Is QuickBooks or Xero Better Accounting Software?

A laptop on a countertop, symbolic of choosing the best accounting software for your business.

Which is Better – QuickBooks or Xero?

Is Quickbooks or Xero better accounting software is an age old question in the world of bookkeeping. And that’s not a surprise. When it comes to accounting software, QuickBooks and Xero are the most popular names in the market today. Both provide powerful, comprehensive accounting solutions. They tick most boxes that business owners are looking for. However, their approaches are different. That is why one is more preferred in the business community than the other.

Xero is an incredibly user-friendly accounting software. It is designed to help businessowners in a simple way. On the other hand, QuickBooks has a cloud-based system. It allows you to manage your bills and invoices, track your projects and accounting processes through your smartphone. Things could not get any easier or more convenient than that.

Add this to other advantages, like flexibility and detailed reporting, and you will see that QuickBooks has a clear edge over Xero. Here is why.


Launched in 1983, QuickBooks has a long history in the world of accounting software. Xero was founded in 2006 and is no newbie either. However, QuickBooks is the most popular by far and is preferred by many accountants and businessowners.

With about 8 million users worldwide, QuickBooks is an accounting software giant. (Xero comes next with more than 3 million users around the world.) This is not only because QuickBooks has been in the market for longer. QuickBooks is also very well-developed and offers a higher value for your money. That is why it has been dominating the US market for years.


When choosing an accounting software, you want something that will be able to grow with each stage of your business. While both software offer multiple tiers, QuickBooks has greater flexibility, higher reporting standards at each level, and a much higher ceiling. In the higher-tier plans, for example, QuickBooks provides customized reporting options. This could be of a great value to experienced businessowners who wish to run more complicated reports as their operations expand.

Ease of Use

Both accounting software companies offer a user-friendly dashboard. You can easily get an overview of all your main business accounting data. Choosing one user interface over the other comes down to your personal preferences. However, QuickBooks has an edge with its customizable layout. You can easily get a quick glimpse of your business profit/loss, expenses, invoices, sales and much more. Furthermore, QuickBooks offers a superior reconciliation process and greater flexibility when creating journal entries – both of which are central to the bookkeeping process.

Reporting Flexibility

Over time, you will get more experienced at accounting and business operations. As a businessowner, you will need more complex, detailed reports from your accounting software. That is why, the reporting capabilities of QuickBooks scale up with each plan tier. They are designed to reflect your growing business requirements. With each upgrade, QuickBooks provides more detailed, complex reporting. This is crucial for setting your business goals and predicting new business trends.

Xero is not as flexible. It provides users with project tracking and expenses claiming options only at the highest-tier plan. Other than that, Xero’s reporting capabilities stay relatively the same.

Transaction Tagging

This feature is available in both QuickBooks and Xero. Each accounting software offers their own versions of transaction tracking tags. However, as usual QuickBooks has an edge in this area. Xero lets users create only 2 active tracking categories. Meanwhile, QuickBooks allows you to create 40 tracking categories in their Simple Start, Essentials and Plus plans.

The more tracking categories you create, the more reports you will get. This will provide you with a better overview of your business operations. It will also help you spot business growth opportunity.

A pair of hands holding up a clock on a blue background, symbolic of a discussion of the QuickBooks and Xero time tracking features.
Which software has better time tracking – QuickBooks or Xero? Read on!

Time Tracking

With Xero, you can unlock this feature only at their highest plan tier. By choosing QuickBooks, you can enjoy time tracking feature at each plan level they offer. Mileage tracking is also incorporated into all QuickBooks plans.


QuickBooks supports an unlimited number of invoices in all its plans. Xero’s Early plan allows only 20 invoices per year. If you need more invoices, you will have to upgrade your subscription or switch to QuickBooks.

At My OC Bookkeeper, we are Southern California’s premier bookkeeping, accounting, and business consulting firm. We can help you with anything that has to do with business finance – from day-to-day bookkeeping to building complex financial models, we know how it is done. (We also know whether QuickBooks or Xero is better, see above.) It doesn’t matter if your business is just getting started or already well-established, our services will help you thrive. So, if you are looking for a true partner you have come to the right place. Reach out to us today and let’s do great things together!

Wondering about accounting software because you are starting a new business? Check out this great blog post for everything you need to know about starting a business in California. (Orange County specifically but it’s applicable all over.) Or, if you are a visual learner, check out the video below. Good luck!

What is an S-Corporation?

The letter S laying on concrete, symbolic of answering the question: what is an S-corporation?

Everything You Need to Know About S-Corporations

If you’re in business, you’ve heard of S-corporations (or S-corps). You probably even have a lot of people in your life that have strong opinions on whether you should be an s-corporation or not.  But what exactly is an S-corporation and how does the structure affect how you run your business? Or, simply put: what is an S-Corp?

S-corporations entered the small business scene in 1958 when the federal government passed legislation allowing their formation.  Now, by IRS estimates, there are over 5 million S-corporations in existence. Read on to learn everything you need to know about S-Corps.

Benefits of Forming an S-corporation

Pass-Through taxation.

One of the biggest benefits of s-corporations is that the taxation of the company’s profit passes through to the owner.

In a regular corporation (or “C-corporation”), the business’ profit is taxed at the business level.  If the shareholders want to take money out of the company, they must either do so by taking a salary which is subject to payroll taxes or taking a dividend.  In the case of a dividend, that income has already been subject to the corporate tax rate and then is taxed again on your personal return.  The income being taxed on the corporate level and personal level is known as double taxation.

In an s-corporation, this double taxation is avoided because the profit of the corporation is passed through to the shareholder and only taxed at the individual level.

