QuickBooks Online for First-Timers: The Minimum You Must Set Up Before You Touch Payroll

If you’re new to QuickBooks Online (QBO), it’s easy to jump straight into payroll because that’s the exciting part—your first employees, first paychecks, first milestone as a real business. But before you process a single paycheck, you need to get your foundation right.

Think of QBO like a house. Payroll runs best when the plumbing (your chart of accounts, settings, and integrations) is installed correctly. Here’s what you should set up first so your numbers flow cleanly, your reports make sense, and you avoid expensive cleanup later.

1. Verify Your Company Settings

Before anything else, open Settings → Account and Settings → Company and confirm:

• Your legal business name exactly matches your tax registration.

• The EIN field is filled in (you’ll need this for payroll tax forms).

• Your address matches your official filing location.

• The fiscal year start month reflects your accountant’s recommendation (usually January).

Getting this right ensures your tax filings, W-2s, and bank syncs all reference the correct entity.

2. Create or Clean Up Your Chart of Accounts

Your chart of accounts (COA) is the backbone of your books. QBO’s default chart is fine for hobby projects, but not for a growing business.

Start by reviewing your Income and Expense categories. Ask:

• Do you need separate income categories for different product lines or services?

• Are your payroll accounts mapped correctly (Wages Expense, Payroll Tax Expense, Payroll Liabilities)?

• Are duplicate or unused accounts cluttering your reports?

If you’re unsure what belongs where, you can export your COA (⚙ → Chart of Accounts → Run Report) and compare it to IRS business expense categories.

3. Link and Test Your Bank Feed

QuickBooks automates reconciliation by linking directly to your bank, but don’t turn it on without reviewing settings.

1. Go to Banking → Link Account.

2. Connect your business checking and payroll account (if separate).

3. Turn off “auto-add” until you’ve verified your rules.

4. Create a test import of one transaction, categorize it, and review how it posts to your chart of accounts.

This is the fastest way to catch problems like double-counted deposits or personal charges slipping into your books.

4. Confirm Your Tax Settings Before Adding Employees

Even if you haven’t added payroll yet, go to Taxes → Payroll Settings and make sure:

• Your federal EIN is entered.

• The correct business type (LLC, S-Corp, sole proprietor) is selected.

• You’ve registered for state withholding and unemployment tax accounts with your state government.

• Your state ID numbers are entered into the Payroll Settings screen.

If you skip this step, QBO may hold back payroll filings or calculate incorrect liabilities.

5. If Using, Add Key Integrations Early

Syncing tools before your first payroll can save hours later:

• Time tracking (QuickBooks Time or Homebase).

• Receipt management (QuickBooks Receipts, Dext, or Hubdoc).

• Payroll benefits (QuickBooks Payroll, Gusto, or your provider).

Start small—connect only what you’ll actually use. Every integration adds complexity.

6. Test Reports Before Payroll Starts

Run these three reports and review for accuracy:

• Profit and Loss — does income and expense flow to correct categories?

• Balance Sheet — does equity match contributions and draws?

• Payroll Summary (after your first run) — do totals match gross pay and liabilities?

If anything looks strange, fix it now—clean books make payroll reliable.

7. When to Ask for Help

If your chart of accounts, bank feeds, or payroll setup already feel overwhelming, don’t guess. A QuickBooks ProAdvisor can verify your configuration in a single session and prevent the common “cleanup after payroll” nightmare that many owners face in year one.

Book a 15-Minute Setup Call
Get your base configuration done right before you touch payroll.

About the Author

Dave Scroggs is a QuickBooks Online and Payroll Certified ProAdvisor who has helped small businesses keep their books clean and compliant since 2017. He specializes in QuickBooks setup, cleanup, and multi-state payroll management.

Multi-State Payroll for Small Businesses: What You Need to Understand Before Hiring

Growing your business and hiring employees across state lines is a big milestone, but it can also open up a world of payroll compliance traps.
If you’re using QuickBooks Online and hiring in more than one state, this guide will help you understand what you need to register, how to stay compliant, and how to avoid unnecessary penalties.

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1. What “Multi-State Payroll” Really Means

When you pay employees who work in more than one state—whether they are remote, travel for work, or your business is expanding—you are responsible for payroll compliance in each of those states.

• Each state has its own salary withholding, unemployment insurance, and employer registration requirements.

• Even if your business is based in one state, you may need to register in another state simply because an employee works there.

• For example: If you have an employee living or working in Colorado but your business is in Kansas, you’ll likely need to register for payroll tax accounts in Colorado as well.

Key takeaway: In most cases, payroll taxes are based on where the employee performs work, not just where your business is located.

2. The 5 Essential Registrations to Complete Before Hiring

State Income Tax Withholding
You must withhold and remit state income tax where employees perform work. This usually applies the moment someone performs services in that state.

State Unemployment Insurance (SUI)
Employers must pay unemployment tax in each state where employees perform work. Register before running the first payroll.

Business Registration or Foreign Entity Filing
Some states require you to register as a “foreign” business to process payroll. This applies if your company has employees or clients in that state.

