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Operating System Requirements With QuickBooks 2006
QuickBooks 2006 Requires Windows 2000/XP. If you are running Windows 98 or NT or earlier versions of the Operating System, you will need to upgrade your operating system before installing QuickBooks 2006. While Intuit's, the makers of QuickBooks, packaging and Web site clearly identify this requirement, some users may assume that updating their QuickBooks will not require updating their operating system.

Performing A Major File Operation Across A Network
Please do not attempt to Upgrade QuickBooks, Rebuild a data file, or Condense (Clean Up Company File in QuickBooks 2006) across a network. If you are in a networked environment, please make sure you avoid such actions.

This caution holds true whenever the file is being accessed from a remote drive. QuickBooks never supported major file operations across a network in earlier versions and does not support them in QuickBooks 2006. Intuit has recently seen a spike in calls generated by this problem.

QuickBooks Payroll Update 20604 January 15, 2006
Payroll Update 20604 allows you to create paychecks dated in either 2005 or 2006. It has all the federal changes for 2006 including the federal withholding rates. It also has selected state updates for 2006. For a summary of changes and improvements made in Payroll Update 20604, refer to QuickBooks Updates below.

Statutory Employee Or Statutory Non-Employee?
Before one can know how to treat payments made for services performed, it is necessary to determine the business relationship existing between the payer and the person performing the services. Most commonly, the relationship is that of employee or independent contractor, but two other categories also exist and have significant payroll tax requirements.

Statutory Employee
One such relationship is that of Statutory Employee. By statute, an independent contractor under the common law rules, may be treated as an "employee" for certain employment tax purposes if the worker falls within any one of the following four categories:

1. Agent-commission drivers - for example, a driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is the payer's agent or is paid on commission.
2. Life insurance sales agents - a full-time sales agent whose principal business activity is selling life insurance and/or annuity contracts, primarily for one company.
3. Home workers - an individual who works at home on materials or goods that the payer supplies (which are later returned to the supplier or other designated person), under work specifications furnished by the payer.
4. Traveling and city salespersons - persons working full-time to solicit orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer's business operation. The work performed must be the salesperson's principal business activity.

For workers in these four categories, the payer must withhold Social Security and Medicare taxes from the wages of the Statutory Employee if all three of the following conditions apply:

• The service contract states or implies that substantially all the services are to be performed personally by the Statutory Employee.
• The Statutory Employee does not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
• The services are performed on a continuing basis for the same payer.

For FUTA tax, the Statutory Employee is treated the same as for Social Security and Medicare taxes, except that workers in categories 2.) and 3.) above are excluded. Thus, any individual who is employed under categories 1.) or 4.) is an employee for FUTA tax purposes and subject to FUTA tax.

Importantly, the payer should not withhold Federal income tax from the wages of Statutory Employees. However, the payer must furnish a Form W-2, and check "Statutory Employee" in box 13. Payments to the employee are considered "other compensation" and show in box 1. Social Security wages should be shown in box 3 and Medicare wages in box 5. Withheld Social Security tax displays in box 4 and Medicare tax in box 6.

Statutory Non-Employee
Meanwhile, there are two categories of Statutory Non-employee workers who are given a different kind of special treatment for payroll tax purposes: direct sellers and licensed real estate agents. They are treated as self-employed for all Federal tax purposes, including income and employment taxes, IF:

1. Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked, and
2. Their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.

The term direct sellers, as used here, needs some clarification. Direct sellers include persons falling within any of the following three groups:

1. Persons engaged in selling (or soliciting the sale of) consumer products in the home or place of business other than in a permanent retail establishment.
2. Persons engaged in selling (or soliciting the sale of) consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis prescribed by regulations, for resale in the home or at a place of business other than in a permanent retail establishment.
3. Persons engaged in the trade or business of delivering or distributing newspapers or shopping news (including any services directly related to such delivery or distribution).

Note that the I.R.S. considers direct selling to include the activities of individuals who attempt to increase the direct sales of their direct sellers, and who earn income based on the productivity of their direct sellers. Such activities include providing motivation and encouragement; imparting skills, knowledge, or experience; and recruiting.

Four States Increase Minimum Wage Rates
Beginning 1/1/2006, the District of Columbia will increase its minimum wage rate from $6.60 to $7.00 per hour. Tipped service employees must be paid a minimum hourly rate of $2.77 per hour, unchanged from the current rate. However, the maximum tip credit for tipped employees will increase from $3.83 to $4.23 per hour. Also, employers may pay the Federal minimum wage rate of $5.15 per hour for the first 90 days of employment.

