Accounting for Sole Proprietors: Tax & Bookkeeping Tips

neonsurfer13 said:If you're a small business owner registered for sales tax, you're required to put the R2 code on your invoice along with the note "Tax calculated on cash basis."
But what happens when I need to send out an invoice that gives the client, say, a 30-day window to pay?
It’s always the same story with these government contracts. I have to issue the invoice first just to get that 30-day countdown started.
The problem is, the payment hasn't actually hit my account yet, but the invoice is already out the door.
How am I supposed to follow the rules and include that specific note without running into a legal headache?

The phrase "tax calculated on payments received" refers to when you actually owe the sales tax to the IRS—it’s due in the month the payment clears. It has nothing to do with the moment you physically print and send the invoice.

Drew Allen77 said:If you're bringing in an income, then by law, you have to register for sales tax...

Not necessarily. ☕

Nathan Fox8 said:Hey, how do you handle loans within an LLC?
If the owner lends money to the business or vice versa, is there a hard requirement to actually pay those back?
And what happens to any outstanding loans if the business shuts down?

It’s nothing to worry about. It's basically just moving money from one pocket to another. Labeling a transfer as a "loan repayment" is just a way to make sense of the activity on your business bank statement.

Can anyone give me the lowdown on whether things like travel reimbursements or local mileage claims can be used to offset monthly sales tax, or is it strictly limited to standard input invoices?

Thanks...

I am currently getting everything squared away for my upcoming payments—specifically the payroll taxes for December 2022 and the sales tax for the fourth quarter of 2022. ("dohodaš").
I noticed a notification on TurboTax indicating that the sales tax forms need to be filled out in Kuna (which implies the same for the URa?), but I haven't quite managed to track down the specific details or a helpful example yet.
Since all payments are transitioning over to the Dollar now, does that mean I have to manually convert everything from Kuna before paying? Is there anything else I should be keeping an eye on during this transition?

Edward Stewart said:I am currently getting everything squared away for my upcoming payments—specifically the payroll taxes for December 2022 and the sales tax for the fourth quarter of 2022. ("dohodaš").
I noticed a notification on TurboTax indicating that the sales tax forms need to be filled out in Kuna (which implies the same for the URa?), but I haven't quite managed to track down the specific details or a helpful example yet.
Since all payments are transitioning over to the Dollar now, does that mean I have to manually convert everything from Kuna before paying? Is there anything else I should be keeping an eye on during this transition?

Payroll taxes go into the system in dollars, while the books and income tax filings stay in dollars too.

TurboTax shows a notification saying the sales tax form needs to be filled out in USD (so does the other one?), but I haven't found any specifics or examples yet.

Just look at how you entered everything for Q1 through Q3.
The Q4 sales tax payment should be in dollars.

Since all payments are in dollars now, do I need to convert everything from my old currency to pay? Is there anything else I should watch out for?

Check the FARC report before paying the sales tax, then just pay what the FARC says.

I truly appreciate everyone taking the time to respond to my inquiry.

Emily Myers8 said:Payroll taxes go into the system in dollars, while the books and income tax filings stay in dollars too.

TurboTax shows a notification saying the sales tax form needs to be filled out in USD (so does the other one?), but I haven't found any specifics or examples yet.

Just look at how you entered everything for Q1 through Q3.
The Q4 sales tax payment should be in dollars.

Since all payments are in dollars now, do I need to convert everything from my old currency to pay? Is there anything else I should watch out for?

Check the FARC report before paying the sales tax, then just pay what the FARC says.

That bolded section has me feeling a bit perplexed; if that's the case, wouldn't the KPIs (or specifically the designated work orders and Ira filings) be mathematically inconsistent? It seems as though dollar amounts would be getting tangled up with the first month's invoices, which are all in euros.
Or is this distinction merely a matter of how things look on paper?
I personally rely on an application that automatically syncs transactions—pulled directly from my bank statements—with specific line items in the KPI, so any printouts I generate come straight from the software rather than being manually entered.

Edward Stewart said:I truly appreciate everyone taking the time to respond to my inquiry.

That bolded section has me feeling a bit perplexed; if that's the case, wouldn't the KPIs (or specifically the designated work orders and Ira filings) be mathematically inconsistent? It seems as though dollar amounts would be getting tangled up with the first month's invoices, which are all in euros.
Or is this distinction merely a matter of how things look on paper?
I personally rely on an application that automatically syncs transactions—pulled directly from my bank statements—with specific line items in the KPI, so any printouts I generate come straight from the software rather than being manually entered.

Entries in the business books for invoices through Dec 31st will be in dollars, but since the contributions for December won't be paid until 2023, they'll be entered based on the statements in dollars as you mentioned. They aren't considered expenses for 2022 and shouldn't be recorded for last year—just the bills that have actually been paid and settled.

