Payroll Choices

Having a chat this week with someone who wanted to move their payroll to QuickBooks reminded me of the challenge business owners face when selecting how to process their payroll. Regardless of what processing option you select, it’s important to remember that someone who works for you (either as an employee or in a consultative capacity) must understand the payroll in depth.  That means being clear on the tax demands of federal, state and local governments.  It also means understanding how to deal with issues like garnishment for child support payments and other delinquencies.  In sum, you need someone who can get at the right information when it's needed.

The word “organized” can’t be used enough in a sentence that also includes the word “payroll”.  You have to know the correct information about every employee and you have to get it right every time.  QuickBooks has tools to help you get started and walk you through the process.  The idea is to make sure you’ve got the information you need before you sit down at the computer.

Just a look at that preliminary list is enough to send many people straight to a payroll service provider. For many companies that is the best option, but it’s worth noting that outsourcing payroll is not like selecting a vendor for garbage pick-up.  Some weeks payroll will run as easily as getting the trash to the dumpster.  Other days there will be issues, and they have to be dealt with real time.  Payroll is the most important thing you do for your employees, and it has to be done right every time.  On top of that, the penalties for not complying with payroll taxes are swift, severe and actively enforced.   Like every other challenge in business, it can be managed, but it’s important not to underestimate what it will take to “make payroll”.  It’s not just having the money in the bank.

Sales Tax Adjustments

There are two approaches you can take to correcting the sales tax related to a bad debt.  First let me emphasize that this is assuming you are not on the hook for the sales tax regardless of what money you actually collected.  This varies by jurisdiction, so you need to check first and make sure this is a legitimate change in the amount of sales tax you owe. 

Assuming that you can avoid paying sales tax for a “sale” that you didn’t get paid for (or paid in full for) there are two options that appear to be the most popular ways to manage this.   The most straightforward to me is using the Manage Sales Tax Icon and then entering the information in the dialogue box.  If you prefer to use the menu:  go to Vendor, then Sales Tax, then Adjust Sales tax.  If you pay sales tax for more than one jurisdiction you’ll have to adjust each entity separately.

Once you reach the dialogue box you'll want to select the radio button to decrease the sales tax.  You also need to select some sort of "other income"  account to take the adjustment.  Remember, in this case you are not really adding any money to your business.  You are literally just reversing a "subtraction" based on an event that didn't happen.  (Or at least it didn't transpire in the manner you had hoped.)

Once you make the adjustment, make sure you follow through on it when you make the payment.  It should calculate the adjustment prior to you actually saving the transaction.

  If for some reason you would rather do a journal entry, here’s an excerpt from the QuickBooks knowledge base: 

How to create a Journal Entry to adjust the Sales Tax in QuickBooks:

1.     From the Company menu, select Make General Journal Entries.

2.     Select the Sales Tax Payable account in the Account field drop-down menu.

3.     Enter the amount and the vendor it applies to.

4.     On the next line, enter the account you want the adjustment to be tracked in.

5.     Click OK to save the journal entry.

 Once again, make sure to mark the adjustment with a check mark when you go to make the payment.  It’s unfortunately all to easy to make the changes and then process the transaction without including the new information.  (Not that I’ve done it personally….)  LOL