accounting office.
Microsoft Small Business Accounting Software And Limited Liability Companies
If you operate your small business as a limited liability company, you may already know that setting up Microsoft's Small Business software can be sort of confusing. Fortunately, you can use four easy tips to assure that your new software works as it should.
Tip #1: Pretend the LLC Is Something Else (for Accounting)
A limited liability company, for tax return preparation and bookkeeping purposes, always gets treated as something else.
An LLC with a single owner, or member, is treated as a sole proprietorship if the LLC operates an active trade or business, for example. And a limited liability company with multiple owners, or members, is treated as a partnership. (Note: The owners of an LLC corporation technically are labeled "members".)
Limited liability companies may also elect for tax return preparation purposes to be treated as regular corporations (called C corporations) or as Subchapter S corporations.
The preceding discussion points to a first technique for correctly installing Microsoft's program for an LLC. When you run the installation wizard, do not tell the software you're setting up a limited liability company. Instead, tell the installation program that you're the type of business taxpayer (sole proprietorship, partnership, corporation or whatever) that the LLC will be treated as.
Correctly identifying the sort of taxpayer your LLC is means the software gets setup in a way that works for your tax accounting.
Tip #2: Account for Single-member LLCs Inside the Parent LLC
A common asset protection technique is to have a parent LLC or a parent corporation own child LLCs and then have each child LLC own a chunk of the business. A retail chain with multiple locations, for example, might use a separate LLC for each outlet.
This sort of parent-child LLC structure makes legal sense. But for purposes--and this is the tip--you don't want to put
the different LLCs into separate datafiles. Rather, you want to track each child LLC's accounts, income and deductions inside its parent's datafile.
This combination means that for tax purposes, and as is appropriate, the parent and the children combine their income and deductions within a single Microsoft Small Business data file.
Tip #3: Use the Chart of Accounts to Identify LLC Assets and Debts
One other wrinkle should be mentioned related to combining LLC records, however: Because each limited liability company is a different legal entity, you should use different accounts to track the assets owned by and liabilities owed by the separate limited liability companies.
Each LLC should have its own separate bank account, for example. Each LLC should track its own accounts receivable, furniture and fixtures using specific-to-that-LLC asset accounts. And each LLC should use track its debts with specific-to-that-LLC liability accounts.
Tip #4: Customize Forms for Each LLC as Necessary
As just mentioned, you can and should combine the parent LLC and the child LLC transactions within a single datafile. However, you still want to recognize and visually highlight the separate legal identity of the parent LLC and of any child LLCs.
Within Microsoft Small Business Accounting, the easiest method of maintaining this separate identity is through customized forms for each entity. If an LLC invoices customers or clients, for example, that LLC should have its own customized invoice or statement form that uses that LLC's name. If an LLC issues purchase orders, that LLC should have its own custom purchase order that (again) uses the LLC's name. Obviously, if an LLC has its own bank account, that bank account will have its own check forms with the LLC name.
Note: Within the Microsoft software program, the form windows provide options for customizing the form.
A Seattle CPA, Stephen L Nelson wrote QuickBooks for Dummies and edits the do-it-yourself limited liability company versus S corporation web sites