Setting Up QuickBooks for a Limited Liability Company

Setting Up QuickBooks for a Limited Liability Company
Operating your business as a limited liability company? As
you probably know, getting the QuickBooks accounting
program setup correctly in your situation can be, well,
tricky. But in a sense, that's a good thing. The trickiness
stems from the tax accounting flexibility that the LLC
option provides.

Fortunately, you can follow these three accounting tricks
to keep your QuickBooks LLC setup under-control and
well-organized.

Trick #1: Pretend the LLC Is Something Else

A limited liability company, for tax accounting purposes,
is always treated as something else. For example, a one
owner LLC operating a business is treated as a sole
proprietorship. An LLC with multiple owners that operates a
business is treated as a partnership.

What's more, both LLCs with a single owner and those with
multiple owners can make elections to be treated for tax
accounting purposes as regular corporations (called C
corporations) or as Subchapter S corporations.

And all this leads to the first tip for setting up
QuickBooks for an LLC. When you run the QuickBooks EasyStep
Interview to setup QuickBooks, don't indicate that you're
setting up QuickBooks for a limited liability company.
Rather, indicate that you're setting up QuickBooks for the
sort of taxpayer the LLC will be treated as.

For example, if you're a one owner LLC that hasn't made any
special elections to be treated as a corporation, tell
QuickBooks you're a sole proprietor. If you're a multiple
owner LLC that hasn't made any special elections, tell
QuickBooks that you're a partnership. And if you have made
an election to be treated as a C corporation or an S
corporation, tell QuickBooks that's what you are--a C
corporation or an S corporation.

Trick #2: Combine Child and Parent LLCs in a Single
QuickBooks Datafile

A common asset protection technique is to have a parent LLC
or a parent corporation own child LLCs. A retailer with
three locations, for example, might put each store location
into a separate LLC. These three child LLCs might then be
owned by a parent LLC or parent corporation.

Separate LLCs, however, shouldn't be segregated into
separate QuickBooks datafiles. Rather, the LLC's accounts,
income and deductions should be tracked within the parent's
QuickBooks data file.

This combination seems (at first glance) just plain wrong.
But here's the logic. In a parent-child structure, the
child (so to speak) is owned by the parent. And that means
that for tax accounting purposes, both the parent and the
children combine their income and deductions. That
combination means that both the parent LLC's and the child
LLCs' income and deductions need to be combined into a
single QuickBooks data file.

One caution, however. Because each LLC (whether parent or
child) is a different legal entity, you should use separate
QuickBooks accounts for each LLC's separate assets and
liabilities.

For example, each LLC might have its own bank account
within the QuickBooks data file. And each LLC should track
its own accounts receivable, furniture and fixtures, and
liabilities with separate, specific-to-that-LLC accounts.

Trick #3: Customize Forms for Each LLC as Necessary

If you're working with parent-children LLC situation, one
other setup tip should be mentioned.

While for tax accounting purposes, you can and should
combine the parent LLC and the child LLC transactions, you
still want to recognize and visually highlight the separate
legal identity of the parent LLC and of any child LLCs.

Within QuickBooks, an easy way to do this is to use
separate customized forms for each LLC. An LLC with its own
bank account will have its own check forms of course. And
those check forms will have the LLC name on them.

But go a step further than that. If an LLC invoices
customers or clients or sends a customer or client
statements, that LLC should have its own customized invoice
template or statement--one that uses that LLC's name.

Similarly, if an LLC issues purchase orders to vendors,
that LLC should have its own purchase order template that
uses the LLC's name.

Each QuickBooks form window includes boxes and buttons for
creating customized forms.

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Stephen L. Nelson is a Seattle-area CPA. He's also the
author of QuickBooks for Dummies and the publisher of the
popular do-it-yourself web sites,
http://www.fasteasyincorporationkits.com and
http://www.llcsexplained.com