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QuickBooks for Legal Firms: IOLTA Set Up and Tracking

Image of two business partners discussing documents lying on the table with the keyboard and a monitor near by

QuickBooks is a powerful program used by small to mid-sized companies.  It is a program used by many different industries.  QuickBooks usually needs to be tweaked a bit to work with your industry.

Attorneys are unique due to the American Bar Association’s specific accounting rules for the use of retainer (IOLTA) accounts.

When setting up QuickBooks for the first time you can choose a default chart of accounts for a legal firm. Here’s how you set up and track an IOLTA account.

Setting Up Tracking for IOLTA Account in QuickBooks

  1. Set up bank account for each physical IOLTA account
  2. Set up current liability account  for each physical IOLTA account
  3. Every transaction should include Customer: Job (Client)

Receiving IOLTA Funds

  1. Deposit funds to the IOLTA Account – Banking – Make Deposits
  2. Make sure Deposit To Box is filled with the IOLTA Account
  3. Received from box is always the client
  4. The From Account is always the liability account that matches the IOLTA account
  5. Fill in other sections as appropriate

Invoice The Client

  1. Generate an invoice that reflects the time and expenses for the matter – Customer – Create Invoice
  2. Write a check to your firm.  
  3. The account will be the liability account
  4. Include the client name under Customer/Job
  5. Receive payment on the invoice – Customer – Receive Payment
  6. Go to Banking – Make Deposits to deposit the check.

Tracking the IOLTA Balance

  1. Click on Reports – Customer Reports – Summary
  2. Change Dates to All
  3. Change Display rows by to Customer
  4. Click Advanced and change Display Rows to Non-Zero
  5. Click on Filters Tab and change the Account to Trust Liability
  6. Click on Header/Footer Tax to give the report a meaningful title
  7. Click OK to open the report
  8. Memorize Report

Creating Detail Report to Track IOLTA Balance

  1. Click on Reports – Custom Reports – Transaction Detail
  2. Change Dates to All
  3. Change Total by to Customer
  4. Under Columns, scroll down to uncheck Clr.
  5. Click on the Filters tab and change the Account to Client IOLTA Liability
  6. Click on the Header/Footer tab and give the report a meaningful title
  7. Click OK to open the report
  8. Memorize report

Sheltra Tax & Accounting does extensive Quickbooks training for all industries and company sized. We can teach a whole classroom of students, or provide individual training.  

Diana Sheltra, EA is advanced certified in the desktop version of QuickBooks as well as the online version. We have a staff of qualified QuickBooks trainers.  Contact us to make an appointment for a free consultation or just book your training so you can get started, or improve your existing bookkeeping system.


Can Bankruptcy Settle Tax Debt?

Cash, dollar bills

There is a misconception that tax debt cannot be discharged in bankruptcy. As you will see below, there are certain circumstances when a taxpayer can be relieved of a tax debt. I don’t recommend bankruptcy lightly.  Bankruptcy should be used when all other avenues have been exhausted.

Certain back taxes can be discharged in bankruptcy

You can discharge some back federal, state, and local income taxes in Chapter 7, Chapter 13, and Chapter 11 bankruptcy. In addition, the penalties and interest attached to these taxes are dischargeable. Determining which back taxes are dischargeable can be a complex process.

For individuals, the most common type of bankruptcy is a Chapter 13. Before you consider filing a Chapter 13 here are some things you should know:

  • You must file all required tax returns for tax periods ending within four years of your bankruptcy filing.
  • During your bankruptcy you must continue to file, or get an extension of time to file, all required returns.
  • During your bankruptcy case you should pay all current taxes as they come due.
  • Failure to file returns and/or pay current taxes during your bankruptcy may result in your case being dismissed.

