small business taxes for the U.S.

[David Genadek]

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

Using it is easy setting it up is the hard part. The notion of perpetual inventory is real nice but the program doesn't handle the world of leather real well so still count on doing physical inventory and making adjustments. Although They do say the recent edition will handle conversions. Such as I buy skirting by the pound but I cost it out by the side. Paying the money to a CPA to set it up for you would be money well spent. I have stretched the program beyond what it is designed to do but we can make it work with lots of adjusting on the part of my accountant. I do mass customization and that is pretty complicated stuff so I doubt you will go through the hell I did but I would strongly urge you to get professional help on the set up. They can help you put into perspective what is worth the worry and what is not. If your a one man shop you can pretty much just go eye ball things and know where your at.

David Genadek

[CitizenKate]

Same here. Dealing with piece-parts is one thing, but dealing with raw material is another. So far, I've been able to set up my program to keep pretty close track of things like leather. Dyes are a little less cut-and-dry.

I told my accountant that the amount of dye I use not only varies from one identical piece to another, but for some pieces, I portion it out not in ounces, but in drops. Her response was, then you need to track your dyes by the number of drops. I asked her if she was out of her mind. No way am I going to sit around counting drops of dye all day long - I'd never have time to make anything. (Maybe that's where the term "bean-counter" comes from.)

So what I do is estimate as closely as possible, how many ounces of dye I use for each item, and I set up the system to deduct that amount automatically whenever I make the item. Then periodically, I do cycle counts on the dyes I've been using the most, and make inventory adjustments.

Kate

Using it is easy setting it up is the hard part. The notion of perpetual inventory is real nice but the program doesn't handle the world of leather real well so still count on doing physical inventory and making adjustments. Although They do say the recent edition will handle conversions. Such as I buy skirting by the pound but I cost it out by the side. Paying the money to a CPA to set it up for you would be money well spent. I have stretched the program beyond what it is designed to do but we can make it work with lots of adjusting on the part of my accountant. I do mass customization and that is pretty complicated stuff so I doubt you will go through the hell I did but I would strongly urge you to get professional help on the set up. They can help you put into perspective what is worth the worry and what is not. If your a one man shop you can pretty much just go eye ball things and know where your at.

David Genadek

[David Genadek]

Same here. Dealing with piece-parts is one thing, but dealing with raw material is another. So far, I've been able to set up my program to keep pretty close track of things like leather. Dyes are a little less cut-and-dry.

I told my accountant that the amount of dye I use not only varies from one identical piece to another, but for some pieces, I portion it out not in ounces, but in drops. Her response was, then you need to track your dyes by the number of drops. I asked her if she was out of her mind. No way am I going to sit around counting drops of dye all day long - I'd never have time to make anything. (Maybe that's where the term "bean-counter" comes from.)

So what I do is estimate as closely as possible, how many ounces of dye I use for each item, and I set up the system to deduct that amount automatically whenever I make the item. Then periodically, I do cycle counts on the dyes I've been using the most, and make inventory adjustments.

Kate

I count dyes as a supply I don't inventory them. There is a point where it is ridiculouse. An once of dye covers about a square foot so it costs more to track them than it is worthe. It won't help your ordering becasue your just going to look at the bottle and say oh I better order some more dye anyway. The dollars you have tied up are pretty small in relation to the other materials and frankly it would be hard to sell them so they really are not much of an assett anyway.

The program is great for doing estimates and doing billing and things and does make communications pretty easy but unless your doing some real simple assemblies for COGS it falls short. I use the inventory portion but we still do all that seperate on speadsheets and then just make adjustments.

If I were you I would look for different accountant. You want someone that thinks along the lines of Lady J Keep it simple so you have time to make money and not just spend your time doing books.

David Genadek

[bruce johnson]

I learned a lot about computer kept inventory and automatic item subtraction at work. We were test monkeys for a veterinary software package several years ago. What I learned is you are always out. There is no accounting for the pills you dropped in the sink, the 3.2 ml you gave and it took 3.0 off the inventory (after a while it adds up), or the bottle the other clinic borrowed and hasn't returned. David is right, you need to do physical counts. It really shouldn't matter how you do them, as long as it is consistant. What finally worked the best for us was to have an 'inventory side" and a "using side". When a bottle was taken from the inventory and opened, the whole bottle was immediately removed from the inventory. Easier to count bottles than pills. We have pretty much abandoned it now, and look at the shelves to decide what to order.

