Getting Ready for 'Auld Lang Syne' - Part 2

by

Modern accounting systems are, for the most part, of a 'perpetual' design that saves users a lot of work related to closing one year's 'books' and then open the new year's 'books'. Even so, there are many tasks that users should accomplish at 'year-end' on in the days and weeks leading up to it. By looking at the various tasks that should be accomplished as part of the year-end process, you should garner a good idea of what you need to accomplish prior to singing 'Auld Lang Syne' at the stroke of midnight as you close the bid a fond farewell to 2018 and welcome in 2019.

In this send part of this mini-series we will look at a few more of these 'need to' tasks.

Review Fixed Asset Purchases During the Year and over the Life of the Asset

Review Fixed Asset details (which you can capture using a fixed-asset item in QuickBooks Desktop) including:

  • Date of purchase
  • Purchase price
  • Type of asset
  • Make
  • Model
  • Year
  • New or used

Typically, you expense the purchase price of a fixed asset over its useful life, not just the year in which you made the purchase. This business expense is known as depreciation. Keeping track of these details will make the task of recording depreciation much easier.  One way of keeping track of this information is to use the Fixed Asset Item Type within QuickBooks (an example is show below). Note: The item here is being used in conjunction with Fixed Asset Manager (observe the section in the lower right hand corner of the item).

Consult your accountant to determine how to calculate depreciation for fixed assets such as furniture, computers, vehicles, and buildings. Because of their long-term value, fixed assets are treated differently than other business expenses. If you are using QuickBooks Enterprise, you have an alternative for tracking fixed assets and also computing depreciation. The QuickBooks Fixed Asset Manager is a very sophisticated tool that allows you to set up all the details you need to determine compliant depreciation convention computations (as shown in the example below). Note: The item below is the same item linked to the Fixed Asset Item within the QuickBooks Fixed Asset Item List shown above.

When properly recorded your Fixed Asset Item(s) in QuickBooks, Your Fixed Asset Manager Assets, and your Journalized transactions within QuickBooks reflecting transactions related to the recording of asset original cost (book value) should all reflect the same information.  In addition, they should also reflect the proper depreciation reflecting the ‘practical worth’ of the asset. Again, when properly configured the Fixed Asset Manager will post transactions to QuickBooks to credit depreciation against the asset on the Balance Sheet and debit the Depreciation Expense account on the Income Statement at various times (but not less than annually) over the life of the asset.

QuickBooks Online users are limited in terms of Fixed Asset Management capabilities. There is not actual 'Fixed Asset Item type' in QBO but there is an expanded information set available for the Fixed Asset 'Account type' (as shown below).

Even though QuickBooks Online gives us the ability to capture more details in setting up a ‘fixed asset’ type Account (then is possible when using QuickBooks Desktop) we can’t capture as many details as are possible with either a QuickBooks Desktop Fixed Asset ‘Item’ or a QuickBooks Fixed Asset Manager ‘Asset listing’. Therefore, I suggest if you use QuickBooks Online you consider one of the two Apps presently available within the Intuit QuickBooks App Store that work hand-in-hand with QBO to give you capabilities to detailed fixed asset information beyond QBO functionality.

One of these is Fixed Asset Connect which provides a ‘full lifecycle management’ platform that includes fixed asset accounting, tax calculations and a ‘preventive maintenance’ module.

The other is Asset Guru which allows you to track a wide variety track information about your assets including purchase dates, warranty expiration dates, replacement dates, computed deprecation and then post that depreciation directly to QuickBooks Online.

Make Asset Depreciation Entries and Adjustments

Fixed assets such as furniture, computers, vehicles, and buildings contribute to the operating capacity of a business over many years. Because of their long-term value, fixed assets are treated differently than other expenses. Typically, you expense the purchase price of the fixed asset over its useful life, not just the year in which you made the purchase.

Each fixed asset should have its own "parent" asset account in the chart of accounts, and two subaccounts: one for the original purchase price of the item, and the other for its accumulated depreciation. For example, you could have a "Company Vehicle" parent account with two subaccounts, "Purchase(s)" and "Depreciation."

You may or may not choose to use a separate expense account to track depreciation expenses associated with each “parent” asset.

When using Fixed Asset Manager your Accumulated Depreciation and Depreciation Expense Journal Entries for each Asset account will be posted for you. Make certain you have reconciled the fixed assets prior to finalizing this process, Fixed Asset Manager gives you the opportunity to preview each Journal Entry prior to recording it within QuickBooks.

Because you configure each ‘Asset’, ‘Asset Accumulated Depreciation’ and ‘Depreciation Expense’ for each Asset during the set-up process when configuring Fixed Asset Manager your Journal Entries will be as general or specific in terms of account configuration as your designate.

Review Fringe Benefits that May Need to be Reported on Form W-2

Some fringe benefits may be considered compensation other than wages provided to an employee and in some situations can be either be taxable or non-taxable. Examples of fringe benefits include:

  • Health and life insurance
  • Public transportation subsidies
  • Moving expense reimbursement
  • Employer-provided vehicles
  • Educational reimbursement plans
  • Group-term life insurance
  • Employee loans that are forgiven

While the majority of fringe benefits may not be taxable in full under many circumstances, there are exceptions so if you're not certain whether you offer taxable fringe benefits to your employees, you should consult with your accountant or tax advisor.

And even if certain benefits are not considered taxable compensation for 2018, they may still be reportable (in whole or in part) under new reporting requirements related to Form W-2.

  • An employer must report the cost of employer-sponsored health coverage in box 12 using code DD. However, transitional relief applies to certain employers and certain types of plans. See the specific guidelines for Code DD transitional relief and other related information at this official IRS website.
  • Public transportation/transit subsidy benefit plans are limited during 2018 to $260/mo., the same limitation applies to parking subsidy benefit plans. Tranportation/Commuting Benefits are outlined in IRS Publication 15B at this official IRS website.
  • Effective for tax years 2018 through 2025 All non-military related moving expenses are nonqualified moving expenses and expense reimbursements reportable in boxes 1, 3 and 5 of Form W-2 and are subject to federal income tax withholding and social security and Medicare taxes.
  • Personal Use of a Company Car (PUCC) is a non-Cash Fringe Benefit. A portion of the car's value is considered part of the employee's total compensation for tax purposes, even though the employer owns or leases the car.
  • If you don't have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. You will find det Employer’s Tax Guide to Fringe Benefits available at this official IRS website.
  • You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. In addition, you don't have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code “C.” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Group Term-life benefits are outlined in IRS Publication 15-B: Employer’s Tax Guide to Fringe Benefits available at this official IRS website.

We will have a few more installments of this mini-series before we all sing ‘Auld Lang Syne.’

Disclosure: Information presented herein is for information purposes only, it should not be relied upon as 'tax or legal' advice. Be sure to check with all taxing authorities, including your accountant, tax preparer and any tax advisor about any specific tax provisions that may impact your tax situation before preparing tax forms or submitting tax returns.