Individual Taxpayers: The Year in Review
As we close out the year and get ready for tax season, here’s what individuals and families need to know about tax provisions for 2021.
Personal exemptions are eliminated for tax years 2018 through 2025.
The standard deduction for married couples filing a joint return in 2021 is $25,100. For singles and married individuals filing separately, it is $12,550, and for heads of household, the deduction is $18,800.
The additional standard deduction for blind people and senior citizens in 2021 is $1,350 for married individuals and $1,700 for singles and heads of households.
Income Tax Rates
In 2021 the top tax rate of 37 percent affects individuals whose income exceeds $518,400 ($628,300 for married taxpayers filing a joint return). Marginal tax rates for 2021 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status.
Estate and Gift Taxes
In 2021 there is an exemption of $11.70 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000.
Alternative Minimum Tax (AMT)
For 2021, exemption amounts increased to $73,600 for single and head of household filers, $114,600 for married people filing jointly and for qualifying widows or widowers, and $57,300 for married taxpayers filing separately.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is limited to $2,750 per year in 2021 (same as 2020) and applies only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.
Long-Term Capital Gains
In 2021 tax rates on capital gains and dividends remain the same as 2020 rates (0%, 15%, and a top rate of 20%); however, taxpayers should be reminded that threshold amounts don’t correspond to the tax bracket rate structure as they have in the past. For example, taxpayers whose income is below $40,400 for single filers and $80,800 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $445,850 ($501,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Miscellaneous deductions that exceed 2 percent of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage.
Business owners are not affected and can still deduct business-related expenses on Schedule C.
Individuals – Tax Credits
In 2021 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $14,440 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit. For 2021, the American Rescue Plan Act of 2021, enacted March 11, 2021, made the credit substantially more generous (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) and potentially refundable, so you might not have to owe taxes to claim the credit (so long as you meet the other requirements).
More taxpayers will be eligible for the credit for the first time and that, for many taxpayers, the amount of the credit will be larger than in prior years. Taxpayers with an adjusted gross income over $438,000, however, are not eligible for this credit even though they may have previously been able to claim the credit.
Child Tax Credit and Credit for Other Dependents
For the tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to $3,600 for children ages 5 and under at the end of 2021 and $3,000 for children ages 6 through 17 at the end of 2021. The Child Tax Credit is fully refundable in 2021. Even if taxpayers do not owe any tax, they can still claim the credit.
Families that received Advanced Child Tax Credit payments will need to reconcile these amounts when filing their 2021 tax returns in 2022. Families generally received about one-half of their tax credit through these advance payments.
The Credit for Other Dependents is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit did not change in 2021 and is nonrefundable. It also covers children older than age 17 and parents or other qualifying relatives supported by a taxpayer.
Earned Income Tax Credit (EITC)
For the tax year 2021, the maximum earned income tax credit (EITC) for low, and moderate-income workers and working families increased to $6,728 (up from $6,660 in 2020). For taxpayers with no qualifying children, the maximum credit is $543.
The maximum income limit (three or more qualifying children) for the EITC increased to $57,414 (up from $56,844 in 2020) for married filing jointly and $51,464 for taxpayers whose filing status is single or head of household. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Individuals – Education Expenses
Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2021. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit and Lifetime Learning Credit
The maximum credit is $2,500 per student for the American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).
Employer-Provided Educational Assistance
As an employee in 2021, you can exclude up to $5,250 of qualifying postsecondary and graduate education expenses that are reimbursed by your employer.
Student Loan Interest
In 2021, you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $70,000 (single) or $140,000 (married filing jointly). The credit cannot be claimed if your modified adjusted gross income (MAGI) is more than $85,000 for single filers ($170,000 if married filing jointly).
Individuals – Retirement
For 2021, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $19,500 (same as 2020). For persons age 50 or older in 2021, the limit is $26,000 ($6,500 catch-up contribution).