You only pay payroll taxes on your salary.

If you are actively involved in a partnership or the owner of a sole proprietorship, the company’s profit is all subject to self-employment taxes.  As the owner, you are responsible for both the employee and employer portion of payroll taxes which currently are 15.3%. 

In an s-corporation, you are required to pay yourself a reasonable salary.  The term reasonable salary is not defined by any IRS regulations, so this amount is open to interpretation and you should consult your accountant to discuss a reasonable salary for your business.

That being said, you only pay payroll taxes on the salary you pay yourself.  The remaining profit after paying yourself and all your other expenses is not subject to the payroll taxes which can yield significant tax savings.

S-corporations provide liability protection.

The s-corporate structure provides liability protection for the shareholders.  The shareholders’ assets are protected from the business creditors for claims rising from contracts or litigation.

Drawbacks of Forming an S-corporation

There is the initial setup cost and ongoing taxes.

There are several initial fees including the registration fees with the state and state taxes that the corporation is subject to.  If you operate in multiple states, you’ll need to review each state’s requirements and determine which states you need to register with. 

In California, s-corporations are subject to an annual $800 minimum tax although it may be  waived in the first year of operation depending on your profit.  There are annual Statement of Information filings required by the Secretary of State.  You should obtain local businesses licenses to ensure compliance with local regulations as well. 

Having a third-party filing your initial paperwork can cost thousands of dollars depending on which firm you use, but is often worth it to ensure that the paperwork is filed correctly and you have properly set up your corporation to receive the benefits listed above.

You are required to pay yourself a reasonable salary.

As noted above, you are required to pay yourself a reasonable salary. The reasonable salary can vary and should be discussed with your accountant.  However, the salary requirement requires you to have a payroll processing company or process the payroll yourself.  Payroll requires quarterly and annual filing (such as W-2s) and has stiff penalties for missing required payment dates. 

Your best bet is to use an online system to process payroll or work with a professional payroll processor, however the fees add up for either of these services.

You can only have one class of stock.

Distributions to shareholders must be made in proportion to the stock ownership.  So, if one personal owns 75% of the company, they must receive 75% of all distributions.  Distributing funds in a non-proportional manner creates a second class of stock which is not allowed under the s-corporation rules. 

Limitation on the number of shareholders.

Though this is not a problem for most small companies, the number of shareholders for an s-corporation is limited to 100.  In this case, married couples can be counted as single shareholder when calculating the limitation. 

You must use a calendar year.

Like the limitation on the number of shareholders this is usually not a problem for most people who are used to thinking about finances on an annual basis. An s-corporation is required to have a fiscal year that is the same as the calendar years ending on December 31.  C-corporations have the option of selecting a fiscal year end which may serve them better based on seasonal fluctuations in business. 

A woman stands on top of a hill with her arms outstretched, like you might if you just started an S-Corp!
It’s time to take on the world and start that S-Corporation at last!

How to Start an S-corporation

Register your corporation with your state.

Each state has their own policies and procedures when it comes to corporate formation.  The first step to establishing an S-corporation is to register as a corporation and then you file the s-election.

For California, you need to file your Articles of Incorporation with the Secretary of State (SoS).  You can create your own document for the filing as long as it meets the SoS guideline or you can use the form available only.  While the SoS required paper documents to be filed, it has recently changed its policy to allow online submission of the Articles.  Processing times still take a few weeks, so you need file weeks before you need to be up and running.

Register for an EIN.

Once your corporation hs been registered with your state, you need to head over to the IRS website and obtain an EIN.  The EIN (Employee Identification Number) is required for banking, paying employees, and filing your tax returns.  The IRS process for obtaining an EIN is relatively straightforward and you can obtain your EIN letter immediately online.  One item to note is that the IRS EIN website is only available during certain hours of the day and only on weekdays. 

You also do not want to get the EIN prior to receiving approval for your state corporate filing because it’s possible that the state will reject your corporate filing because of a name conflict in which case your EIN will have the wrong name associated with it.  You can fix an incorrect name, but it requires extra paperwork (and starting up a business takes enough paperwork, as is, so there’s not need to add more!)

File the S-election (Form 2553) with the IRS.

Form 2553 is an election to be taxed an S-corporation.  The form is straightforward and requires the business and owner’s information.  All owners of the corporation must sign the election.  If any owners are in a community property state (such as California) the spouse is also required to sign the election even if they are not listed as a shareholder.  The s-election needs to be filed within 2 months and 15 days of incorporation or the start of the tax year in which the corporation wants to make the election.  The IRS does allow late elections in some circumstances, but it’s always best to file timely paperwork.

While the submission process is easy, wait times for approval can vary.  It can take 2-3 months for the election to be approved and you to receive your approval letter.

Set up payroll services if they’re not already in place.

With the s-election’s tax savings comes the requirement for paying yourself a reasonable salary as discussed above.  To ensure that you’re following these rules, you should establish a payroll service for yourself if you don’t already have payroll set up through a processing company or online system.  There is no rules about when the payroll needs to be paid during the year, so you have until the end of the year to get this set up, but you don’t want to be scrabbling at the end of the year.

Have more questions about S-Corps, or anything else about business or accounting for that matter? Reach out to us at My OC Bookkeeper. We provide bookkeeping, accounting, and business advisory services to businesses all over Southern California. Want to learn more about starting a business in CA in general? This post will teach you everything you need to know about starting a new business in CA, or if you are a visual learner take a look at the video below.

One final great resource: check out the CA Secretary of State website to learn directly from the source. Always good to supplement your learning by spending a few minutes with the CA SOS.