Cheaper QuickBooks Alternatives: What Your CPA Needs

What does it mean for a QuickBooks alternative to be one my CPA supports?

The IRS names no required or approved accounting software. You may use any recordkeeping system that clearly shows income and expenses (IRS: Recordkeeping), as long as the books or records are sufficient to establish gross income, deductions and credits (26 CFR 1.6001-1). If it is a computer program, you must be able to produce legible records that reconcile with your books and return and give enough detail to identify the source documents (Publication 583). Which programs your accountant or CPA will work from is their call, and no official source lists them, so ask first, then load last year's numbers into the new one and check the reports match. In practice it comes down to five checks:

1. Reports. The program produces the general ledger, trial balance, profit and loss, balance sheet and bank reconciliations for any date range.
2. Access. Your accountant can log in, or you can send a complete export.
3. Mapping. Each account lands on one line of your return, and owner money stays out of income and expenses.
4. Exit. You can take all your data out, including after you cancel.
5. History. Payroll, sales tax and Form 1099 totals move over. The new books start from opening balances (what each account holds on the day they start), and on the cutover date, the day the new program takes over, they match the old file.

A case is not simple when:

• Your accountant has not said which programs they work from, or you do not have an accountant. Cancel nothing until that is settled: the choice, the first exports and the cutover date depend on your return type and what the old file holds.
• Payroll or sales tax filings run through the same vendor as the books. A switch then moves year-to-date wages, deposits and filed returns as well as the ledger.
• The business is a partnership or an S corporation. A partnership tracks each partner's capital account, and an S corporation each shareholder's distributions and loans. The balance sheet on the return, when required, should agree with the books.
• The books are behind or do not reconcile. The new file inherits every error in the old one.
• The IRS has asked for your records. In small business examinations the IRS often asks for the software's backup file and administrator login, and says a rebuilt or re-keyed file does not meet a request for the original.

Gather first: your last filed return, this year's reports from the old software, a list of everyone with access, your payroll and sales tax providers, and whatever your accountant has said they need.

Which reports must a cheaper accounting program produce?

It should produce the general ledger, trial balance, profit and loss, balance sheet and bank reconciliations for any date range, because your accountant will work from them. The IRS sets a test, not a report list: account totals must reconcile with the books and the return, and transaction detail must lead back to source documents (Revenue Procedure 98-25, section 5). The revenue procedure covers a smaller business when part of the required information exists only in computer files, as it usually does with accounting software (section 3).

If the vendor offers a trial or sample file, load last year's transactions and run each report before you cancel anything. Which reports go with which return is in books to the business tax return.

Can my accountant get in, and can I take all my data if I leave?

Your accountant needs either their own login or a complete export, and you need a way to take everything out before the old subscription ends. The IRS asks for the accounting software backup file and the administrator login early in many examinations, and says a backup file lets the examiner test the original records in a way reports exported to a spreadsheet do not (IRS software records FAQ). Using a vendor to host your books does not relieve you of the recordkeeping duty (Revenue Procedure 98-25, section 3).

Ask the vendor before you buy:

• Can I download a complete copy of my data, with attachments, and in what format?
• If I downgrade or cancel, what do I keep, and how long can I still log in or download?
• Is there an administrator role that I control?
• Which of these cost extra: an accountant login, more users, receipt storage, payroll, Form 1099 filing, bank connections, years of history?
• Is the price I see a first-period price, and what is it after that?
• If I hold bank accounts or invoices in another currency, does the plan record the amount in that currency as well as in dollars?

The IRS says it can read the files of the programs most businesses use and tells taxpayers to consult the examiner before sending any electronic file (FAQ, question 4). That matters most for a less common program. To give a bookkeeper access without letting them move money, see giving a bookkeeper access to your accounts.

Will a new program's categories map to my tax return?

Yes, if each account maps to one return line and owner money stays apart from income and expenses. Every program ships its own default categories. The return uses the definitions in the IRS form instructions, so your accountant maps one to the other. What the new program must allow is a chart of accounts you can edit.

Check that you can add, rename and merge accounts. A partnership needs a capital account for each partner, and an S corporation needs distribution and loan accounts for each shareholder. A starter list for Schedule C is in chart of accounts for Schedule C.

What do I check before I move payroll, sales tax, 1099s, bank feeds and inventory?

Payroll, sales tax and contractor totals each hold history the ledger does not, and bank feeds and inventory need a check on the cutover date. Use the table.

A bank feed alone does not prove the books are right; see bank feeds are not reconciliation.

How much history do I bring over, and how do I prove the balances carried over?

Bring opening balances as of one date, plus only the transactions dated after it that your accountant wants. The balances already include everything dated on or before that date, so enter each transaction once. Then prove the move by matching the new trial balance to the old one, account by account, on the cutover date.

Keep the old file and its reports for as long as the years they cover can still be examined, generally 3 years from filing; every period is in records to keep when cancelling QuickBooks. In the revenue procedure's own example of replacing accounting software, no notice to the IRS is needed because the old records can still be retrieved and processed (Revenue Procedure 98-25, sections 4 and 8).

The IRS says a re-keyed or condensed file does not meet a request for the original records of the years under examination, and condensing is acceptable only for earlier dates that do not affect those years (FAQ, questions 10 and 14). So keep the original file readable for every year that may be examined.