Retirement Savings Contributions Credit (Saver’s Credit)
In 2021, the adjusted gross income limit for the saver’s credit for low and moderate-income workers is $66,000 for married couples filing jointly, $49,500 for heads of household, and $33,000 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). As a reminder, starting in 2018, the Saver’s Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you’re the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.
If you have any questions about these and other tax provisions that could affect your tax situation, don’t hesitate to call.
Small Business Taxpayers: The Year in Review
Here’s what business owners need to know about tax changes for 2021.
Standard Mileage Rates
The standard mileage rate in 2021 is 56 cents per business mile driven.
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). This amount is $56,000 for 2021 returns.
In 2021, the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers).
Section 179 Expensing and Depreciation
Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1.05 million of the first $2.62 million of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation for tax years after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, alarm systems and security systems, and heating, ventilation, and air-conditioning systems.
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 26 cents per mile (down from 27 cents per mile in 2020).
Please call if you have any questions about Section 179 expensing and the bonus depreciation.
Work Opportunity Tax Credit (WOTC)
Extended through 2021 under the Further Consolidated Appropriations Act, 2021, the Work Opportunity Tax Credit can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.
SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $13,500 for persons under age 50 and $16,500 for persons age 50 or older in 2021. The maximum compensation used to determine contributions is $290,000.
Please contact the office if you would like more information about these and other tax deductions and credits to which you are entitled.
Tips To Avoid Credit Card Debt This Holiday Season
Credit card balances typically follow a seasonal pattern, increasing significantly in the fourth quarter, coinciding with holiday shopping, and millions of taxpayers are still carrying debt from last year’s holiday season. Whether you are diligent about paying your credit card in full every month or are still paying down debt from a previous spending spree, these tips will help you avoid overspending this year and keep credit card spending on track.
Review Your Credit Card Balances
Before you head to your preferred shopping venue, check your credit card balances. There’s nothing like seeing a large debt – or several – to make you think twice about spending. Writing it down has even more of an impact.
Control Your Spending
One of the most effective ways of controlling your spending is to develop a budget and stick to it. For holiday shoppers, setting a budget and then researching and compiling a list of items for each person you are giving a gift to goes a long way to curb impulse spending.
Pay Off High Interest Cards
If you are planning a last-minute holiday shopping spree this year and still have considerable debt on your credit cards, try to pay off any high-interest credit cards before you spend any more.
Pay With Cash
A recent MIT study indicates that shoppers spend more when using credit cards than they do when using cash because of the “out of sight, out of mind” mentality. While you might not feel comfortable carrying around large amounts of cash, if you are trying to save money, it’s best to use cash for your purchases – even if it means making several trips. It is also easier to keep track of your spending, and you might even save a few bucks if the store charges a service fee to its customers for card purchases.
Get Help Managing Your Debt
Getting out of debt is a challenge that most people face – often multiple times – during their lifetime, and knowing how to manage debt and negotiate with creditors is a valuable skill that CPAs or other tax professionals can help you with.
If you have any concerns relating to budgeting, interest rates, debt management, or any other issues related to your finances, don’t hesitate to contact the office. As always, help is just a phone call away.
Highlights of the Infrastructure Investment and Jobs Act
While the recently passed Infrastructure Investment and Jobs Act primarily addresses infrastructure-related issues, it includes several tax provisions affecting individuals and small business taxpayers. Let’s take a look:
Cryptocurrency Reporting. Cryptocurrency reporting requirements are expanded to stem underreporting of cryptocurrency transactions. However, some have raised concerns that the reporting requirements of this tax provision are so broad that they apply to people who generate cryptocurrency and to people who do not have the information needed to comply with the reporting requirements.
Disaster Relief. The legislation extends certain tax deadlines for taxpayers affected by federally declared disasters. Also amended is the definition of a disaster area.
Tax Deadlines. The types of tax deadlines that are extended due to service in a combat zone are expanded.
