How to Set Up QuickBooks for a Limited Liability Company - By: Stephen Nelson, Posted on: 2008-06-11

Running your small business as an LLC or limited liability company? Installing the QuickBooks accounting software in your situation can be complicated. But in a sense, that's a good thing. The complexity comes from the financial flexibility that your limited liability company allows.

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 (also known as a single member limited liability company) 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 limited liability companies with a single owner, or member, and those with multiple owners, or members, can make tax elections to be treated for tax return purposes as regular C corporations or as Subchapter S corporations.

And all this leads to a first trick for setting QuickBooks up for a limited liability company. 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, specify that you're setting up QuickBooks for the type of taxpayer the limited liability company 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 member limited liability company (members are LLC owners) that hasn't made any special tax elections, indicate to QuickBooks that you are 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 for tax accounting, you combine the income and deductions of parent and the children. 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, a practical method for doing this is to customize 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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