small business taxes for the U.S.

[esantoro]

Can I still deduct the entire glue cost for that year? Yes but you have to do it that way all the time. I call those things supplies and I do supplies on a cash basis. Those things that I view as assets I treat as inventory but they have to be worthe enough for me to take the time to count them all the time. If it costs more to track than it is worthe, treat it on a cash basis. If not then treat it on an accrual basis. I am speaking from the stand point of a corperation so it may be different on a different bussiness structure. You really should talk to an accountant and have them set you up it is worthe the money but find some one you can trust. This is really an important step!

David Genadek

I'm meeting with an accountant this Saturday. Thanks.

Ed

[bruce johnson]

Ed,

Not sure if I shared this one with you before. There is a CPA named Bernard Kamaroff who has written a few books on small businesses. I was steered by my advisor to "Small Time Operator - How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble". I would recommend it. I see he also has some new ones, one is "422 Tax Deductions for Businesses and the Self-Employed". Now that sounds interesting too. He writes in a pretty easy to follow style.

[esantoro]

Ed,

Not sure if I shared this one with you before. There is a CPA named Bernard Kamaroff who has written a few books on small businesses. I was steered by my advisor to "Small Time Operator - How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble". I would recommend it. I see he also has some new ones, one is "422 Tax Deductions for Businesses and the Self-Employed". Now that sounds interesting too. He writes in a pretty easy to follow style.

Thanks, Bruce. I've ordered these books. By the way, these tax books and whatever I pay to the accountant are deductible, right?

ed

[CitizenKate]

What I ended up doing was getting a copy of QuickBooks Mfg edition. My raw materials are tracked as assets until sold as part of something I make, then they become an expense, exactly the way LadyJ describes. It took a little work to get it all set up, which included taking inventory for the first time - ugh!

But now that I have all that done, I can just tell QB, "I just built X of item Y," and it automagically transfers the right amounts from raw materials to finished goods, two asset accounts. Then when I sell the item, I create an invoice, and QB automagically posts the sale and moves the amount spent on raw materials to the GOGS account. At any time, I can tell how much I've got invested in raw materials, and what kind of a profit margin I'm getting on what I've sold. That is some very valuable visibility into my business that really helps me determine what I need to do to become more profitable, and now that it's set up, I don't work very hard at it at all.

I've also got QB set up to spit out a report every year with all the numbers I need to fill out a schedule C. You can tell it what line on schedule C each account must be added into.

Kate

[LadyJ]

The Accrual method is not a good choice if you complete and sell products in one year and they are not big ticket items. In fact, there are few retail sales businesses that benefit from using the accrual method. That said, I really think that you are making your accounting more difficult than it needs to be.

When you talk about the cost of producing an individual item compared to its actual sales price, you are talking profit and loss --- not income and expenses which are used in tax preparation.

You use profit and loss to evaluate your overall productivity. Am I making money on this item? Which items are the better expenditure of my time? Is my volume high enough to allow me to make a profit on this item if I sell enough of them? All of these questions are important to help you decide how to develop your product lines. The profit and loss from any one item will still not give you a fair picture of your real business expenses, however. To see the impact of overhead expenses (rent, utilities, transportation, postage, fuel), you have to flip to an Income and Expense analysis.

Income and Expense is the basic analysis for tax preparation. For you, all cash/payments should be included as income at the moment they are received. All "expenses" are a cost of doing business and should be deducted at the moment you pay for them (or charge them on credit). I agree with Horse Braider -- a good accountant/CPA is a valueable part of your business team and worth every penny you invest in him.

You should use the easiest accounting system that is adequate to reflect your business. Don't get carried away. It can be a simple check book that has certain tax categories listed like income (deposits from sales) and expenses (employees, supplies,advertising, etc). As you write each check, just list it in the appropriate column and at the end of the month, total each column and your income and expense log is done (it is also your totals for your taxes). Every check will fit into a predetermined category for your business if you get a list from your fellow leather workers about what categories they use.

In fact, creating a list of tax categories for a leather working business would be a good topic. Start with:

Employee expenses (salaries, taxes, insurance, benefits)

Rent for facility

Utilities

Insurance for the business itself

Equipment:

Large items used for more than a year need to be depreciated

small items used up on one year are "supplies"

Supplies (I would suspect this will be your biggest expense category)

Inventory (if you purchase goods at wholesale and resell without much modification)

Advertisement/ business promotion

Vehicles/transportation

WHAT ELSE ?????

