Accounting for Sole Proprietors: Tax & Bookkeeping Tips

urbanwalker72 said:Under the current regulations governing cash transactions, credit cards are treated strictly as non-cash instruments.

Exactly—and for businesses that track sales based on when they actually receive the funds, the sales tax isn't due until that money hits the bank account.

So, I’ve run into a bit of a mess. I bought some stuff from a company over in the European Union, but they slapped a 25% sales tax on my bill.
Since they have an American tax ID, I guess they think they're legally allowed to charge me that much.

Also, just a heads-up: I used my personal credit card for this, even though the invoice was made out to my business. Should I just mark this down as a cash payment?

How am I supposed to log an invoice like this in my books? What category of accounts payable does this actually fall under?

Hey everyone!

So, I just picked up a new PC that definitely qualifies for the Section 179 deduction. Here’s the thing—the invoice lists both the hardware itself and a separate service fee for the setup.
What’s the best way to log this through my accounting software? The total amount on the bill is $1979 including tax, where the base price for the computer is $1516 and the service charge sits at $67. Also, quick sanity check—should I be categorizing the computer's base cost under Section 179?

When you look at the bottom line, obviously, that VAT isn't actually being funneled back into public spending.

neonsurfer13 said:So, I’ve run into a bit of a mess. I bought some stuff from a company over in the European Union, but they slapped a 25% sales tax on my bill.
Since they have an American tax ID, I guess they think they're legally allowed to charge me that much.

Also, just a heads-up: I used my personal credit card for this, even though the invoice was made out to my business. Should I just mark this down as a cash payment?

How am I supposed to log an invoice like this in my books? What category of accounts payable does this actually fall under?

If they didn't have your business tax ID on file, they were required to charge you the sales tax. You just record it as a standard accounts payable entry and list the payment method as cash. We can technically operate and acquire goods for up to $23333 without needing a registered tax ID.

Hey,
I need some help here. My company used to outsource all our bookkeeping, but they just cut ties with us, so now I’m stuck handling everything myself. It's a mess. When the government sends us money—like if they overpay us and send back a refund, or if they give us an advance payment for a contract—do I just book that as a customer payment on account 1200? Also, regarding an insurance premium refund, I’m thinking that counts as miscellaneous income under 7855, but am I right? Because let's be real, not every single cent that hits the bank account is actually revenue. How am I supposed to categorize these incoming transfers?

Brian Cruz3 said:Hey,
I need some help here. My company used to outsource all our bookkeeping, but they just cut ties with us, so now I’m stuck handling everything myself. It's a mess. When the government sends us money—like if they overpay us and send back a refund, or if they give us an advance payment for a contract—do I just book that as a customer payment on account 1200? Also, regarding an insurance premium refund, I’m thinking that counts as miscellaneous income under 7855, but am I right? Because let's be real, not every single cent that hits the bank account is actually revenue. How am I supposed to categorize these incoming transfers?

Oof, man, I wish I could give you a better answer, but it sounds like you're missing some of the fundamentals here. Honestly? Grab a good book on accounting firm basics, sign up for an introductory bookkeeping course, and just dive in. You don't really have any other choice...

Does anyone know if we’re actually allowed to collect our performance bonuses if we already took that government payroll support to save jobs?
If anyone has the inside scoop, let me know.

Hey there, quick question for the group.

How on earth is it even possible for a small business's bookkeeping to report a higher amount of input invoices than what was actually recorded on their tax filings? I mean, if you subtract the sales tax from both sides, you end up with a situation where the inputs are way higher than the outputs—say, $1.4 million in inputs versus only $800,000 in outputs—when in reality, half of those expenses were just fluff? Is that kind of math even legal?

Dana Gonzalez75 said:Hey there, quick question for the group.

How on earth is it even possible for a small business's bookkeeping to report a higher amount of input invoices than what was actually recorded on their tax filings? I mean, if you subtract the sales tax from both sides, you end up with a situation where the inputs are way higher than the outputs—say, $1.4 million in inputs versus only $800,000 in outputs—when in reality, half of those expenses were just fluff? Is that kind of math even legal?

In the short term, sure, someone could pull that off, but if they keep it up, it’s basically screaming tax evasion to anyone looking at the books.

feralnomad35 said:In the short term, sure, someone could pull that off, but if they keep it up, it’s basically screaming tax evasion to anyone looking at the books.

Look, I get it, but honestly? I just can't wrap my head around how someone could blow through that much cash—so my only logical conclusion was that his accountant must be cooking the books somewhere.

What’s the deal with companies registered overseas that still use an American tax ID?

Basically, can I buy stuff online from a shop like this:

And just write it off as a business expense without any massive headaches or extra paperwork?

Just a heads-up: I don't have a specific VAT registration, just my standard American EIN and I'm already in the tax system...