Employee Retention Credit. The Infrastructure Investment and Jobs Act legislation eliminates the credit for wages paid after September 30, 2021. Previously, however, The American Rescue Plan Act of 2021 extended the Employee Retention Credit to December 31, 2021. As such, there is some concern about the retroactive application of eliminating the credit since the legislation was not passed until after the start of the fourth quarter (i.e., December 1, 2021).
Employer-sponsored Retirement Plans. The relaxation of minimum funding requirements for employer-sponsored retirement plans is further extended, adding to tax revenue projections as funding requirements are decreased.
Contributions to Water and Sewer Utilities. Restoration of an exclusion for contributions to a regulated public utility for water or sewer construction.
Private Activity Bonds. The authorized private activity bond uses are expanded to include qualified broadband projects and qualified carbon dioxide capture facilities.
Excise Taxes. Excise taxes on fuels, retail sales of heavy trucks and trailers, and tires are expanded. Superfund excise taxes have been restored.
If you have any questions about these and other tax provisions please contact the office.
Retirement Contributions Limits Announced for 2022
Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2022 are as follows:
401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, up from $19,500. The catch-up contribution limit for employees aged 50 and over remains unchanged at $6,500.
SIMPLE retirement accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons increases from $13,500 to $14,000. The catch-up contribution limit for employees aged 50 and over remains at $3,000.
Traditional IRAs. The limit on annual contributions to an IRA remains at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.
The phase-out ranges for 2022 are as follows:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is $68,000 and $78,000, up from $66,000 and $76,000.
- For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $109,000 and $129,000, up from $105,000 and $125,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $204,000 and $214,000, up from $198,000 and $208,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Saver’s Credit. The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.
If you have any questions about retirement plan contributions, don’t hesitate to call.
Small Business: Deducting Startup Costs
If you’ve recently started a business – or are thinking about starting a business – you should know that as an owner, all eligible costs incurred before beginning to operate the business are treated as capital expenditures. As such, they are part of the cost basis for the business.
Generally, the business can recover costs for assets through depreciation deductions. Businesses with costs paid or incurred after September 8, 2008, can deduct a limited amount of start-up and organizational costs. This enables business owners to recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.
Business Start-up Costs
Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business.
Examples of start-up costs include amounts paid for the following:
- An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
- Advertisements for the opening of the business.
- Salaries and wages for employees who are being trained and their instructors.
- Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
- Salaries and fees for executives and consultants, or for similar professional services.
Qualifying Costs.A start-up cost is recoverable if it meets both of the following requirements:
- It’s a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.
- It’s a cost a business pays or incurs before the day their active trade or business begins.
Nonqualifying Costs.Start-up costs don’t include deductible interest, taxes, or research and experimental costs.
Purchasing an Active Trade or Business.Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are capital expenses that can’t be amortized.
Disposition of business.If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business.
Questions about deducting startup costs for your small business? Help is just a phone call away.
Reminder: Deferred Payroll Taxes Due in December
If you’re a household employer or self-employed and chose to defer paying some Social Security taxes under the CARES Act the deferred Social Security taxes are due by December 31, 2021 and December 31, 2022. If you also deferred the employee share of Social Security taxes the balance is included in the installment amount due by December 31, 2021.
You should have received a CP256V Notice in the mail. The notice is for informational purposes only and there is no need to respond.
You’ll need to pay your current installment amount by the due date shown on the notice. The notice may not reflect recent payments, but they will still be recorded correctly on your account.
Review your tax return for the tax period in which you deferred Social Security taxes and subtract any payments you’ve made. Compare that figure with the amounts shown on your notice. If you discover an error, please contact the IRS at the telephone number shown on the notice.
The first installment amount, due December 31, 2021, is half the employer’s share of Social Security taxes you could have deferred. It includes any amount of the employee’s share of Social Security taxes that were deferred minus all deposits and payments the IRS has already received. The second installment, due December 31, 2022, is the remaining unpaid deferred taxes.