Know the bankruptcy rules

The Bankruptcy Code sets out specific time periods that determine if you can discharge your taxes, commonly called the 3-year, 2-year, and 240-day rules (the “3-2-240 rules”). Under these rules, you can discharge income taxes that came due three years before you file for bankruptcy, as long as it has been at least two years since you filed the tax forms and 240 days since the taxes were assessed. There are some exceptions, and these rules do not apply to all types of taxes such as payroll trust fund taxes. To discharge back income taxes, be aware that you must meet the requirements of all three rules.

  1. The 3-Year Rule. This rule states that to discharge your back income taxes, they must become due at least three years before you file for bankruptcy. Bankruptcy Code §507(a)(8)(A)(i). Typically, your federal and most state income taxes become due on or around April 15th of each year. In most cases, it is simply a matter of adding three years to this due date to determine the earliest date you can file for bankruptcy and still discharge your taxes. However, if you get an extension of time to file, the three-year period runs from the date that the taxes are due under the extension.
  2. The 2-Year Rule. Under the 2-year rule, your income tax returns must have been filed at least two years before you file your bankruptcy petition. This requirement allows you to discharge your taxes even if you file your tax forms late, as long as you file the forms at least two years before filing for bankruptcy. §523(a)(1)(b)(ii).
  3. The 240-Day Rule. Taxes must have been assessed by the taxing agency at least 240 days before you file for bankruptcy under this rule or not assessed at all.

Discharging personal income tax debt

Income taxes that you incur personally as a result operating a business are dischargeable in bankruptcy under the 3-2-240 rules. However, different rules apply to other business-related taxes.

Payroll trust fund taxes are not dischargeable in bankruptcy

Trust fund taxes include payroll taxes that the employer withholds from an employee’s pay. If you fail to withhold required taxes or withhold the taxes from an employee’s check but fail to pay the withheld funds to the taxing authority, the taxes are not dischargeable.

Discharging deliquent payroll tax

The employer’s part of the payroll tax (the tax paid directly by the employer for Social Security and Medicare) is dischargeable in bankruptcy under rules similar to the 3-2-240 rules. The debtor must file for bankruptcy a minimum of three years from the date that the IRS 941 form was due and two years from the date the debtor filed the tax forms.

How we can help with tax planning

Sheltra Tax & Accounting planning service includes advising our clients concerning not only tax liabilities that may currently be discharged but also those that may soon meet the requirements for discharge. If outstanding tax liabilities do not currently meet the requirements for discharge but soon will, the client may want to consider postponing the filing date of the petition. Time can be gained by negotiating an installment agreement with the IRS. An installment agreement may give the client sufficient relief while allowing time to pass as needed for income taxes to become eligible for discharge.

It’s easy for good, hard-working Americans to fall behind. Providing IRS Tax help was a natural evolution for us at Sheltra Tax & Accounting, LLC. Our compassionate team wants to help taxpayers. We have come across many people who have tried to handle their IRS situation themselves but didn’t receive the relief they were seeking. The professionals on our staff know the “ins and outs” of the tax system and can negotiate a personalized solution.

We handle IRS representation services which include:

  • preparation of unfiled income tax returns,
  • penalty reduction,
  • offers in compromise,
  • payment plans,
  • financial hardship plans,
  • wage garnishment/bank levy releases,
  • audits and IRS appeals.

We’ll listen to the taxpayer’s IRS difficulties in our office in complete confidence at NO CHARGE. We’ll answer questions, explain options and suggest solutions and provide an estimate of our fees to permanently resolve IRS difficulties. Give us a call.

Final Rule on Overtime Regulations Effective Dec. 1, 2016

Overtime clock rulesOn May 18, 2016, President Obama and Secretary of Labor Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.

Here’s what you need to know.

Key Provisions of the Final Rule for Overtime

The Final Rule focuses primarily on updating the salary and compensation levels needed for executive, administrative and professional workers to be exempt. Specifically, the Final Rule:

  • Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  • Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  • establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Need to know more? Get in touch with us. We’ll help you determine how your business and bookkeeping practices need to adapt to the new rules.