I have just closed my FY in my C Corp on 07/31/2009, with a profit above $100,000. I would like to "pay myself" and one employee bonuses, to be accrued during that FY, as an "achievement bonus" for the good results that FY. The problem is that the FY cloed and the checks would go out in Auguts. We use the accrual method, so logically, it should be acceptable for the IRS. This would bring down the Net Profit and lower my Income Tax.
Is this acceptable for the IRS? I would make the payment as one more salary payment for each, with all the SS, MC & Inc. Tax payments & witholding.
Accruing bonuses to the employees as of Jul 31 are deductible for the FYE Jul 31 as long as they're physically paid by the 15th day of the 3rd month following the year end. Since you're planning on cutting checks in August, you're fine.
Unfortunately, that's not the case with respect to any party who owns > 50% of the C corp. For such person, the C corp can deduct the bonus as of the day the payment becomes taxable to the recipient (August, in this case); hence the corp gets the deduction for its FYE Jul 31 2010.
That's why there's always such a scramble during the final days of a C corp's year to estimate the net profits, and get 'em cleaned out via bonuses to the officer / shareholders before midnight of the last day.
This is all courtesy of IRC Sec 267, in case you need to pursue it further. Best regards,
Carefully scrutinize all the expenses the corp will be paying during August--and even into September, I'd say--and see if any can be properly allocable to July. For example, your check to the power company in mid-August might cover a service period running from mid-July to mid-Aug. If you hadn't already accrued it, then some portion of that August check could be accrued at Jul 31. The key to having the accrual get the IRS' stamp of approval, of course (should they choose to even bring it up) is making sure the accrued expense is truly a July expense. (Side note: You might need to have some of your vendors work up invoices for you, clearing indicating what portion of the bill is pre-Aug 01.)
Also, if you have a qualified retirement plan covering yourself and your employees, there might be some accrual planning opp there. For that one, though, you should get the definitive scoop from a retirement plan tax pro (which excludes yours truly, sorry). If this strategy is do-able, though, you might be able to trim your July 31 net by a hefty chunk.
Thank you very much for all your help! By the way, do you know of any software that would help for the daily Journal Entries and General Ledgers, other than the hyped and overated , "bells & whistle" laden, Peachtree & Quickbooks. Do accountants or bookkeepers actually still annotate in a physical book these entries. I would imagine most would be using some software that would speed up the process and create the ledgers from these Journals.... and P&L + Bce Sheet. I do not need a software that writes checks, POs, etc... just daly Journal + G. Ledgers.
I have no hands-on with either of these--so I can't offer anything but a "give 'em a look-see"--but there's a couple of freebies out there from two of the "names" you might wanna have a peek at:
Microsoft Office Accounting Express; Intuit / QB Simple Start.
As they're free versions of their more feature-laden siblings, it's possible they're just watered down enough to fit the bill for you.
I'm afraid I'm not plugged in to the acctg software space enough to be of much help. However, there are some good accountants who roam the virtual halls here at AMHD who I'm sure could give much better advice on this question. I'm sure they'll be drifting in soon, so stay tuned to see if they have anything to offer up on this one.
Thank you so much. So, must I understand that there still are many companies doing the old fashioned hard copy bookkeeping (recording in actual physical Journal Entry & General Ledger books), on a daily basis?
Just throwing in a bit of extra stuff, since I have used some of that software, and do.
I'm sure there's places still using a manual system. If it's a small enough place, especially like just one person working out of their home or something, that could be common. Or they could just use Excel to keep track of it and total things at year end, etc. When I worked for a CPA for a short period of time, we got a lot of hand stuff, but it was mostly just some daily sales sheets and other junk, and we'd take it all and put it into the computer. Those people were only doing portions of their books. In fact, if they were using Quicken, I'd still have to take their summary stuff and stick it into Peachtree cause Quicken just doesn't do a lot of what needs done. (I think it s***s.)
I personally like Peachtree. And I can actually ignore a lot of those bells and whisles and only use what I need to use if the company doesn't require all the junk. I can even simplify Peachtree to the point of using it for my own finances. I almost can't handle stuff like Money, and those programs have their drawbacks. (Not to mention that I'm used to Peachtree so it's easier for me to gear it towards what I want than use another program.)
As for "annotating in a physical book" -- yeah, sorta. But paper, not book.
Most of the easy entries are being done through the checkbook entry section, or thru invoicing, etc. For instance, I take the checkbook and start entering checks and telling it where I want to charge it or what payable I want to take it off of. It'll still print me out a report in journal format, automatically crediting the total to cash.
Any "general journal entries" -- i.e. adjusting entries or other month-end or year-end junk I gotta do -- I never just pop those directly out of my head into the computer. Even if they're easy, I want everything in one place, and I do many, many entries at once (not just the easy ones). Some entries require some time-consuming calculations, and sometimes there's entries that take up a half a page, or even a full page. So I use a regular old two-column journal sheet and write all that out first. And I keep those, and I can put them in a folder with any pertinent notes. Then when I have a few pages of those, I enter them all at once into Peachtree. It's actually more efficient that way.
(Toto, we're not in accounting class anymore.)
OK - that doesn't tell you what software you should be using, but you seemed curious, and I'm always willing to talk. LOL.
I've never thought of Quickbooks as having too many bells & whistles, but maybe it does for what you need.
One question is if you can just ignore the stuff you don't need. It's probably going to be difficult to get something that perfectly fits what you want, so you have to get something that includes everything you need and will end up with extras that you don't need.
Someone just mentioned something called GnuCash. I've never heard of it. Some ones I've heard of are Simply Accounting, MYOB, DacEasy (the one I learned at school, the DOS version :-)). Except for DacEasy, I haven't used the others and couldn't tell you anything.
I did find a site with several different ones, with some reviews, and a little chart of comparison of features. It might help. But I also just did a google on "accounting software small business reviews" and you can look at the different stuff. Or leave off "reviews" and I'm sure you can find some more detailed info about these. I personally think it's difficult to "recommend" a particular software without knowing exactly what you need and don't need. Accounting Software Review 2009 - TopTenREVIEWS
someone just mentioned something called gnucash. I've never heard of it. Some ones i've heard of are simply accounting, myob, daceasy (the one i learned at school, the dos version :-)). Except for daceasy, i haven't used the others and couldn't tell you anything.
I did find a site with several different ones, with some reviews, and a little chart of comparison of features. It might help. But i also just did a google on "accounting software small business reviews" and you can look at the different stuff. Or leave off "reviews" and i'm sure you can find some more detailed info about these. I personally think it's difficult to "recommend" a particular software without knowing exactly what you need and don't need.
Accounting software review 2009 - toptenreviews
Thank you ArcSine & Morgaine300. Precisely, I found that "Top 10 Review" site yesterday and came across a softw. that seems very good, called "Bookkeeping". It is very simply & logical, allows direct Journal Entries, and although has all the bells & whistles, seems more logically laid out than Quickbooks & Peachtree (although I am not an expert on those 2). It even has a 30d. free trial and it downloads in seconds. At this point, I am between "tweaking" my excel double-entry spreadsheets or giving this software a try. The advantage of the software should be the speed in creating reports.
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