How do I do payroll?
Payroll accounting represents the most complicated record keeping and bookkeeping task that small businesses do. The only other activity that even comes close is preparing a corporate tax return.
Payroll accounting and recording requirements are extremely onerous. When you do your own payroll, you have to meet certain federal requirements for categorizing, tracking, and recording the amounts you pay your employees. You will have a series of only slightly less onerous requirements for reporting the amounts that you pay as an employer. State and local agencies also get into the payroll accounting process by requiring you to report wages and salaries paid and then pay taxes on those salaries and wages. These requirements, of course, vary by location.
For these reasons, we suggest that you pay an outside agency or individual to do the work. This might sound like shirking responsibility, but it is a very common decision for small businesses to make. This service often isn’t expensive—as little as $20 a month.
But it saves you an enormous amount of work by greatly simplifying your financial record keeping.
If you choose to prepare payroll yourself, and this might make sense if you prepare only a handful of checks a year or if you have only one or two employees, you can do so using the Money program. Before you begin, you must obtain the appropriate payroll preparation instructions from both the federal and state government. Call the local branch of the Internal Revenue Service to get the federal payroll preparation instructions,
otherwise known as Circular E. The Circular E booklet will tell you exactly how to prepare payroll checks—including the handling of payroll tax deductions and later payment of withheld amounts. You also need to locate and read the equivalent state payroll preparation instructions. With this information, and a bit of work, you can prepare payroll checks for employees. The Category field—actually the Split Transaction dialog box—lets you show your employees’ gross wages and tax deductions.
How do I prepare business income tax returns?
Using Money for business accounting greatly simplifies the preparation of your annual income tax returns. In essence, all you need to do is prepare the report that summarizes your profits and losses and then transfer the information from this report to your tax return. Sole proprietors report only profit and loss information on their Schedule C or Schedule C-EZ return, for example. So Money’s profit and loss statement provides every bit of data you need.
If you do business as a corporation, you are required to provide some balance sheet data as a part of the corporate tax return. To provide this data, you will also need to prepare a net worth statement as of the last day of the year.
Prepare your tax return using the Profit and Loss Statement report and a balance sheet, or Net Worth report. Don’t export data from the Money program directly to your business tax preparation program though. While exporting might seem to be a time saver, it actually hides some of the data that gets plugged into various input fields on your return. This hiding of the data and the data transfer can sometimes produce errors.
For this reason, you are better off using the reports as data sources and then entering this information by hand into the tax preparation program. Fortunately, for a small business there isn’t much data entry to do. You will have only a few numbers to move from the Money report to the tax preparation program.
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