I have a cash-basis client that uses Quickbooks and and in reviewing client's P&L, I found there are workman comp. insurance expenses on the P&L that client did not pay to insurance company in the year that it was expensed. (For example, if I run a report showing actual checks made out to insurance company, total is $10,000; however the P&L shows an expense of $13,000. I called Quickbooks and was advised that if workman's comp is set up in payroll system, as soon as the expense hits a payroll check, it becomes an expense even if client did not pay insurance company. Would the IRS deem the $13,000 correctly expensed? I would not have thought so.....
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Does the $13K show up if you modify the PL to "Cash Basis"?. I would have thought not, but sometimes QB handles payroll itsm & sales tax items in an unusual way. In any event, you should delete the $3K from expenses for a cahs basis taxpayer."The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith -
We've had this discussion years ago. It is painful because we are trying to follow the rules but this is an area I find impossible to follow because I get so mixed up and confused and the confusion carries over into the next year and the next....
So, I don't follow them. Payroll taxes that are for 2008 and paid in 2009 are supposed to be recorded in 2009 for a cash basis taxpayer. But, like I said, all the double checks for the year, all the proofs, and all the keeping things straight require that I record them in 2008.
However, I only do this for 941/940/Suta/State Withholding. for Worker's comp I am careful to record in the year actually paid.
My tax soft ware makes this distinction of payroll taxes and Worker's comp and so do I.JGComment
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It probably won't make much difference if payroll averages about the same and the accruals and reversals are fairly constant on a year-over-year basis, but just as sure as you make that assumption something drastic will change one year & that will be the year that gets audited."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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Profit & Loss - Payroll
The P&L was generated by the cash basis; that is why I was surprised that the $13,000 showed on the report. So, basically, QB is incorrectly reporting expenses that shouldn't be there????? How do other tax preparers handle a client who uses Quickbooks for their accounting? The only reason I was researching so deeply into client's QB is because he is being audited. If client hands you a P&L in "cash basis" generated from QB, do you go with the figures on P&L and balance sheet after asking basic questions or do you ask to see more detailed info?Comment
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I get the QB backup and look into the details. If I only received the paper copies of the financial statements and they said "Cash Basis" and looked reasonable, I'd probably go with what was on the report. If the IRS wants to reclassify the Worker's Comp to 2009, then it's likely that 2007 would have accrued into 2008 and just wash - like John said. I believe they might be less concerned with simple timing issues than flat out evasion.
Curious - what do you think triggered the audit?
FYI: QB treats anything entered via the "journal entry" function and anything associated with the payroll function as cash basis.Comment
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Profit & Loss - Payroll
He was previously audited on his 941's for being delinquent, hadn't filed in a couple of years and when he did file, he had a large loss in the year he is being audited. Could be any number of things; but I think the loss is what flagged it.Comment
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I won't accept any paper P&L from QB. I insist on getting the file and I charge for the time it takes to reconcile their books to the books I can use to do the tax return.Originally posted by peggysioux View PostComment
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He should take WC out of the payroll system, and charge it under a separate expense account labeled Workman's Comp. That way, it will post in the correct year.Originally posted by peggysioux View PostComment
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Maybe clients needs to have work.comp. in payroll for job costing purposes.Originally posted by Burke View PostComment
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Not always.
Many do not agree with that opinion and do not do it that way.Originally posted by Burke View Post
QuickBooks now has a feature that allows you to enter your workers comp rate for each class of worker and tie that to each employee. It then figures the expense for each pay exactly the same as it does for FUTA, SUTA, and FICA. And it is posted to the workers comp expense account and easily identified.
We do not take any of that out of the current year and the companies that are not figured automatically we do a journal entry to expense the comp and FUTA and SUTA in the same period as the wages expense as soon as we have the fourth quarter forms done. It feels like that is the only thing that I have gotten done the last four weeks..Wait!! It is about the only thing I have done for the last four or five weeks!!!
This topic has been hashed many times in many places, including classes I have taken and the bottom line is that if you are comfortable expensing in the period with the rest of the pay it is merely a timing issue and if it is done consistently from year to year it will not make a material difference and will be allowed.AJ, EAComment
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