Using Rules in Quickbooks Online

Within Quickbooks Online, a feature to connect to one's bank account can be utilized to help with data entry and bank reconciliations.

Once Quickbooks is connected to the business accounts (bank accounts and credit cards), data from the bank is available to users in a queue.  These transactions within the queue need to be coded properly (coded to the chart of accounts) and saved to the account registers.  This data entry feature helps save time because much of the work is done for the accountant.  

Rules can be set up in Quickbooks that allow transactions to be automatically entered from the bank queue directly to the chart of account register.  The rules are criteria of a transaction that is set up in Quickbooks and when the data comes down from the bank, it will recognize the transaction and can automatically enter it into Quickbooks.  Here is an example:

Bank transaction

from bank queue:             Office Depot purchase                            $50.00

Rule:     Office Depot purchases will be coded to Office supplies and enter the transaction automatically.

Result:   All future Office Depot transactions from the bank queue will be coded to Office Supplies, with no effort from the accountant to record the transaction.

Note:   Rules can work for expenses, deposits/cash receipts of sales, and liability payments to help streamline data entry.

Although rules can work well for some data entry situations, it can cause some problems.  From our example above, Office Depot purchases coded automatically to office supplies may not be correct in some circumstances.  Suppose a purchase at Office Depot is for a computer or office furniture.  These items are assets, not expenses.  But the rule established for Office Depot records everything to Office Supplies.  This means accountants need to be diligent in recording transactions despite the use of rules used within their accounting software.  This requires auditing of transactions and recoding to the chart of accounts if necessary. 

Rules can be a very helpful tool when entering data within an accounting system. However, it is a good idea to monitor the rules setup and determine that they are capturing and recording data property to ensure the financial statements are correct.

LFC can help with Quickbooks Online and the establishment of rules for one's accounting system.  Contact LFC using the contact feature from this blog.

Effective vs. Marginal tax rates

It is important for taxpayers to understand taxes and tax rates as they impact an individual taxpayer's financial life.  The type of tax rates explained here are:

• Effective Rate
• Marginal Rate

The effective rate can be explained as the total tax (tax liability minus credits and other tax adjustments) divided by gross income:

                                              Total Tax Liability

                                              Less Credits & Adjustments

                                              _______________________

                                               Gross Income

This number will tell you what % of taxes you paid on your total income after all credits and adjustments have been accounted for.  It will include total tax liability (income tax and other taxes such as self-employment taxes) to arrive at the effective rate.   This number is good to know for it tells taxpayers what % of their income is consumed by income taxes.

Margin tax rates are described as the rate of tax you are assessed upon earning an additional dollar of income.  The current code (2025) has the following tax rates:

10%, 12%, 22%, 24%, 32%, 35%, and 37%

These rates are assessed on taxable income.  This is the total income on the tax return after adjustments and itemized deductions (or standard deduction). 

For an example of how the marginal rates work, let's look at a married filing jointly taxpayer (2025 brackets):

Income range                                 Tax Bracket

0  to  23,850                                           10%

23,851  to  96,950                                  12%

96,951  to  206,700                                22%

206,701  to  394,600                              24%

394,601  to  501,050                              32%

501,051  to  751,600                              35%

751,601  and over                                  37%

Each bracket represents an income range which is taxed at the given rate. At the higher income levels, income is taxed at a higher rate.  The result is income taxed at various rates as one goes up the income scale based on one's taxable income on the income tax return.

Keep in mind, knowing one's marginal tax rate is important not only for its impact on income earned (i.e. next dollar earned would be tax at the marginal tax rate), but this applies to deductable expenses as well:  if one is in the 24% rate bracket, you will save $24 in taxes for each additional $100 deduction.

LFC provides tax services to individuals and small businesses.  Contact the LFC office for assistance via Contact Us on this blog.

Independent Contractors vs. Employees

 Many businesses hire independent contractors to fulfill work they need done rather than hire someone as an employee.  Plus, they may need the workers for a short-term basis, depending on the industry. Businesses may also use independent contractors to obtain a specific skills for which they do not currently have from their staff.  

Whatever the purpose for the use of independent contractors, independent contractors provide businesses with the opportunity to obtain flexible labor and expertise when they need it.

Despite the positive aspects of independent contractor labor, the IRS has some specific guidelines businesses must be aware of when hiring such individuals. Misclassifying someone as independent can become costly for an employer.  Information from the IRS can be obtained here.

In general, the key indicator as to whether someone is an employee vs. an independent is the amount of control the employer places over an individual to perform the work.  There are other factors to consider, but control of the end result is extremely important to assess so as not to misclassify the relationship.

The two forms of control the IRS will look at to determine the nature of the business relationship are:

• Financial Control
• Behavioral Control

Financial control can be described in simple terms as does the individual contractor have a financial interest in the endeavor, that is, do they have anything invested in the process besides their time (equipment, etc) and would they recognize a profit or loss from the activity.  

Behavioral control would include a business dictating how something is to be done, when someone needs to come in to work, and  where the work is to be performed.

Proper evaluation of an employee/independent contractor situation before making the decision to bring someone on board is vitally important. Assessing whether someone is an employee or independent contractor can be difficult to determine.  LFC can help with these assessments.  Contact LFC to discuss work classifications for your business.

Sales Taxes

Sales tax complexity

 Sales tax compliance can be challenging for businesses.  One needs to understand not only what items or services are taxable, but also what rate is applied to transactions.  

In Minnesota, sales tax rates are assessed based on where a product is delivered, not where the transaction originated.  Plus, if a business has sales in other states, one needs to determine if those sales are taxable, and assess whether the volume of sales in a particular state (sales threshold) or total number of sales within the state (sales transactions) meets its reporting criteria.  Once the threshold criteria have been met for a particular state, a business will need to register with a state's Department of Revenue in order to file sales tax reports in the future.

The state of Minnesota provides Sales Tax information to guide businesses through this process.  You can find it here.  Streamline Sales tax reporting can help with sales tax issues in other states.  This information can be found here.

The state of Minnesota's complex sales tax system is compounded by the number of entities that assess a sales tax.  Many counties and cities have imposed sales taxes.  Here you will find a guide (thru 9/30/26) of sales tax rates for the many municipalities that impose a sales tax in the state.

Quickbooks software

Quickbooks software can manage sales taxes for businesses.  Whether a business is a stand-alone retail operation, or a business that distributes its products to a wider geographical area, Quickbooks can handle the process.  For more complex sales tax situations, 3rd party apps are available to work with Quickbooks to properly calculate sales taxes. 

If you need assistance with sales tax issues, contact LFC.

Possible expansion of capital gains exemption on home sales

Recently, there has been discussion by the Trump Administration to expand the capital gains tax on home sales.  Due to significant increases in home prices and low inventories of existing homes, the discussion is important.

Let's review the tax provision as it currently sits.  The existing law goes back to 1997 where the following parameters were put in place:

Excluded gain on sale of home                               Filing status

250,000 or less                                                        Single

500,000 or less                                                        MFJ

The 1997 law was significant legislation and provided considerable tax relief to taxpayers for selling their homes.  However, since that time, there has been no indexing gains to inflation.

Right now, this is an idea has been brought up for discussion.  It will take an act of  Congress  to draft the legislation, plus a vote in the affirmative along with a signature from the President for it to become law.  We don't know what form this proposal will eventually take, but LFC will be watching  the development of this idea in the weeks and months ahead.