer that does not see your potential and help you reach it.

You might want to become a freelance bookkeeper, which is a common transition for many long-term professionals. This option is appealing to many because freelancers set their own rates and schedules, and have more deeply connected relationships with their clients.

As a freelance bookkeeper, you will be setting your rates and working for multiple clients simultaneously. Clients expect a range of services, including the ability to oversee payroll, solve wage and deduction management calculations, and manage accounts receivable, loss reports, and expenditure reports, so you will need to be highly organized and well-rounded in your capabilities.

Should You Become a Bookkeeper?

If this information resonates with your goals, you should not hesitate to step on to that path, doing everything in your power to succeed. You do necessarily need to commit to higher education, and the timeline for becoming a working bookkeeper is very flexible. Review the programs we offer, then contact us to discuss how we can help you succeed.

Next Page »