Setting Up Microsoft Small Business Accounting Program for an LLC
If you operate your small business as a limited liability company, you may already know that setting up Microsoft's Small Business Accounting software can be sort of confusing. Fortunately, you can use four easy tips to assure that your new accounting 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 a limited liability company are called 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.
And all this suggests a first tip for setting up Microsoft's accounting software for your limited liability company. When you run the installation wizard, do not tell the software you're setting up a limited liability company. Rather, tell the installation software that you're setting up for the type of taxpayer the LLC will be treated as.
Correctly identifying the sort of taxpayer your LLC is means the accounting 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 accounting purposes--and this is the tip--you don't want to put the different LLCs into separate accounting datafiles. Rather, you want to track each child LLC's accounts, income and deductions inside its parent's accounting datafile.
This combination means that for tax accounting purposes, and as is appropriate, the parent and the children combine their income and deductions within a single Microsoft Small Business Accounting 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 accounting 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 accounting 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 Small Business Accounting, the form windows provide options for customizing the form.
About the author:
CPA Stephen L. Nelson is the author of Maximizing Employee Retention Credits.