Emily Myers8 said:Entries in the business books for invoices through Dec 31st will be in dollars, but since the contributions for December won't be paid until 2023, they'll be entered based on the statements in dollars as you mentioned. They aren't considered expenses for 2022 and shouldn't be recorded for last year—just the bills that have actually been paid and settled.

I see where you're coming from now, and I must admit, I was starting to wonder if the old cash basis accounting principle still held any weight in this context.🙂.
Much appreciated.

Hey everyone...

I’ve been handling my own bookkeeping for my small business, and now I need to file my annual forms, specifically the SD and the CDC (per the instructions from the agent when I registered for sales tax).

I have two questions here, just in case anyone else finds themselves in this exact same spot:

1.
Back in August, my revenue crossed the $300,000 threshold, so I was told my sales tax registration would kick in on September 1st. As of August 31st, my total receipts were sitting at roughly $350,000.
The agent also mentioned that I need to submit the SD covering the period from January 1st through August 31st.
However, every time I try to file the SD through the IRS portal, I get an error message the second the total amount exceeds $300,000.

What am I supposed to do?

2.
I took a look at the CDC form as well...
Do I really have to fill out EVERYTHING on there? (Keep in mind my business isn't my only source of income—I still have a regular W-2 job elsewhere, etc.) Or am I only responsible for the section pertaining to the business itself? (Looking at the whole thing, it feels like a ridiculous mountain of numbers and data points to track down)

Anyway... if anyone has any insight, thanks a ton in advance! 🙂

Lisa Myers27 said:Hey everyone...

I’ve been handling my own bookkeeping for my small business, and now I need to file my annual forms, specifically the SD and the CDC (per the instructions from the agent when I registered for sales tax).

I have two questions here, just in case anyone else finds themselves in this exact same spot:

1.
Back in August, my revenue crossed the $300,000 threshold, so I was told my sales tax registration would kick in on September 1st. As of August 31st, my total receipts were sitting at roughly $350,000.
The agent also mentioned that I need to submit the SD covering the period from January 1st through August 31st.
However, every time I try to file the SD through the IRS portal, I get an error message the second the total amount exceeds $300,000.

What am I supposed to do?

2.
I took a look at the CDC form as well...
Do I really have to fill out EVERYTHING on there? (Keep in mind my business isn't my only source of income—I still have a regular W-2 job elsewhere, etc.) Or am I only responsible for the section pertaining to the business itself? (Looking at the whole thing, it feels like a ridiculous mountain of numbers and data points to track down)

Anyway... if anyone has any insight, thanks a ton in advance! 🙂

The SD is specifically for sole proprietors under certain tax rules, which isn't your situation anymore since you hit that limit.
Income tax reporting is annual, even if your operating period was shorter.
You'll need to submit the CDC form covering all income received in 2022, from 01/01/2022 to 12/31/2022.
You include your salary, pension, business income, and any other side income.

Emily Myers8 said:The SD is specifically for sole proprietors under certain tax rules, which isn't your situation anymore since you hit that limit.
Income tax reporting is annual, even if your operating period was shorter.
You'll need to submit the CDC form covering all income received in 2022, from 01/01/2022 to 12/31/2022.
You include your salary, pension, business income, and any other side income.

I appreciate the input, but I don't think that's quite right...
My business was technically a sole proprietorship until August 31st, so there's no doubt the SD applies to that specific timeframe.

Lisa Myers27 said:I appreciate the input, but I don't think that's quite right...
My business was technically a sole proprietorship until August 31st, so there's no doubt the SD applies to that specific timeframe.

If you haven't received a formal notice about canceling your flat tax, you can still submit an SD form for the 2022 period from Jan 1st to Aug 31st.
Just enter the income amount allowed by the form; the tax difference will hit the maximum anyway, so it doesn't really matter if the income was $299,999 or $356,782.
I honestly don't see the point in filing an SD form if the law forced you over into standard corporate bookkeeping, but it's probably worth asking your IRS agent just to be safe.

Emily Myers8 said:The SD is specifically for sole proprietors under certain tax rules, which isn't your situation anymore since you hit that limit.
Income tax reporting is annual, even if your operating period was shorter.
You'll need to submit the CDC form covering all income received in 2022, from 01/01/2022 to 12/31/2022.
You include your salary, pension, business income, and any other side income.

Actually, that isn't quite right. You submit the SD based on an amount of $100 by August 31st, and then you pay the flat tax for the highest bracket proportionally for those eight months. Then, in the CDC, you report the business income from September 1st through December 31st, which also factors in any excess income over $100 earned before August 31st. Furthermore, if you held a standard W-2 job alongside your business at any point, you have to disclose that non-self-employment income and the income tax prepayments made on it in the CDC (following the IP form)... If there was employment alongside the business for part or all of the year, the CDC also requires calculating social security contributions at the reduced rates based on those specific months and the highest base, while you'll also still need to cover the contributions for the sole proprietorship itself... You'll eventually get a formal notice from the IRS, but by the time that arrives, they've likely already tacked on interest, so it's better to just settle up immediately...