As of May 2, 2005, Florida established a state minimum wage requirement for the first time. The required rate is $6.15 per hour. For tipped employees, the minimum cash wage is $3.13 per hour, with a maximum tip credit of $3.02 per hour. However, beginning 1/1/2006, the minimum wage rate will become $6.40 per hour. For tipped employees, the minimum cash wage becomes $3.38 per hour, with a maximum tip credit of $3.02 per hour.

On January 1, 2005, New York began a three-step process of increasing its minimum wage rate, as follows:

New York does not have a youth/training minimum wage. These employees are paid at the full minimum wage rate.

Effective 1/1/2006, the Oregon minimum wage rate increases from $7.25 to $7.50 per hour. The same rate applies to tipped employees because the state does not allow employers to take a credit for a portion of the tips received by the employee. Therefore, the minimum cash wage for tipped employees will be the same as for other employees ($7.50 per hour). The state has no youth/training wage rate.

Do I Have To "Close the Books"?
If you are thinking of the entire process of year-end closing, the answer is "yes". This process is strongly recommended. The steps of reviewing transactions for accuracy (account reconciliation and adjustments, physical inventory, etc.), reviewing financial reports and verifying tax line tracking are all part of the complete process of closing the books. They are critical for verifying data accuracy, preparing financial reports for management and preparing for filing taxes after year-end.

QuickBooks does not require you to set a closing date (sometimes called 'closing the books'); it will operate just as well with or without a closing date. No differences will occur in any transactions or reports as a direct result of this decision; however, there are a number of good reasons to set a closing date and QuickBooks recommends this as a good accounting control practice at least at year-end (if not at the end of each accounting period during the year). Here's why:

• Most companies reconcile their records and prepare tax and earnings filings at the close of the fiscal year.
• Barring exceptional circumstances like error, fraud or some other situation which requires you to alter your records, you should not need to edit prior year data. Closing your books protects prior year data by alerting users whenever they try to modify a record created before the closing date. If correction of prior a year transaction is required after the books are closed, you may always make adjustments later.
• Setting a password for closed data restricts access to the closed financial accounting period, which helps maintain data integrity. Transactions cannot be edited or deleted without the password. However:
  • Setting a password isn't required to set a closing date.
  • If you set a password and lose it, your administrator can remove the closing date without the password to allow you to reopen closed transactions if needed. Thereafter, a new closing date password can be set.
• QuickBooks also reports all changes made after the closing date to transactions dated on or before that date. These changes can be reviewed by running the Closing Date Exception Report in the QuickBooks Reports menu under Accountant & Taxes.

Considering the above points, the risk of a problem is lower if you set a closing date than if you don't. QuickBooks recommends using this feature and regularly updating the closing date at the end of each overall closing process.

Should I Clean Up (Archive and Condense) My Company File?
This is your choice. QuickBooks has provided the archive and condense (2005 and earlier) or cleanup (2006) utility to allow you to summarize and remove individual transactions from your file. This is one method to help reduce the size of your data file and improve performance.

You can use the Clean Up Company Data wizard to archive and condense the data, which reduces the size of your company data file. This will improve your system performance.

However, you should be aware that the impact on the size of your data file and speed of operation may be very limited. When you clean up your data file, QuickBooks deletes transactions that you no longer need, replacing them with new general journal transactions that summarize, by month, the deleted transactions. This is very effective for simple transactions like checks, etc. However, if the transaction is open itself, or tied somehow to another transaction that is open, it will not be removed through this process.

If you choose to proceed with cleanup or archive and condense, the Clean Up Company Data wizard leads you through the process required to clean up a data file. Before you begin, you should have available media for backing up your data. Keep in mind that a large file will take a long time to clean up, so be sure to schedule this process when you can afford the time. For more information, go to the help feature, enter Backing Up, and select Backing up your data.

You will not be able to update any transactions that fall within the period you have selected to clean up.

To access the wizard:

1. From the QuickBooks File menu, choose Utilities, and then choose Clean Up Company Data.
2. Select either the Remove transactions as of a specific date or the Remove ALL transactions option.
3. If you selected Remove transactions as of a specific date, enter the date in the Remove closed transactions on or before box.
4. Click Next and continue through the wizard windows choosing items to be removed.
5. Click Begin Cleanup when you're ready to proceed.

The following additional information is available:

• From the QuickBooks Help menu, choose QuickBooks Help, search for Cleaning Up Data (2006) or Archive and Condense (2005 or earlier).

