New Info Blog

Any person who works in the United States receives a unique Social Security number. This number is then required to do all sorts of transactions, from getting a bank account to getting a mortgage. New employers ask for the number, and it is an important part of getting a credit card.

Getting your social security number is a critical goal for identity thieves. They want it because it is one of the keys that unlock their ability to get credit cards and other debt instruments in your name.

So, everyone seems to know that the number is a secret which should be guarded, but how much do people actually know about it, and what is the right way to file a complaint against a business which is potentially compromising your identity.

The social security number system started in the mid-1930s as a way for the government to track the beneficiaries of its new social security retirement system. everyone was assigned a number. That number was the key to knowing how much the person had paid into the system, and it unlocked the payments paid to that person in retirement.

Ironically, the legislation that created the social security number specifically said that it would not become a national identification code. More recently, that sentiment has become laughable. Social security numbers are essentially national identification numbers within the United States.

There are a number of resources Americans can use to obtain information about their social security number.

First, they can check their credit reports frequently, to determine whether anyone is using their number. This can be done easily and for free once per year using the government’s Annual Credit Report system.

Second, they can contact the US Government. The Social Security Administration offers a statement which contains the person’s contributions to the system as well as the expected benefit at retirement.

Finally, several independent websites exist with more detailed information for a given social security number. One example is Social Security Numerology (http://www.socialsecuritynumerology.com”).

Tyler Stanford provides research and consulting services for numerous industries, including identity protection. He has consulted for SocialSecurityNumerology.com.

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The current financial crisis

The public have a common understanding that the subprime mortgage crisis has leaded to a far more serious consequence, so called ‘the financial crisis’ recently. To be exact, It has been going on for seven months. But how will that be happened? This is the question. The subprime load crisis is relatively simple to understand. People bought homes they couldn’t afford, and now they are falling behind on their home loans. This has caused the loss of related financial institutions.

However, the amount of loss is not the major cause of the financial crisis. US government has already announced to take over Fannie Mae, Freddie Mac and AIG, and have injected the capital over that amount into the market. Besides, the majority of homeowners are still doing just fine. The conventional mortgage market is still healthy. So, how is it that a mess concentrated in one part of the mortgage business: the subprime loans, has frozen up the whole credit markets in United States? How would that crisis caused such a big impact to the stock market, causing the collapse of Bear Sterns, Lehman brothers, etc, and left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression in 1923?
 
In order to have a big picture of this incident, I think this could be explained in this way. First of all, behind the whole financial crisis, there are actually 3 major components: the subprime mortgage, Leverage (or gearing), and the Credit Default Swap(CDS). We have mentioned about subprime mortgage before. So, what is leverage? In the finance industry, leverage is a common way to use in such a way to magnify the outcome of the investments. This can be done by various financial instruments such as options, futures, margin or borrowed capital, to increase the potential return of an investment. 
 
At present, many investment banks use leverage to operate more then 20 times of their capital. For example, if bank A have an asset of 5 billion, then 30 times of leverage means that bank A can operate 150 billions of money, in which most are borrowed. It is obvious, if there is 5% of profit in the investment, then bank A has a profit of 7.5 billion. However, on the other hand, if there is 5% loss in the investment, then bank A loss all it’s 5 billion of asset, and still owe the lender 2.5 billion.
 
The third component is CDS. What is CDS? As explained above, the operation of leverage is very risky. So some bankers think of a way to take insurance on these leverage. This insurance is called CDS. It is a specific kind of agreement which allows the transfer of third party credit risk from one party to the other. One party in the swap is a lender and faces credit risk from a third party, and the counterparty in the credit default swap agrees to insure this risk in exchange of regular periodic payments. For example, Peter borrows $100 from John. John wants to get insurance on this $100 debt in case Peter was unable to return the money. The John goes to Jane and asked for Jane to insurance that debt. Jane agrees to do so if John is willing to pay her an insurance fee of $5 per year. That is exactly the most simplified scenario of CDS.
 
Now, apply that in the world of banks. Recall the example of ‘bank A’. Bank A operates a leverage of 30 times. To reduce the risk, it goes to bank B and asked for bank B to do CDS insurance. After analysis the market data, bank B knows that the breach of contract case is less than 1%. Therefore, bank B is willing to take that insurance to earn the insurance fee. However, this is not the end of the story. Although bank B agree to accept the insurance, it can not have the insurance fee immediately. At the same time, some other banks such as bank C, bank D, etc. are interested to these CDS contracts. So bank B is willing to re-sell them to other banks to have the cash immediately. This is the scenario. The CDS contracts being sell and re-sell continuously among different financial sectors. In the mean time,
the market value of the CDS has reached 62 trillion.
 