The weird part is, there isn't even an option to register as a business on their site.
There isn't even a field to enter a tax ID...
On top of that, when I look them up in the official state registry using that ID, nothing shows up. 🤔

stormybadger8 said:What’s the deal with companies registered overseas that still use an American tax ID?

Basically, can I buy stuff online from a shop like this:

And just write it off as a business expense without any massive headaches or extra paperwork?

Just a heads-up: I don't have a specific VAT registration, just my standard American EIN and I'm already in the tax system...

The weird part is, there isn't even an option to register as a business on their site.
There isn't even a field to enter a tax ID...
On top of that, when I look them up in the official state registry using that ID, nothing shows up. 🤔

It gets complicated. Even if they possess an American Sales Tax ID, they are technically a foreign entity, which places you in the exact same position as if you were ordering from a reputable vendor within the European Union. Consequently, you would need to provide your tax credentials so they can apply the reverse charge mechanism; you would then report it simultaneously as both an input credit and a taxable supply—making it a net-neutral transaction for you.

Essentially, you won't get a clean input tax deduction as you would with a domestic American corporation.

If you happen to receive an invoice that explicitly lists American Sales Tax, it is fundamentally incorrect.

You might be better off buying tires from someone else.

Hey everyone!

So, if I pick up a stamp or cover some court filing fees for my office and then just bill those costs back to a client, how does that actually work?
Do I need to tack Sales Tax onto that, or is it exempt? And more importantly—how am I supposed to log this in my accounting software? Should I be looking at it as a pass-through expense or just something marked as tax-exempt?

I need some urgent help regarding the payroll reporting forms for sick leave—specifically for those self-isolation cases. Any advice?
6.1. acquirer identification code - 5201
Is there an issue with using the same insurance code here? I mean, the sick leave ran from November 3rd to the 13th, 2020... I guess it might be a problem. Maybe.
16.1. — Payment method code? Is it 0 or 1? I think I read somewhere that it should be 1, but then I see some examples using 0... I guess it’s just one of those things. Maybe it depends on the specific filing.

urbanwalker72 said:It gets complicated. Even if they possess an American Sales Tax ID, they are technically a foreign entity, which places you in the exact same position as if you were ordering from a reputable vendor within the European Union. Consequently, you would need to provide your tax credentials so they can apply the reverse charge mechanism; you would then report it simultaneously as both an input credit and a taxable supply—making it a net-neutral transaction for you.

Essentially, you won't get a clean input tax deduction as you would with a domestic American corporation.

If you happen to receive an invoice that explicitly lists American Sales Tax, it is fundamentally incorrect.

You might be better off buying tires from someone else.

To build upon the question originally posed by Quote: The Best NFL player... I wonder, does this same logic apply to the DigitalOcean web shop?
They possess an American SSN (which I verified via the IRS website), they accept payments through local American banks, and they issue invoices addressed to the customer including their SSN and our local Sales Tax (25%)... yet, the header of the invoice clearly lists the company's headquarters in Vienna.
Can such an entity truly be considered a domestic firm? Specifically, how should one properly include such an invoice when filing with the IRS alongside the Sales Tax calculations?

Hey there

So, I'm looking at my bank statement and—get this—the payroll subsidy for a profitable small business owner isn't showing up in the account balance anywhere. Is that normal?
Also, does anyone actually know how you're supposed to word the payment description on the transfer order so the bank doesn't freak out?

I could use some help with the P-PPI form.

Where am I supposed to enter the sales tax I calculated on purchases from other USA states or international vendors?

Does that go under Section II.6 or III.7?

It’s a bit confusing because this tax is being grouped together with collected sales tax and tax on receipts, even though it's actually an expense. I think you know what I mean. 😁

Thanks!

Hey everyone.

As of December 31, 2020, this is what my general ledger looks like for account 1430 (taxes and surcharges).

Entry Type Debit Credit
121 Payment... 0.00 1,532.59
121 Payment... 0.00 1,532.59
131 Prepayment... 0.00 0.00
221 ST-Payment... 0.00 - 1,628.31
221 ST-Payment... 0.00 - 58.21
TOTAL 0.00 1,378.66

So, here's the thing. There was no tax prepayment liability for 2020, yet I ended up paying two prepayments from 2019. After that, nothing else was paid, and those negative amounts were rolled over to account 1201... I guess I'm just stuck. I have no idea which figure I should actually enter under PAID TAXES on the 2020 Form 1040?
Maybe someone could help me out with this?

Dana Gonzalez75 said:Look, I get it, but honestly? I just can't wrap my head around how someone could blow through that much cash—so my only logical conclusion was that his accountant must be cooking the books somewhere.

Small businesses usually record income and expenses on a cash basis.☕
What’s the starting balance in the checking account?
How many bills were paid in cash?
Actually, where did the funds for the URA even come from?
It's possible, I suppose—maybe the business bought a massive amount of supplies, or paid off long-term assets... or just had a major cash outflow. Or something.
Maybe do some digging.👍👍