Local or City Tax Accounts
Certain cities or counties have their own local withholding or payroll taxes. Check if your employee’s city requires a separate account.

Reciprocity Agreements
Some states allow withholding only in the employee’s home state if a reciprocity agreement exists. Check state tax department websites before the first run.

3. Common Mistakes That Lead to Penalties

Here are the most frequent payroll errors small business owners make when expanding across states:

1. Running payroll in a new state before completing registration.

2. Assuming “state of residence” equals “state of tax.”

3. Not tracking where remote or traveling employees actually perform work.

4. Treating full-time remote employees as contractors to avoid registration.

5. Ignoring city or county payroll taxes.

Each of these can result in delayed filings, underpaid taxes, or state penalties that take time and money to fix later.

4. How to Stay Compliant Across States

1. Map out your footprint. List every state where your employees live or work.

2. Determine nexus and registration needs. Each state has its own definition of “doing business.”

3. Register early. Most states require registration before your first payroll run.

4. Track work locations carefully. For hybrid or remote workers, record which state they work from each pay period.

5. Use software that supports multiple states. QuickBooks Online Payroll can manage multi-state compliance once accounts are linked.

6. Keep your records organized. Maintain payroll tax filings, W-2s, and payment records for at least 4–6 years.

7. Get professional help when needed. Payroll experts can manage registrations and ongoing filings so you can focus on your business.

5. Why Working With a Payroll Specialist Saves Time and Stress

Handling multi-state payroll alone can become a full-time job. Between state registrations, local taxes, and filing deadlines, one missed step can lead to penalties.

When you outsource payroll setup and management, you can:

• Eliminate registration errors and missed filings.

• Ensure each employee’s taxes are withheld and remitted properly.

• Keep QuickBooks Online clean and accurate.

• Get peace of mind knowing you’re compliant in every state where you operate.

If you’re planning to hire across state lines or have remote employees, I can help get your QuickBooks Online payroll set up and running correctly from day one.

Ready for payroll that just works?

Expanding your team across states is an exciting step, but it’s also one that demands careful attention to payroll compliance. By registering in each state before hiring, tracking where work is performed, and using the right tools (or professional help), you’ll stay compliant and stress-free as your business grows.

About the Author

Dave Scroggs is a QuickBooks Online and Payroll Certified ProAdvisor who has been helping small businesses simplify their books and payroll since 2017. He works with clients across multiple states to ensure compliance and clean financial records.

Using CamScanner to Scan Documents

Have something to scan and send to your digital bookkeeper?  Let me show you how easy it is to use CamScanner to get it done.  First, download CamScanner to your smart device.

Open the app and you should be looking at this screen:

This is the app's homepage.  Press the camera option to open your device's camera and scan a document.

My wife and I took our son to Chick-Fil-A last night.  I'll use our receipt as an example.  I took quite a few shots.  Usually, you just need to take one.  I took some deliverately poor shots to demonstrate how Camscanner cleans those up.

Camscanner automatically crops and reads the receipt.  When you are done press the checkmark to return to the app's homepage.

You can see Camscanner has already focused and cropped the images.  Nice.  Look at the clarity!  Yes.  You can have the app recognize text if you like by pressing the "Recognize" button.  When you are ready to send off your images press the share icon at the top.  (You can also set up autosyncing too, but I won't explain that here.)

Select to send it as a PDF.  Then chose how to share it.  In this example I'll just email it to myself.  Easy.  There's much more to the app and a lot of cool things you to do but I think I'll leave this post here.  Let me know if you have any questions.

The Number One Thing You Should Look for in a Bookkeeper

Unfortunately, we haven't yet developed the digital equivalent of a handshake.

Here's the number one thing you should look for in a bookkeeper:

someone you can build a strong relationship with.

Does that surprise you?  Let's talk.

I won't berate the point that building relationships is a must for small businesses.  Nor will I attempt to argue that there aren't secondary qualities--attention to detail, work ethic, professionalism, trustworthiness--that are important too.  What I will argue is that you're looking for that human connection when hiring a bookkeeper; you're looking for that feeling from your gut, "I like this guy."  It's a little abstract, a little intangible but you'll know it when you feel it. 

Imagine asking someone for advice.  What qualities of this interaction make it a positive experience?  You want honesty.  You want openness.  You want to be comfortable discussing tough topics and help making rough decisions.  What type of person do you see yourself having this strong a relationship with?  That's who you are looking for.  It's not easy and it'll take time but you want to shoot for the ideal here.  You want an adviser comfortable advising.  You want to be comfortable being advised.  

So, in the beginning, how do you identify all these intangibles?  I'd make it a point to look for authenticity and respect.  These qualities put us at ease quickly--they build trust.  Look for someone eager to communicate, someone who is easy to get on the phone or who replies to emails quickly.  You'll be touching base with your bookkeeper frequently.  Make sure you won't be subconsciously dreading reaching out.  Finally, you are looking for a bookkeeper who values you and your vision.  It's another abstraction but your bookkeeper shouldn't lose sight of your goals and what you value.  In short, they should care.