[esantoro]

What I ended up doing was getting a copy of QuickBooks Mfg edition. My raw materials are tracked as assets until sold as part of something I make, then they become an expense, exactly the way LadyJ describes. It took a little work to get it all set up, which included taking inventory for the first time - ugh!

But now that I have all that done, I can just tell QB, "I just built X of item Y," and it automagically transfers the right amounts from raw materials to finished goods, two asset accounts. Then when I sell the item, I create an invoice, and QB automagically posts the sale and moves the amount spent on raw materials to the GOGS account. At any time, I can tell how much I've got invested in raw materials, and what kind of a profit margin I'm getting on what I've sold. That is some very valuable visibility into my business that really helps me determine what I need to do to become more profitable, and now that it's set up, I don't work very hard at it at all.

I've also got QB set up to spit out a report every year with all the numbers I need to fill out a schedule C. You can tell it what line on schedule C each account must be added into.

Kate

Hi Kate,

I just got QB Mfr and Wholesale Edition 8.0. Can you recommend a good book to help me learn how to use it?

Thanks,

Ed

[HorsehairBraider]

The Accrual method is not a good choice if you complete and sell products in one year and they are not big ticket items. In fact, there are few retail sales businesses that benefit from using the accrual method. That said, I really think that you are making your accounting more difficult than it needs to be.

When you talk about the cost of producing an individual item compared to its actual sales price, you are talking profit and loss --- not income and expenses which are used in tax preparation.

You use profit and loss to evaluate your overall productivity. Am I making money on this item? Which items are the better expenditure of my time? Is my volume high enough to allow me to make a profit on this item if I sell enough of them? All of these questions are important to help you decide how to develop your product lines. The profit and loss from any one item will still not give you a fair picture of your real business expenses, however. To see the impact of overhead expenses (rent, utilities, transportation, postage, fuel), you have to flip to an Income and Expense analysis.

Income and Expense is the basic analysis for tax preparation. For you, all cash/payments should be included as income at the moment they are received. All "expenses" are a cost of doing business and should be deducted at the moment you pay for them (or charge them on credit). I agree with Horse Braider -- a good accountant/CPA is a valueable part of your business team and worth every penny you invest in him.

You should use the easiest accounting system that is adequate to reflect your business. Don't get carried away. It can be a simple check book that has certain tax categories listed like income (deposits from sales) and expenses (employees, supplies,advertising, etc). As you write each check, just list it in the appropriate column and at the end of the month, total each column and your income and expense log is done (it is also your totals for your taxes). Every check will fit into a predetermined category for your business if you get a list from your fellow leather workers about what categories they use.

In fact, creating a list of tax categories for a leather working business would be a good topic. Start with:

Employee expenses (salaries, taxes, insurance, benefits)

Rent for facility

Utilities

Insurance for the business itself

Equipment:

Large items used for more than a year need to be depreciated

small items used up on one year are "supplies"

Supplies (I would suspect this will be your biggest expense category)

Inventory (if you purchase goods at wholesale and resell without much modification)

Advertisement/ business promotion

Vehicles/transportation

WHAT ELSE ?????

Taxes and licenses... Don't know about everyone else, but I have to pay state sales tax on things I sell in my own state, have to have a business license for states where I go and physically sell things including of course my own state.

Show fees - entry fees, jury fees etc. that you have to pay for booth space, the jury fee to get in the show in the first place, electricity for your display etc.

That's all I can think of on this small amount of coffee...

[CitizenKate]

Hi Ed,

The built-in tutorials are the best place to start. Those were pretty much all I needed.

Kate

I just got QB Mfr and Wholesale Edition 8.0. Can you recommend a good book to help me learn how to use it?

[esantoro]

Taxes and licenses... Don't know about everyone else, but I have to pay state sales tax on things I sell in my own state, have to have a business license for states where I go and physically sell things including of course my own state.

Show fees - entry fees, jury fees etc. that you have to pay for booth space, the jury fee to get in the show in the first place, electricity for your display etc.

That's all I can think of on this small amount of coffee...

Can you choose whether to pay your state sales taxes quarterly or annually?

[Art]

Hi Ed,

No, the State makes that determination using your past sales performance as a criteria. Different States, different criteria. I pay Maryland quarterly at their direction, probably because I do most of my sales in the last quarter, almost all of the rest of the year is out of state.

Art

Can you choose whether to pay your state sales taxes quarterly or annually?