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Posted by lo on December 21, 2007, 3:06 pm
Please log in for more thread options Friday, December 21, 2007
Hello there:
Thank you Paul for your great help, and John, you are correct, I have little
knowledge about
accounting, taxes, etc. but at the last minute I had the opportunity to get
into this business and
I am trying to ask questions and read as much as possible about the subject
to prepare myself
before I go to an accountant which should be in about 2 weeks from now.
Happy Holidays and thank you again,
Lo
================ ============================
> wrote:
> >
> >
> >
> > > On October of this year, a friend of mine and I accepted to run a
small
> > > advertisement magazine that publishes every 4 weeks (13 times per
year).
> > > The
> > > type of service we provide doesn't require us to collect sales tax. We
> > > have
> > > around 7 vendors to pay, and about 40 clients, most of them are repeat
> > > clients. (No employees) We pay the owner of the magazine a set price
per
> > > page.
> >
> > > We created an S Corporation, two shareholders total and we both own an
> > > equal
> > > number of shares. We were told that QUICKBOOKS was the best choice for
us
> > > to
> > > organize our business, create invoices, etc. We got QUICKBOOKS PREMIER
> > > EDITION and entered the company information in the program.
> >
> > > Our cycle is as follows: every 4th week we accept the ads from our
> > > clients,
> > > present them with a graphic proof of the ads, do corrections and bill
them
> > > at the same time. We get their payment before everything goes for
> > > printing.
> > > About 13 days later, the magazine is out for distribution. During
these 13
> > > days, we pay all the vendors involved.
> >
> > > We have few questions about the subject:
> >
> > > 1-) To distribute the income between us, every 4 weeks we withdraw
some
> > > money. On the chart of accounts, we created one account called Owner's
> > > Draws
> > > (type: Equity) that we use for this purpose. Is this the correct way
to
> > > collect the "profit"?
> >
> > Yes, but. Some of what you take from the company needs to be in the
form of
> > wages paid for your personal services. So if you're not doing so, set
> > yourselves up as employees and take something out as wages, handling the
> > appropriate amount of tax withholding, etc.
> >
> > > We always make sure that we leave in every draw,
> > > enough money in the bank account that what we begin with to make sure
we
> > > can
> > > cover ourselves in case of unexpected expenses. At the end of
> > > the year, will that additional money be shown as profit as well?
> >
> > You'll be taxed on the profits, regardless of if the amount of cash
taken
> > was less.
> >
> > > 2-) We incurred in expenses to open and run the corporation, here are
some
> > > example of expenses:
> > > Fees for in Corporation
> > > Professional fees for help forming the corporation.
> >
> > Capitalize as an asset called "organization costs" and amortize over 180
> > months, although there is an election to fully expense them in this
year.
> >
> > > P.O.Box rental.
> > > Basic office supplies.
> > > Order of checks and stamp.
> > > Telephone line.
> >
> > Deductible expenses this year.
> >
> > > Software, etc.
> >
> > Software is another asset that gets capitalized and depreciated over
three
> > years, althoug it too can be expensed out quicker (section 179 applies)
if
> > you so elect.
> >
> > > Can we get reimbursement for these expenses from the corporation, and
if
> > > yes, show those specific expenses but the check made to us personally?
> > > Under
> > > what accounts that would be classified?
> >
> > See above for the classification, and yes, the company can curt you a
check
> > for the expenses you incured - except - you need to have some "basis"
for
> > the shares you each hold.
> >
> > > 3-)As far as I understand, from the second year on of existence of the
> > > corporation, either my partner or I have to be an employee of the
> > > corporation, is this correct? Do we need an employee?
> >
> > Yeah, you may need to be an employee for the first year too.
> >
> > What might happen if you weren't employees, is the IRS (or state) would
> > reclassify you as an employee, make a demand for unpaid payroll taxes,
> > penalties for late payment, penalties for late filing of payroll
returns,
> > etc and so on till you're broke.
> >
> > > 4-)Of the initial money we use to open the bank account, now that
there is
> > > additional monies in the account, can we withdraw the initial money
back
> > > to
> > > us and if yes under what account would that be classified?
> >
> > You need to remember that you have to have some basis for the stock you
> > bought. When you buy shares of a company - from the company as you did,
the
> > money goews to the company, and you get a piece of paper that says
you're
> > part owner. If you get that money back, who is the owner?
> >
> > > 5-) In an accounting book that we bought, it says that from the very
> > > beginning we have to decide if we are going to run the business in an
> > > accrual or cash basis, but searching Quick Books, it seems that you
can do
> > > either, it is just matter of setting the reports one way or another,
is
> > > that
> > > correct?
> >
> > For report printing in QB, yes, you can flip between the two. How you
use
> > the software has more impact than the report selection. You could
select
> > "accrual" and do all yoru accounting entries on the cash basis (ie:" not
use
> > the payables or receivables functions) and get reports under both basis
that
> > are identical. Also, cash and accrual have an impact on taxes and other
> > issues outside of the books.
> >
> > > 6-) We use 3 people to distribute the books, we pay them as
independents
> > > under a distribution account (Type: expense) but my partner and I do
few
> > > distribution stops as well (only about $150 each, every 4 weeks) how
do we
> > > pay ourselves for that activity?
> >
> > As employees. The other workers might be employees as well. Look into
that
> > and see if you need to treat them accordingly.
> >
> > > 7-) We pay to the owner of the magazine every 4 weeks, a set price per
> > > page,
> > > I created an account for it called "Page rent, John Smith" (Type:
> > > Expense)
> > > Is this correct?
> >
> > What you are paying the "owner" could vary accordingly. A stroll
through
> > the contract would reveal what it is you are paying, and if it should be
> > capitalized (and maybe depreciated) or currently deducted.
> >
> > You need to find a local CPA or EA who can best advise you of the issues
> > above, after they've seen the books, records, contracts, etc, as they
can do
> > a face-to-face with you and ask a lot of questions to determine where
things
> > lie and how best to handle them.
>
>
> Second that advice and add that you should seek a local tax accountant
> ASAP. From the nature of your questions it sounds like you do not
> have an understanding of year end requirements for taxes, bookkeeping,
> etc. If you don't have professional assistance soon it could be a
> disaster at tax time or at a minimum you could lose valuable tax
> deductions that you don't even know about.
>
>
>
>
>
>
>
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