However, you may see that, all the banks A, B, C, etc are making money. So, where is the money comes from?  The money comes from the revenue generated by the subprime mortgage business. So why the honey moon period can continue in the previous few years? It is because the real estate prices keep rising in the previous few years. In that period, home owners and buy and re-sell the real estates easily, who can earn good money at the same time. It just likes snowball or bubble. The market keeps rocking until 2006. When the downturns came, the prices of the real estates dropped. People who are lack of financial ability was unable to pay the high interests of those subprime loans. In that case, the subprime mortgage market started collapsing, which in turn affecting the CDS market. Banks and financial institutions who are involved in those products is unavoidably being affected. In fact, nearly all I-banks and most of the commercial banks are involved in this storm, or more appropriates, the tsunami. 

George C. (http://www.finance-database.com)

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I have to apologize as there are some lines here that would cause an entirely separate article, and yet are not used by 90% of the companies using Quickbooks as their accounting software. I am sorry that these definitions are so brief but should you need clarification please don’t hesitate to email me.

I. K-1 Tax Lines

The K-1 tax form is a little bit like a mutt form on the tax return. Mainly it concerns the division of profits and expenses in a partnership, trust or corporation so if your company is not a partnership or corporation these particular tax lines won’t apply to you. Some people receive a K-1 because they are part of a group of people who own a trust or portfolio that generates income through the year. That income is split up into the designated percentages amongst those in that group. One example of this would be the trust left to a group of siblings that generates income through the year, the eldest receiving 60% and the one or more siblings receiving an equal share of the remaining portion. Each sibling would receive a 1065B which would then be used to fill in the K-1 form.

Schedule K

1. Rentals Income – Used when a partnership or corporation earns income from rental property.

2. Rentals Expenses – Self explanatory but make sure you can break down what your actual expenses are versus what you think you are spending. Ads, Management fees, mileage to go collect rent or inspect problems with the home, all play a part in reducing your income and tax liability.

3. Portfolio – Interest – CD’s – when a CD is part of an investment it earns a special place on the K1 form apart from interest from the US Treasury which is the next category.

4. Portfolio – Interest – U.S. Treasury (bonds) etc. Many of these bonds are non-taxable income and many of these non-taxable bonds pay decent interest rates.

5. Portfolio – Dividends – What would normally be on a 1099 DIV form in the case of a partnership, corporation or trust that owns stock will go on the K1.

6. Portfolio – Royalties – Income received from copyrights, patents, oil, gas or mineral properties. Check your portfolio to see if your mutual funds are being invested in these type of companies.

7. Other Income – the all-purpose IRS junk category. Other. If you can’t fit it into one of the other categories, put it here.

Deductions –

1. Charitable – yes, partnerships, corporations and trusts can donate to worthy causes and receive the same benefits of writing off these donations to offset income and to foster goodwill in their communities.

2. Other – If you can’t fit a deduction anywhere else, put it here.

Investment Interest

1. Foreign Tax – Some mutual funds invest globally and thus you end up paying some foreign taxes. Sometimes these foreign taxes are deductible, that is a completely different article I haven’t written as of yet.

2. Reduction in Available Taxes – another category put on your 1099DIV at the end of the year. Most companies will not use this category, I have been doing this for 9 years and have yet to service a client that uses this category.

II. Balance Sheet Tax Lines

While a lot of the lines that have been covered can easily go into this income or that expense category, the balance sheet covers the accounts that would be considered assets, liabilities or equity.

1. Cash – this would be your bank accounts, your cash on hand or petty cash accounts. It would include any account that is immediately available as liquid assets.

2. Accounts Receivable – If you accept payment on credit terms, all amounts that you are waiting to be paid would be classified as A/R. There are companies out there now who will pay cash for your receivables, which in cases of extreme cash flow restrictions would be an option. The percentage you get however will be significantly reduced and isn’t an option for a lot of smaller business owners.

3. Allowance for Bad Debts – This is the method I discussed earlier about figuring in advance that .5 – 2% of your A/R will never pay and being able to claim that as such against your A/R.
4. US Government Obligations – Rare to be used, but if you have back taxes or debts owed to the government on a payment plan or regular payments, use this box.

5. Tax Exempt Sec. – If the company owns any bonds or tax exempt securities, these are assets that pay out based on the ‘loan’ made to the payor.

6. Other Current Assets – These are assets that can be easily and quickly converted to cash within a year’s time, CD’s, Bonds, etc.

7. Loans to Shareholders – Just as it is feasible for a shareholder in a corporation to loan money to the company, it is also feasible for the shareholder(s) to borrow money from the company. Keep in mind that this kind of loan is strictly regulated and is one of the reasons that the Enron executives were more closely scrutinized and prosecuted, because the loans were below market value for excessive amounts that could never have been repaid.

8. Mortgage Real Estate Loans – If your business involves the collection of loan amounts for real estate purchases, this would be the account to put those payments into.

9. Other Investments – Are there any other investing activities that your company participates in that generates income either directly or through depreciation or amortization of assets?

