What kind of accounting system is needed for a new S corporation?
I promise you--you will miss business tax deductions and make dumb accounting mistakes if you use a shoebox for your S corporation bookkeeping or the shoebox's close cousin, Microsoft Excel. (Yes, Microsoft Excel is a great spreadsheet! But, sorry, Excel is a bad accounting solution...)
Fortunately, while you do need a real accounting system for an S corp, you often don't need to go hog wild. In most cases, any simple bookkeeping program will do the job just fine.
For example, if you run a personal service business with less than $250,000 in revenue and assets, you only need to construct a simple profit and loss statement in order to prepare your S corporation tax return. Any decent checkbook program--including Quicken and Microsoft Money--will construct such a profit-and-loss statement.
Note: A profit and loss statement shows the revenues and expenses of the business--and then calculates the profit.
If your S corporation revenues or assets exceed $250,000 or your business buys and resells inventory, you will need a real small business accounting system. The reason is that in this case you need to not only produce a profit and loss statement. You also need to generate a balance sheet (or bits and pieces from a balance sheet) for your tax return. Checkbook programs don't really produce balance sheets. But any small business accounting business software will. For example, QuickBooks, Microsoft Small Business Accounting, and Sage Software's Simply Accounting all produce balance sheets.
Note: A balance sheet lists the assets and liabilities of the business. Assets include items such as cash, accounts receivable, inventory and fixtures and equipment. Liabilities include accounts payable, bank loans and taxes payable.
One other comment about the accounting system for a new S corporation: Remember that your new S corporation will need to do employee payroll. In fact, even if you the shareholder are the corporation's only employee, you will need to do payroll. You may, therefore, want to get an accounting system that lets you easily do employee payroll. (Another S corporation payroll option is just to use an outsourced payroll service such as ADP or PayChex.)
Additional Information You May Find Useful
If you want additional information about how to maximize the tax savings related to running a business or investment venture, you may also be interested in one of our downloadable e-books (see descriptions below). Each book covers a category of tax planning topics that easily save a business owner significant amounts of income or self-employment taxes (potentially thousands of dollars a year) and is instantly downloadable.
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