If you cannot pay, you may be eligible for a payment plan or other payment options. However, taxpayers should be aware that if the IRS does not receive your payment by the applicable due dates, the deferred taxes may be subject to Failure to Deposit penalties and the full amount of your net tax liability may become due immediately.
Deferral payments can be made through the Electronic Federal Tax Payment System (EFTPS), by credit or debit card, or with a check or money order. These payments must be paid separately from other tax payments to ensure they’re applied to the deferred payroll tax balance. If you include a payment of deferred taxes with other tax payments (or send it as a deposit), the IRS systems won’t recognize the payment.
Questions? Don’t hesitate to call the office for assistance.
Important Information About Charitable Giving This Year
For many nonprofits and taxpayers alike, Giving Tuesday is the start of the charitable giving season. While most organizations are legitimate, taxpayers should always research charities before donating. It is also a good idea to understand the expanded tax benefits of giving to causes that mean something to you personally. Taxpayers should also know that they may be able to deduct donations to tax-exempt organizations on their tax returns.
The first step when deciding where to make donations is to visit IRS.gov and use the Tax Exempt Organization Search tool to search for information about an organization’s federal tax status and filings. Here are several facts about this valuable tool that taxpayers should be aware of:
- Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
- Users can find out if an organization had its tax-exempt status revoked. A common reason for revocation is when an organization does not file its Form 990-series return for three consecutive years.
- TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling, and governmental entities.
- Organizations are listed under the legal name or a “doing business as” name on file with the IRS. No separate listing of common or popular names is searchable.
Taxpayers can also use the interactive tax assistant, Can I Deduct my Charitable Contributions? to help them determine whether a charitable contribution is deductible. As a reminder, taxpayers should get a written acknowledgment for any charitable contributions of $250 or more.
Expanded Tax Benefits in 2021
Tax law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don’t itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.
Qualified Charitable Distributions
Taxpayers age 70 1/2 or older can make a qualified charitable distribution, up to $100,000, directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. It’s generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. It is important to note that a qualifying deduction may also count toward the taxpayer’s required minimum distribution requirement for the year. Please call for more information.
Most cash donations made to charity qualify for the deduction. Cash contributions include those made by check, credit card, or debit card, as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items, or other property.
There are some exceptions (they also apply to taxpayers who itemize their deductions), however. Cash contributions that are not tax-deductible include those:
- Made to a supporting organization
- Intended to help establish or maintain a donor-advised fund
- carried forward from prior years
- Made to most private foundations
- Made to charitable remainder trusts
Questions about charitable giving this tear? Don’t hesitate to contact the office.
Tax Credit for Hiring Long-Term Unemployed Workers
With many businesses facing a tight job market, employers should know about a valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. If your business is hiring right now, the Work Opportunity Tax Credit (WOTC) may help.
Legislation enacted in December extended the WOTC through the end of 2025. This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. Millions of Americans have been out of work at one time or another since the pandemic began, but one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and have received state or federal unemployment benefits during part or all of that time.
The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:
- Temporary Assistance for Needy Families (TANF) recipients,
- Unemployed veterans, including disabled veterans,
- Formerly incarcerated individuals,
- Designated community residents living in Empowerment Zones or Rural Renewal Counties,
- Vocational rehabilitation referrals,
- Summer youth employees living in Empowerment Zones,
- Supplemental Nutrition Assistance Program (SNAP) recipients,
- Supplemental Security Income (SSI) recipients,
- Long-term family assistance recipients,
- Long-term unemployment recipients.
Qualifying for the Credit
To qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). Do not submit this form to the IRS.
Form 8850 must be submitted to the SWA within 28 days after the eligible worker begins work. Eligible businesses claim the WOTC on their federal income tax return. It is generally based on wages paid to eligible workers during the first year of employment. The credit is first figured on Form 5884, Work Opportunity Credit, and then is claimed on Form 3800, General Business Credit.
