Putting the kid to work
I am not a CPA and don't do taxes, so talk to your CPA before you follow my example here. If you don't have a CPA and you have a small business, stop what you're doing and get one. Now.
O.K. now that that's out of the way, let's talk about why you might want to employ your child. I know CPAs that have encouraged clients to employ their kids to clean the office and their spouses to file and run errands. What's the advantage of this? For one, there are tax savings for the business when paying a family member as an employee. If the family member is under the age of 18 (presumably a child, not a spouse) you don't have to withhold or pay FICA or medicare, nor do you have to pay FUTA or SUTA. (If you don't know what those are, make sure your payroll processor does.) If you decide to employ your children, you have to comply with child labor laws and the amount you pay should be reasonable for the work performed. Some people put their kids on the payroll just to make the child's allowance a tax deductible business expense. I guess that makes good business sense, especially if you're following the advice of your CPA.
However, I believe there are other, better reasons to hire your son or daughter. My friend, Chris, a terrific CPA, is a huge advocate of Roth IRAs and thinks the earlier someone starts contributing, the better. (We had some family turmoil around this issue a few years ago when I had my 16 year old son set one up and contribute half of his summer earnings to it. He didn't know it was not just a savings account and got quite upset when he discovered he couldn't withdraw the money and buy a new amp.) If your child is working for you, then she or he can make a Roth IRA contribution and start building toward the future.
In addition to the pragmatic, financial benefits of employing your child, I believe there are some powerful familial benefits. This is why I have hired my 15 year old. He is learning skills that will be useful to him on the job front. I showed him how to create an Excel spreadsheet the other day and he thought it was great. I'm afraid to even look at his math homework since then -- he's probably done it all in Excel. He's also learning to reconcile bank statements, address envelopes and write checks. He understands what he's looking at when he sees a deposit slip, receipt or bill. All things he will have to know in the course of daily life.
The best part is that we are working together. I get to see how his mind works as he learns new things. We get to share a few hours a week that are outside the barrage of homework, cell phones, text messaging, and itunes. He may not consider it quality time, but for me, it's the highlight of my week.
Putting the kid to work posted by CL Goddard Financial @ 9:07 AM 0 Comments
O.K. now that that's out of the way, let's talk about why you might want to employ your child. I know CPAs that have encouraged clients to employ their kids to clean the office and their spouses to file and run errands. What's the advantage of this? For one, there are tax savings for the business when paying a family member as an employee. If the family member is under the age of 18 (presumably a child, not a spouse) you don't have to withhold or pay FICA or medicare, nor do you have to pay FUTA or SUTA. (If you don't know what those are, make sure your payroll processor does.) If you decide to employ your children, you have to comply with child labor laws and the amount you pay should be reasonable for the work performed. Some people put their kids on the payroll just to make the child's allowance a tax deductible business expense. I guess that makes good business sense, especially if you're following the advice of your CPA.
However, I believe there are other, better reasons to hire your son or daughter. My friend, Chris, a terrific CPA, is a huge advocate of Roth IRAs and thinks the earlier someone starts contributing, the better. (We had some family turmoil around this issue a few years ago when I had my 16 year old son set one up and contribute half of his summer earnings to it. He didn't know it was not just a savings account and got quite upset when he discovered he couldn't withdraw the money and buy a new amp.) If your child is working for you, then she or he can make a Roth IRA contribution and start building toward the future.
In addition to the pragmatic, financial benefits of employing your child, I believe there are some powerful familial benefits. This is why I have hired my 15 year old. He is learning skills that will be useful to him on the job front. I showed him how to create an Excel spreadsheet the other day and he thought it was great. I'm afraid to even look at his math homework since then -- he's probably done it all in Excel. He's also learning to reconcile bank statements, address envelopes and write checks. He understands what he's looking at when he sees a deposit slip, receipt or bill. All things he will have to know in the course of daily life.
The best part is that we are working together. I get to see how his mind works as he learns new things. We get to share a few hours a week that are outside the barrage of homework, cell phones, text messaging, and itunes. He may not consider it quality time, but for me, it's the highlight of my week.