All of this is a tough order.  And you still need to review all of their traditional credentials too.  Keep it mind that a strong relationship is doubly important if you are seeking a digital bookkeeper. 

Good luck.

A Note on Digital Security

How safe is digital bookkeeping?  Legitimate question.  You are transmitting and storing very sensitive financial data over the internet.  How secure is it?

This is going to sound counter-intuitive but your data is safer in the cloud than sitting there on your computer.  Let me explain.

The major services that provide data storage and file transferring have huge security budgets.  Often, we're talking 24-hour surveillance by an IT security team.  Big budgets also mean a continued flow of security updates in terms of firewalls, encryption and other security measures.  Data-farms of sufficient size also mandate bank level physical security for their facilities.

Now, think about how tenuous your files are sitting on a single office computer.  Laptops risk being easily stolen and all electronics can become victims of fire, flood, electrical surge or just simple wear-and-tear.  Cloud-based services allow for the easy retrieval of data.  

Second, consider your single computer's vulnerability to hackers, viruses and malware.  Is all of your software up-to-date?   How often is it updated?  Do you still feel secure?

My favorite online services, Dropbox and Google Drive, both feature file encryption and ongoing tech support.  If you're the paranoid type--more admiration than judgement here--you should look into the increased security of Sharevault and QuickBooks Online.

In truth, the biggest security vulnerability isn't the software or system you choose to use.  It's you, the user.  Careless users are the number one cause of data breaches.  

You can easily reduce your risk in the following ways:

• Use a unique, complex and difficult to deduce password.
• Consider a password manager software.
• Never reveal your passwords.  Anyone asking for your password is up to something.
• Use personal laptops and computers rather than public equipment.
• Avoid doing sensitive work on public wifi networks.  You can avoid the risk by tethering your PC to your phone's connection.

How Digital Bookkeeping Works

So, how does digital bookkeeping work?  

The relationship between a business owner and a bookkeeper boils down to document sharing and efficient communication.  Technology can be a godsend in both of these regards.  A good digital bookkeeper can make a business' financial processes more efficient and cost effective.  Let's get into the nitty-gritty.

So, how do we share documents?

Your bookkeeper is going to need quite an array of financial documents from your business.  We're talking bank and credit card statements, receipts, invoices, bills, online payments etc.  Luckily, there are many different ways to share documents these days over the internet.  My preferred way is to use a cloud-based document system like Dropbox or Google Drive.  Some clients may prefer to use a dedicated file transfer service or use a virtual data room like Sharevault.  You can even send documents via email if you like.  Finally, snailmail is always an option too.

The only major differences between these systems and handing documents to a bookkeeper directly are building the habit to send it to your bookkeeper electronically and the ability to scan documents.  You may need to invest in a good scanner but I've had great personal success with CamScanner--a smartphone app that uploads pdfs of your documents using your phone's camera.

So, how do we regularly communicate?

This is an even easier question.  The internet provides an almost overwhelming variety of ways to communicate.  Email and instant messaging are probably the most popular.  Obviously, you could always give your bookkeeper a call too.  If you are looking for a face-to-face meeting you can use any of the online meeting clients or video chat services like Skype or Google Hangouts.  

There is one final way that digital bookkeepers operate.  Some clients--probably use to having a bookkeeper physically come to the office and sit down at a computer--prefer to have their digital bookkeeper use software to remotely access the business' computer.  This can be accomplished using services like LogMeIn or GoToMyPc.

Your bookkeeper should be willing to train you on any of the particular software if you run into any problems.  You can also reach out to me and I'll be willing to help.

Don't Go it Alone! Hire a Bookkeeper Post-Haste!

Is bookkeeping just data entry?  That's an easy notion to have.  "When I'm doing the books, " a new small business owner may say, "all I do is log the transactions."  Many bookkeepers, particularly those who also offer digital services, make a point of arguing for the necessity of having a dedicated bookkeeper.  I think most small businesses already recognize the value of having a professional bookkeeper handle the books.  They know that hiring a professional is more cost effective in the long term and frees up the owner from spending their time on paperwork.  I think the reason so many small businesses forgo a professional bookkeeper is the belief that they can go it alone--that they can bring costs down by doing the work themselves.

And some of them are probably right.  But, even the most able small business owners, of which I am sure you are an example, will be dedicating too much of their time and talent, honestly, better spent elsewhere.  The idea that bookkeeping is just data entry boils down to a rationalization.  I've decided to cut costs a little managing the books therefore the value of a bookkeeper is less than typically assumed.  It's an easy fallacy to have.  But I would urge you:  

DON'T DO IT!

Go with your gut.  Don't go it alone.  

You already know that hiring a professional bookkeeper means less time spent on paperwork and more time directly managing the larger affairs of your business.   Bookkeepers bring another trained set of eyes to your business.  They're not just looking to input data.  They're looking to help your business trim the fat and streamline processes.  Bring someone on board who wants your business to succeed.  Someone closer to an adviser or partner than an employee.  Hire a professional bookkeeper.