To prove the balances:

1. Run a trial balance in the old program on the cutover date and save it.
2. Load the opening balances and any later transactions into the new program, each once, and run a trial balance on the cutover date. Every account should match; list each difference and its cause.
3. Match bank and card accounts to statements, open invoices and bills to the lists, loans to lender statements, payroll liabilities to the last Form 941 and deposits, and equity to the old books on the same date. Last year's closing equity should also agree with your last filed return's balance sheet, or you can explain why not. A partner's K-1 capital uses the tax basis, and Schedule C has no balance sheet.
4. Keep both trial balances, the matching work and a note of what changed and on what date. The revenue procedure asks that system documentation include changes to the system and the dates they take effect (section 6).

The detail on opening balances is in opening balances after changing accountants, and on timing in switching accounting software mid-year.

Is a spreadsheet or a basic plan enough for a simple business?

Sometimes. The IRS lets you choose any system that clearly shows income and expenses, and says a single-entry system can be simple and practical if you are starting a small business (Publication 583). It stops being enough when it cannot show that the records reconcile and trace to source documents, or when payroll, inventory, contractor forms, several owners, a lender or an investor need what it cannot produce.

Any of these can be enough if it passes the five checks (reports, access, mapping, exit, history) and you can describe its controls against unauthorized changes, as in the last row of the report table:

Price the plan with everything on this page switched on: your accountant's login, the users, the bank connections, payroll and contractor forms. A plan that lacks one of them is not the cheaper plan. A lower fee can still cost more overall if the books must be rebuilt later: history that does not reconcile, owner money mixed in, or payroll moved without year-to-date totals.

What should I ask my accountant before I switch?

Ask these in writing before you cancel or pay for a year:

1. Which programs do you work from, and which would you rather I avoid?
2. Do you want a login, a file or monthly reports, and which reports?
3. Does your fee change with the program I choose?
4. What cutover date do you want, and will you review the opening balances before I go live?
5. Who files payroll and sales tax returns during the change, and what do you need from the old program?
6. How will we archive the old file, and who keeps it?
7. What do you require for logins and file sharing? Tax preparers must keep a written security plan for client data (Publication 4557).

If you do not have an accountant, or yours will not say which programs they work from, settle that before you buy or cancel anything. Bookkeeper, accountant or CPA explains who does what, and questions to ask before hiring a bookkeeper covers the rest. Or see bookkeeping help.

Example

These examples are illustrative and use US dollars.

A contractor filing Schedule C

A contractor with $90,000 of revenue and about 40 transactions a month files Schedule C. Before leaving, the contractor asks the accountant for a list of supported programs and picks from it. The contractor loads last year's transactions into a trial file, and the profit and loss matches the old program. Contract labor sits on one account that maps to line 11. Before cancelling, the contractor downloads a full transaction export with attachments.

An S corporation with employees

An S corporation with $600,000 of revenue and three employees runs payroll with the same vendor as its books. Assume wages of $180,000 a year, paid evenly, with no pre-tax deductions and no one above the Social Security wage base. A switch on July 1 must carry the $90,000 of wages paid through June 30, plus the withholding and deposits actually made, so that the year's Forms W-2 show $180,000 and reconcile with the four Forms 941. The new books also keep officer pay apart from other wages and shareholder loans apart from expenses.

A desktop user with 12 years of history

A business has 12 years of history in a desktop file and switches on January 1. It loads opening balances dated at the start of the year two years back, then the transactions since, so that the trial balance on the January 1 switch matches the old file's. It archives the old file read-only with exported reports for each year. The oldest years are likely outside the usual retention period, but the file stays because asset records last until the limitation period ends for the year each asset is sold.

Different for you?

• You are about to cancel or switch and your accountant has not said what they will work with, or payroll, sales tax and prior-year history sit in the old software: the setup, the first exports and the cutover date depend on your return type and what the old file holds. Settle them before you cancel. See records to keep when cancelling QuickBooks, then bookkeeping help.
• You do not have an accountant, or yours will not say which program they support: their answer decides which programs you can use, so settle who prepares your return first. See what a bookkeeper costs per month, then bookkeeping help.
• Your books are behind or do not reconcile: the new file would carry the errors over. See bookkeeping cleanup or start fresh and catching up on overdue books, then bookkeeping help.
• The IRS has asked for your records: the IRS often asks for the original backup file and administrator login, so get help before you change, condense or cancel anything. See penalties for not keeping business records and bookkeeping help.
• You are an S corporation or a partnership with several owners: see S corporation bookkeeping software and partner capital accounts. If the opening balances do not agree with the old books, you cannot explain the difference from your last filed return, or the owner accounts do not agree, get the setup reviewed before you go live. See bookkeeping help.
• Your business works in both the US and Canada, or you hold accounts in another currency: see QuickBooks Canada or US for a two-country business and foreign currency accounts in US books, then bookkeeping help.
• Your payroll provider is changing too: see switching payroll providers.
• You use QuickBooks Desktop or QuickBooks Self-Employed: see QuickBooks Desktop being discontinued and QuickBooks Self-Employed shutting down.
• You are choosing between QuickBooks Online and another platform, or have outgrown a small-business package: see comparing QuickBooks Online with another platform and outgrowing QuickBooks.