How Do I Check The Numbers In My Financial Statements?
The Profit & Loss Statement and Balance Sheet have detailed reports that break down the amounts by account (for example). Other key reports also have zoom capability that allows you to see the individual transactions behind the numbers.

You can use the following general techniques to review the reports:

• Trial Balance: Verify that the credits and debits balance overall. Each transaction creates a debit and a credit and all such credits and debits should balance in all accounts regardless of date range.
• Balance sheet: Estimate by comparing accounts against the prior period and/or prior year balances and known total or major changes during the year. Run the Balance Sheet Prev Year Comparison report, which displays balances at the end of last year and the previous year, plus the difference ("$ Change") and percentage change.
• Profit & Loss: Many business owners have a sense about the amount of profit to expect and can validate their expectations against the reports. Multiplying total sales by a typical profit margin may be a reasonable way to estimate the company's bottom line profit. To compare revenue, expenses and profit against a prior year, run the Profit & Loss Prev Year Comparison report.
• Cash Flow: Check overall cash flow against changes in the balances of your cash accounts like checking, savings and petty cash.

What Do I Do If The Statements Seem To Be Incorrect?
You will probably have review transactions during the course of the year to try and identify significant items that are missing. Comparing month-to-month performance may aid this process by identifying months that are different from the normal or expected performance.

If your trial balance or balance sheets are out of balance, the most likely cause is a transaction that has become damaged. See the detailed instructions in QuickBooks by searching the in-product Help for Balance sheet and selecting Why is my balance sheet out of balance?. This Help topic also has information on how to make repairs.

How Do I Make Adjustments If I Find Errors?
Make the transaction entries as they should have been made at the appropriate time. Be careful to enter the correct date so that the transaction will impact the appropriate period. This is especially important if you are making corrections after the end of the year. If you must correct a bank account transaction that has already been reconciled, it is best to enter a new transaction with the adjustment amount. Editing the cleared transaction will create an error in the next reconcile beginning balance.

QuickBooks Payroll Update 20604 January 15, 2006
Payroll Update 20604 allows you to create paychecks dated in either 2005 or 2006. It has all the federal changes for 2006 including the federal withholding rates. It also has selected state updates for 2006.

Summary of changes for this tax table:

• For the following states, an action is required in Payroll Update 20604: District of Columbia and Ohio.

Summary of changes from previous 2006 tax tables:

• An earlier tax table included new Advance Earned Income Credit (AEIC) tables, Federal withholding tables, and a new wage limit for social security taxes (no action required).
• An earlier tax table included new withholding tables for: Alabama, Arizona, California, Colorado, District of Columbia, Idaho, Iowa, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Missouri, New Mexico, New York State, New York City Resident, City of Yonkers Resident, City of Yonkers Non-Resident, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, and Vermont.
• The following tax tracking types have changed and an action was required in an earlier tax table for 2006: Section 401(k) and Section 457.
• For the following states, an action was required in an earlier tax table for 2006: Delaware, Hawaii, Idaho, Illinois, Maryland, Michigan, Montana, New Jersey, Ohio, Oklahoma, Oregon, Puerto Rico, and Wyoming.
• An earlier tax table included other changes for: Alaska, California, Connecticut, Hawaii, Idaho, Illinois, Iowa, Minnesota, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, Utah, Washington, Wisconsin, and Wyoming.

Summary of changes for this tax table:

• For Enhanced payroll subscribers this Payroll Update contains updated federal forms for: Federal Form 943/943A.
• For Standard and Enhanced payroll subscribers this Payroll Update contains updated federal forms for: Federal Form 940/940-EZ and W-2.
• For Enhanced payroll subscribers, this update includes new state forms for the following states: Delaware, District of Columbia, Maine, Mississippi, and Rhode Island.
• For Enhanced payroll subscribers, this update includes updated state forms for the following states: Arizona, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Michigan, Missouri, Montana, New York, North Carolina, Ohio, Oregon, Texas, Utah, Vermont, and Wisconsin.

Summary of changes from previous 2006 tax tables:

• For Enhanced payroll subscribers a previous Payroll Update contained new federal forms for: Federal Form 943/943A.
• For Standard and Enhanced payroll subscribers a previous Payroll Update contained updated federal forms for: Federal Form 940/940-EZ and 1096.
• For Enhanced payroll subscribers, a previous update included new state forms for the following states: Arkansas, District of Columbia, Idaho, Mississippi, North Dakota, Ohio, Utah, and West Virginia.
• For Enhanced payroll subscribers, a previous update included updated state forms for the following states: Arizona, Arkansas, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, and Wisconsin.