Labels: employee, family members on payroll, Roth IRA, small business, taxes
Putting the kid to work posted by CL Goddard Financial @ 9:07 AM 0 Comments
Recon 101
A couple of days ago I had a call from one of my QuickBooks for the Mac users. Patty is a terrific lady who took the reins of her family business and finances when her husband retired. Over 5 or 6 sessions together we set up the books in QuickBooks on her new Mac and I taught her how to get around in the program and how to run the reports I had created. It was pretty basic bookkeeping -- cash based, no invoices, no inventory, everything straight forward. Patti got a handle on things and was meticulous about entering everything into the books, and enjoyed doing it.
Recon 101 posted by CL Goddard Financial @ 2:39 PM 0 Comments
She had been running her books on her own(flying solo) for a couple of months when she called and left a message saying that she was having problems with reconciliation of the bank statements. She said there were duplicate checks in the register, and wanted me to drive up to her office and help her figure it out. Listening to her message, I groaned. I was very busy and did not know if I could fit her in a house call. Perhaps it wouldn't be necessary -- I often can diagnose and fix a problem over the phone.
I called her back and asked if she had been downloading
transactions from the bank. People sometimes end up with duplicate entries when they enter data manually or through memorized transactions, then do a download. Theoretically, this shouldn't happen, as the downloading process matches transactions that are already in the register, but I'd seen it occur for one reason or another.
When she said that she didn't even know how to do online banking and had never downloaded anything, I figured I'd have to look at her books firsthand to understand the problem.
transactions from the bank. People sometimes end up with duplicate entries when they enter data manually or through memorized transactions, then do a download. Theoretically, this shouldn't happen, as the downloading process matches transactions that are already in the register, but I'd seen it occur for one reason or another.
When she said that she didn't even know how to do online banking and had never downloaded anything, I figured I'd have to look at her books firsthand to understand the problem.
When I arrived she showed me the problem -- the opening balance in her reconciliation window of QuickBooks did not match the opening balance on the bank statement.
If this happens in any of the newer QuickBooks PC editions, all you have to do is look at the reconciliation discrepancy report, which will tell you what has been changed since the last recon. Unfortunately, the Mac version does not have this feature. We'd have to sleuth out the problem.
Fortunately, Patti had kept all her printed reconciliation reports so I was able to compare the cleared items on the printed reports to the cleared items in QuickBooks. Also, fortunately, she does not put through very many transactions in any given month. Since she had only been doing the books in QuickBooks for a few months, there was not too much data to compare to the reports.
Eventually I discovered the problem - it had started the first month that she had reconciled. She had accidentally cleared a check that had yet to hit the bank. In fact, the check was dated for the month after the reconciliation. In the PC versions of QuickBooks, you enter the statement ending date in the recon window when you first begin the reconciliation. You are also given the option (in newer versions of QuickBooks) of hiding all transactions dated after the statement date. Had Patti been using such an option, she would not have accidentally clicked off a check dated after the statement date and she would not have had the problem with that first reconciliation. When she finished that first reconciliation a message popped up telling her that her ending balance did not match the bank statement balance and asked if she wanted QuickBooks to add an entry to make them match.
If this happens to you, the answer is NO. If the ending balance doesnt' match, then you need to find out why. Unfortunately, many people say OK and let QuickBooks "fix" the problem. This is what Patti had done.
QuickBooks created an entry to offset the check that had been incorrectly cleared. Later, when Patti looked at the register, she saw this entry and knew it was wrong, so she deleted it. Since that entry had been cleared as part of the reconcilation, by deleting it, Patti had done something we never do. She had deleted a cleared transaction. Never delete a cleared transaction.
Patti did not understand why every time she attempted to reconcile, the opening balance was off. She let QuickBooks "fix" her balance, then later found "duplicate" checks in her register. They were not actually duplicates. The amounts were duplicates of the original check she had cleared incorrectly, but they hit different offset accounts (in this case opening balance equity). Patti kept deleting these entries when she saw them, wondering why she was getting duplicate checks in her register, and eventually called me, thinking it was a glitch in the software.
This was a good learning session for Patti as I worked my way through her books and figured out the problem. She learned how good it was to keep hard copies of the recon reports. She also learned not to accept an adjusting entry if the bank statement balance doesn't match the QuickBooks balance, and finally, Never to delete a cleared transaction. Those are the lessons of Recon 101.
Labels: bank statements, bookkeeping, QuickBooks
Recon 101 posted by CL Goddard Financial @ 2:39 PM 0 Comments