What I do with the leather business has evolved. I set up some templates in my spreadsheet program that do the calculations. I have a monthly expense report I keep. When I get an order in, I break it down into sections for a monthly expense sheet - office items and expenses, tools, shipping in, shipping out, inventoried supplies, and non-inventoried supplies. Most of these categories are pretty self explanatory. The non-inventoried supplies are the things like sponges, nails, screws, little tedious to count things that are not higher dollar items. Inventoried items are bigger volume things that are mostly used up and turned over several times a year, but accounted for. When I total these up for the month it gives me an idea of that month's expenses - less overhead, travel, and a few others accounted for elsewhere.

I also keep inventory sheets (files) for each item. I start with a Jan 1st count of how much, average cost for the last year, and dollar value. It is transferred over from the EOY for the previous year. Each time that item comes in, the date/supplier/quantity and cost per unit are entered. The spreadsheet totals the value and adds it to the running total at the bottom. At the end of the year it gives me a total for on-hand plus orders for the year, the average cost, and a final value based on that average cost. I total these files up, add the shipping in and out, the non-inventoried supplies, subtract the EOY inventory value, and it gives me a COGS. At the bottom of the inventory sheets is a place for EOY counts. It multiplies the amount by the year's average cost to get a final EOY inventory value. This is carried over to be the beinning inventory for the next year.

A few things I do by convention. I estimate bottles by fourths - one fourth, half, or 3/4. I estimate leather by eye, if my sides of a certain leather average 23 sg ft, and I have about a half, then I have 11-1/2 sg ft. I don't figure the scrap bins at all. I estimate small hardware (things I want to keep track of casts) by eye, I don't hard count rivets, Chicago screws, or the like. Buckles, rigging hardware, and that kind of stuff are hard counted. Thread is by half or whole spool.

There are places where I could short myself. Sometimes I have a big amount of a special buy leather and the price is low. I carry it over, use it up, and over the course of a year, I order a couple more at a higher price. At EOY, the cheap initial inventory has diluted the cost of the orders through the year. What I am carrying over is actually less value than replacement. One of thse actual cost vs. average cost accounting things that could bite you carried over for a long time. On those I watch myself and try to use it up before year's end and not carry a value over. There is a reason that suppliers have an end of period inventory sale. They don't want to carry it over either.

Another thing this does do is force me to monitor inventory costs. If a new order of leather is higher, then I need to refigure prices on those items that use it now. I used to get nibbled on there. If I have a big order coming up, I need to get with my supplier and make sure they are stocked with what I need and aren't planning a price increase. I got bit bad there once too. All this paperwork seems like a hassle, but once I got it set up, it isn't too bad. It takes a little time, but beats the first couple years I didn't keep it up as well. Totaled up, maybe two hours a month on paperwork now.

[esantoro]

This has all been very helpful.

I have had to download and install the free version of Quickbooks startup to get things rolling so that I can convert my data file later to a more advanced program, if needed.

Thanks,

Ed

[esantoro]

I met with an accountant today. Does it sound about right to pay $150 quarterly for his help?

Thanks,

Ed

[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.

These books are great, Bruce. Thanks.

The Nolo Press books are good, too, but these books walk you thorough more details in a manner where you feel much more informed. The Nolo Press books, on the other hand, seem to make it all a bit too simple.

Ed

[esantoro]

Another question just occurred to me.

I have a day job, from which I get a W-2. I've never itemized personal deductions but have always taken the standard deductions. Will my itemized business deductions for 2008 be added to my standard personal deduction, or do I not get that standard deduction once I choose to itemize deductions?

Ed

[esantoro]

I'm a little worried about the accountant I talked to. It seems that what I need is an account who knows the ins and outs of schedule C. The guy I talked to told me that I don't want to mess with Schedule C, which flies in the face of all I've been reading the past two weeks.

He also didn't seem very responsive about a method allowing me to deduct all my startup costs prior to 2008. In fact, it seems that I may already know more about this than he does.

1. Count all my rivets, glue, dyes, leather, thread, machine oil, etc. as inventory. Any inventory on hand prior to my first business year is simply added to starting inventory for 2008. I can estimate how much of what is used on each bag and deduct that from my inventory. This will give me my costs of goods sold.

It doesn't seem like I'm able to deduct rivets, glue, dyes, leather, thread, machine oil, etc. all at ounce, because it may take me three years to use it all up.

Anyone know how to list the individual items for inventory in Quicken?

Thanks,

Ed

[esantoro]

Thanks, again, for all the help in this thread. I just found a thread over at Etsy where everyone is stressing over this stuff. I'll go bug them for a while. I will post the resulting PDF of collected informative posts and links later.

Ed