QuickBooks Self-Employed is Useful, but Read the Fine Print
QuickBooks Self-Employed is suitable for people who work in the "shared economy", are self-employed, file a Schedule C with their tax return, have no payroll. It is easier to use than traditional QuickBooks Online. QuickBooks Self-Employed is not designed for businesses, with the exception of Single Member LLC's, under certain circumstances.
My daughter, a gig worker used QuickBooks Simple Start for a business that sold food products in Farmers' Markets in Louisiana. She then opened with her husband, a new business, that provides podcast editing. This time, she wanted something easier to use. We found that using QuickBooks Self Employed was much easier and met all of her needs. Her second business is a recurring service business with 15-30 customers, all billed and collected electronically and no payroll. The following analysis is based on our joint experience. I never thought that QuickBooks would strengthen my bonding with my daughter, nor did I think, she would be in awe of some my QuickBooks skills. In a nutshell, this process gave me more quality time with her. What we like about QuickBooks Self-Employed is that you can:
Integrate with your bank and credit card accounts
Access from a web browser or a mobile app. Your data syncs in both places
Works with iPhone and Android
Send and track simple invoices and get paid electronically
Separate business and personal expenses
Keep paperless records of your transactions, you can be paperless by scanning or emailing receipts
Quarterly estimate your taxes
Automatic mileage tracking
My analysis will only cover the bookkeeping aspects, and not the tax aspects of QuickBooks Self-Employed.
QuickBooks Self-Employed is designed for business owners with simple business structures., i.e. no employees and/or contractors, no inventory, no need to record liabilities or equity transactions. Typical users are, gig economy workers, independent contractors, consultants, sole proprietors, freelancers, realtors, agents, Uber/Lyft drivers and more.
The Good, Bad and Ugly
Easy to Use, the Good
Each time you enter a transaction into QuickBooks, you need to categorize it. This includes transactions you download from an online bank account or enter manually. Like QuickBooks Online, you can set up "rules" that automate the categorization of your transactions. A great time savings.
Another great feature is way to enter expense receipts into QuickBooks Self-Employed. If you snap a picture, QuickBooks can record new transactions from images of physical receipts. You can also attach receipts to transactions you already entered in QuickBooks.
QuickBooks Self-Employed is easy to use for estimating and invoicing. The invoice set up is easy and descriptions can be customized, but is limited. In any case, your invoicing provides a professional appearance and experience to your customers.
The big difference from all other QuickBooks platforms and most other competitors is that you can use one account for both personal and business transactions. Basically, if you pay one expense that is for your business and personal , you can record the total amount paid and then you split the transaction between business and personal. Quite frankly, I am skeptical about this and not sure how good this is, but it works for my daughter
You can invite your accountant to review the file and make corrections.
You can easily view or print a Profit and Loss statement, as well as tax summary. Although there aren’t as many reports to run, as compared to other accounting software, the P&L statement is often all a solopreneur needs.
What's missing ? The Bad
You cannot set up new accounts in a chart of accounts. You must use the expense and revenue categories that come with QuickBooks Self-Employed. A chart of accounts allows you to customize the rows you see on your profit and loss, to see what is behind your income and expenses . In QuickBooks Self-Employed, you only get the “tax” categories as hard coded by Intuit. You cannot design your own accounts or view your P & L.
Limited Sales tax reporting -QuickBooks Self-Employed tracks income from the products and services you sell. It doesn't automatically calculate sales tax nor does it keep of a summary of the sales tax paid. This means to prepare a sales tax return you will need to manually add the sales tax collected from your invoices and/or use the sales tax information provided by your e-commerce providers.
There is no general ledger.- The general ledger provides an accurate record of all financial transactions. In other words, in accounting speak, a general ledger is a recordkeeping system used to sort, store, and summarize a company’s financial transactions. A general ledger has four important components: a journal entry, a description, debit and credit columns, and a balance. There no system of double entry, which means, among other things, that you can make journal entries, TIP 1- The work around is to export to Excel and then you can view the account activity in a format similar to a general ledger and Tip 2 - Consider using tags to refine categorization, and use the tag reports.
There is no bank reconciliation.-For many accountants, without a bank reconciliation there is a risk that transactions could be incorrect or missing. Most CPA's will or should have a problem with a business not reconciling their bank or credit cards monthly. The problem is that if you don’t reconcile, there is the risk of errors or omitting a transaction from your books and your tax return. For the past 40 years I have always had my clients reconcile their accounts. But when you have daughter that does not want to reconcile and coupled with Intuit not offering that feature, we have two reasons to re-think the need to reconcile your bank accounts and credit cards. Once I was told by my daughter that she reviews every transaction that is automatically downloaded from the bank, by way of a bank feed, the risk of manual error or omission is reduced. Further, as small business owners review each and every transaction from the bank feeds, and this type of review/oversight can minimize the risks of not reconciling monthly.
The omission of a balance sheet from QuickBooks Self-Employed generally may not be a problem if you are a sole proprietor and file a Schedule C with your personal income tax return. However, if you are small business and file a partnership or Subchapter S Corporate return, which may require a balance sheet, then You should consult with your tax accountant since there are thresholds that require a balance sheet that may be required when a tax return is prepared.
It does not give you the ability to maintain a balance sheet, that maintains and lists your assets and liabilities. TIP- it is advisable to maintain full financial records, which includes a balance sheet and your accounting is likely to be more accurate when balance sheets and reconciliation reports are prepared. Also, if your business exceeds the monetary threshold, in the future you may be required to reconstruct a balance sheet for your tax return, which could be a burden if balance sheets were not previously prepared. So if you don't intend to significantly grow your business then QuickBooks Self-Employed is the way to go
QuickBooks Self-Employed only provides P&L statements, while QuickBooks Online has more advanced reporting. There is no balance sheet, no ability to track inventory, no ability to record or manage accounts receivable and accounts payable. I believe the aging reports for accounts receivable is missing and should be included.
What's Ugly
Unfortunately, most self-employed owners will not be concerned about the following shortfalls of QuickBooks Self-Employed, but accountants and bookkeepers will find the following weaknesses Ugly
Comingling business and personal account
No general ledger and no double entry accounting system
No ability to reconcile bank or credit card accounts
No balance Sheet
Cannot change chart of accounts.
Lack of robust financial reporting, and accounts receivable and accounts payable reports.
If after reading this article, you are not sure if you should use QuickBooks Self-Employed or QuickBooks Online, then speak to someone who is an accountant and familiar with QuickBooks, or a QuickBooks Certified ProAdvisor. Also, if you decide that you are more aligned to use QuickBooks Online, then refer to my YouTube video that describes the three choices you have to use QuickBooks Online i.e. Simple Start, Essentials or Plus.