10. Buildings – Your building will be included on the balance sheet as being a positive addition to your assets and their value, the loan for the purchase of the buildings however will be on the liability side. There should be a separate fixed asset account showing the original cost of the building.

11. Accumulated Depreciation – the yearly amount deducted from the VALUE (not the COST) of the building, vehicle, etc. Accumulated means all the previous year’s accumulated deductions for this asset. This amount if added correctly will appear on the chart of accounts as a negative figure.

12. Land – Land does not depreciate, however the cost of the land is an asset and should be included in the accounting.

13. Accumulated Amortization –

14. Other Assets – Assets that cannot be put into any of these categories. Intangible assets, like goodwill, etc.

Balance Sheet Liabilities

1. Accounts Payable – These are the accounts you owe that are on credit. This is for products, services or merchandise you purchased on credit.

2. Short Term Mortgages Payable – In a time of extreme cash flow need, sometimes a business owner will take out a short term mortgage with collateral. Short term means it should be paid within 12 months.

3. Other Current Liabilities – All liabilities that will be paid off within 12 months.

4. Loans from Shareholders – When the company is strapped for cash and the owners/shareholders are not the money is put here so that when it is taken out it is done so as a repayment on the loan from the shareholders, with interest, and is not taxable, apart from the interest gained personally to the shareholder.

5. Long Term Mortgages/Notes – Mortgages on property, notes payable to companies or individuals that don’t expect payment within a years’ time.

6. Other Liabilities – All liabilities not fitting in other categories go here.

7. Capital Stock – The number of shares authorized for issuance by a company’s charter, including both common and preferred stock. Generally the value assigned to each share is $1 but that is up to the individual business owner.

8. Paid In Capital – capital received from investors for stock, also called contributed capital.

9. Treasury Stock – stock reacquired by a corporation to be retired or resold to the public. Not to be considered when calculating an earnings per share ratio, dividends or for voting purposes.
Numbers 7,8 and 9 are usually meant for companies with the intent to sell their stock or go public. For these categories I would suggest getting guidance from a CPA before attempting to undergo that process yourself.

M-1

The M-1 is a form used for corporations with income or assets over $250,000. It is a comparison to the beginning years balance sheet to the end of year’s balance sheet. The use of Quickbooks makes this preparation easier as the information flows easily from the Quickbooks file to many different types of tax preparation software. (Lacerte, ProSeries, etc) The cost of these tax preparation software is usually prohibitive for a company that doesn’t specialize in tax preparation, so seek out a preparer that uses one of these two systems.

1. Net Income Per Books – the income minus expenses on books flows through to here.

2. Depreciation Per Books – ditto.

3. Expenses on Books not on Return – consult a tax professional before putting any of your accounts into this category!

4. Income on Books not on Return – again, consult a tax professional before using either of these categories.

8825A-E

If your corporation or partnership owns one or more rental real estate properties, the income and expenses are assigned to one of these accounts. The A, B, C etc are for separate rental properties so you can keep track of up to 5 different properties.

1. Gross Rents – how much rental income did you receive for this property.

2. Advertising – how much did it cost you to advertise this property as being for rent?

3. Auto and Travel – how many times did you travel to the property for maintenance, collection of rent, etc.

4. Cleaning and Maintenance – tenants can sometimes make a mess, how much did the carpet cleaning, painting, etc cost you?

5. Commissions – did you hire someone to help you rent the place? Pay them and deduct it here.

6. Insurance – this would be for property and casualty insurance on the property in case you get sued or someone hurts themselves while living on or exploring your property.

7. Legal and Professional Fees – did you have an attorney draw up the rental paperwork?

8. Interest Expense – generally reported on the 1098 of the property.

9. Repairs – outside of regular cleaning, was anything damaged that needed repairs?

10. Taxes – Real estate taxes, county taxes, etc

11. Utilities – Are you paying utilities to keep up appearances while you are trying to rent the property? Are you paying utilities for the tenant?

12. Wages – do you have someone on staff who is your “property manager”? Split up their wages amongst the properties for accurate bookkeeping! (but pay them with one check.)

13. Misc. Expenses – pest control, security, etc would all go here.

Hopefully this article has helped you further your Quickbooks education on tax lines. Remember the old adage, “Garbage in, Garbage Out!” Put in correctly, your reports will be more accurate, and decidedly more helpful to you and your accountant.

David Roberts, CFE, CQBPA, MBA, lives in Kissimmee, Florida with four girls, three dogs, two snakes and one wife. He has been a member of the ACFE for five years and has been studying fraud for longer than that. He is the owner of Homesoon Accounting Services which specializes in Quickbooks Consultations and Fraud Prevention and Detection. Mr. Roberts is a featured speaker and an expert on the subject of Quickbooks and Fraud Detection and Prevention.

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