Though the credit is not available to tax-exempt organizations for most groups of new hires, a special rule allows them to claim the WOTC for hiring qualified veterans. These organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations.
If you’re a small business owner who wants to take advantage of this tax saving credit, but aren’t sure you qualify, help is just a phone call away.
Importing Bank Accounts into QuickBooks
It’s been a long time since your only options for learning about your bank balances and cleared transactions involved your telephone and your monthly statement. These days, accounting software and websites allow you to set up online connections to your financial institutions and download cleared transactions.
If you’re new to QuickBooks or you haven’t set up online banking yet, you may not realize how simple it can be (depending on your financial institution), or how safe it is. You can connect to one of your banks and import months of transactions in less than 10 minutes, depending on how active your accounts are, and again, your banks. And QuickBooks uses data protection that is similar to what the banks themselves use. As long as you’re following personal security protocols on your own computer, you’re very unlikely to encounter problems.
Online banking saves an enormous amount of time. It provides daily updates on your accounts, and if you entered the original transactions correctly, accuracy is assured. This real-time view of your finances can help you avoid money problems, make better business decisions, and plan for your company’s future.
Here’s how it works:
The Bank Feeds Center
QuickBooks provides the tools required to set up and maintain online banking in the Bank Feeds Center. To get there, open the Banking menu and select Bank Feeds, then Bank Feed Center. Click Add account in the upper right. QuickBooks will display a message saying it needs to close all open windows. Click Yes. In the Bank Feed Setup window that opens, select your bank from the list or enter its name in the search box if it’s not there.
Not every financial institution provides a direct connection to QuickBooks, but many of the major ones do. If yours does, you’ll see a window like this:
Figure 1: You’ll see a window like this if your financial institution is set up for direct connections to QuickBooks.
Enter the user ID and password that you use to sign on to your bank’s website, then click Connect. You may be told that your financial institution needs more information. If that occurs, just follow the instructions. In our example, Discover Card wanted to send a temporary identification code as an email or text. Select your preference from the drop-down list and click Connect. Once you’ve retrieved your code and entered it, click Connect again. QuickBooks will open a window that displays your account(s) at the institution.
Now you have to tell QuickBooks where to download the transactions. Click the down arrow in the field under QuickBooks Accounts. You can select an existing account or create a new one. We want to create a new one here, so you’d click . You may recognize the Add New Account window if you’ve done this before. QuickBooks already knew that this was a credit card account, so it pre-selected that option in the Account Type field. If you’re connecting a checking account, for example, you would probably want to select Bank. Enter an Account Name. If you want to make it a Subaccount of another account, check that box and select the parent account from the drop-down list (or add a new one).
Figure 2: When you set up online banking, you need to either create a new account in QuickBooks for each bank or credit card account or select an existing one.
The rest of the fields here are optional. You can fill in the description and account number if you’d like, but don’t assign Tax-Line Mapping or Opening Balance without talking to us. Just leave them for now. When you’re done, click Save & Close. Click Connect in the window that opens after you’ve made sure your new account is showing in the field below QuickBooks Accounts.
If all has gone well, you’ll get a message saying that your account has been added to QuickBooks. Click Close. Go to Banking | Bank Feeds | Banks Feeds Center again. In the field next to Bank and Credit cards, click the down arrow to see a list if your new account isn’t already showing and select it. Click the rotating circle in the blue card below to download your first set of transactions (or anytime you want to refresh the feed). This will typically bring in 90 days of transactions, depending on your financial institution.
Figure 3: Click the rotating blue circle anytime you want to download transactions from your bank.
There are many ways financial institutions interact with QuickBooks’ bank feeds. This was the simplest one. You might have to contact your financial institution to get QuickBooks Direct Connect set up (fees may apply) or you may have to go to your bank’s website and select the statement or transactions you want to move into QuickBooks.
Next month’s topic discusses how to manage the transactions you’ve downloaded into QuickBooks. In the meantime, if you need any help don’t hesitate to call.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.