Nathan Kim5 said:Actually, that isn't quite right. You submit the SD based on an amount of $100 by August 31st, and then you pay the flat tax for the highest bracket proportionally for those eight months. Then, in the CDC, you report the business income from September 1st through December 31st, which also factors in any excess income over $100 earned before August 31st. Furthermore, if you held a standard W-2 job alongside your business at any point, you have to disclose that non-self-employment income and the income tax prepayments made on it in the CDC (following the IP form)... If there was employment alongside the business for part or all of the year, the CDC also requires calculating social security contributions at the reduced rates based on those specific months and the highest base, while you'll also still need to cover the contributions for the sole proprietorship itself... You'll eventually get a formal notice from the IRS, but by the time that arrives, they've likely already tacked on interest, so it's better to just settle up immediately...

First off, you pay the flat tax according to the ruling, and to change your status, that ruling actually has to be rescinded through the proper channels. Basically, what you were paying monthly as a flat tax turns into an income tax prepayment that gets settled when you file your final tax return. There's nothing in the rules saying otherwise.
Income tax prepayments are just based on whatever the total amount was under that flat tax setup.

Emily Myers8 said:First off, you pay the flat tax according to the ruling, and to change your status, that ruling actually has to be rescinded through the proper channels. Basically, what you were paying monthly as a flat tax turns into an income tax prepayment that gets settled when you file your final tax return. There's nothing in the rules saying otherwise.
Income tax prepayments are just based on whatever the total amount was under that flat tax setup.

Your status shifts once you submit the necessary sales tax filings and the official reports, after which the IRS issues a new determination, but honestly, that's not really what we're debating here. The person explained they were under the flat tax regime until August 31st, and then switched over to standard income reporting and sales tax requirements starting September 1st. We have to assume they reported everything accurately and received their updated notice. I already went into detail above regarding how to handle this specific scenario involving SD and CDC, specifically which portion of the receipts goes toward the SD and which part belongs to the CDC. In 2023, those prepayments will naturally be applied strictly as income tax credits (Account 1430) rather than flat tax credits (Account 1449), but you still have to settle any remaining balance on Account 1449 if there's a discrepancy based on what was filed in the SD forms...

Nathan Kim5 said:Your status shifts once you submit the necessary sales tax filings and the official reports, after which the IRS issues a new determination, but honestly, that's not really what we're debating here. The person explained they were under the flat tax regime until August 31st, and then switched over to standard income reporting and sales tax requirements starting September 1st. We have to assume they reported everything accurately and received their updated notice. I already went into detail above regarding how to handle this specific scenario involving SD and CDC, specifically which portion of the receipts goes toward the SD and which part belongs to the CDC. In 2023, those prepayments will naturally be applied strictly as income tax credits (Account 1430) rather than flat tax credits (Account 1449), but you still have to settle any remaining balance on Account 1449 if there's a discrepancy based on what was filed in the SD forms...

So when does the SD get submitted in this scenario?
If there's just one SSN involved, you can't be paying taxes under two different systems at the exact same time.
Nobody mentioned anything about official rulings being out yet, so I think our assumptions are pretty much spot on.

Emily Myers8 said:So when does the SD get submitted in this scenario?
If there's just one SSN involved, you can't be paying taxes under two different systems at the exact same time.
Nobody mentioned anything about official rulings being out yet, so I think our assumptions are pretty much spot on.

The SD is submitted just like any other filing by January 15th, but the flat-rate income tax obligation is calculated proportionally for those eight months. You can't have two different tax payment methods running simultaneously, but that isn't actually the case here; rather, from January 1st through August 31st, the taxpayer is under the flat-rate system, and then from September 1st through December 31st, they transition to keeping full business books.
I'm guessing you aren't coming from an accounting background, so you probably haven't run into a situation quite like this before, but honestly, this is pretty routine work for us, and those of us who handle this professionally deal with several cases like this every single year where we file both the SD and standard income tax for the same taxpayer, so I really do know what I'm talking about...🙂

Nathan Kim5 said:The SD is submitted just like any other filing by January 15th, but the flat-rate income tax obligation is calculated proportionally for those eight months. You can't have two different tax payment methods running simultaneously, but that isn't actually the case here; rather, from January 1st through August 31st, the taxpayer is under the flat-rate system, and then from September 1st through December 31st, they transition to keeping full business books.
I'm guessing you aren't coming from an accounting background, so you probably haven't run into a situation quite like this before, but honestly, this is pretty routine work for us, and those of us who handle this professionally deal with several cases like this every single year where we file both the SD and standard income tax for the same taxpayer, so I really do know what I'm talking about...🙂

Filing a regular return isn't the same thing as filing when someone changes their tax status. Once the SD form is submitted, the old ruling is voided and it gets updated in the RNC; you can't be taxed under two methods simultaneously.
They pay via SD, settle the difference for the current year, and the monthly amount becomes a tax prepayment for the next period.

Making assumptions about people isn't the point here and you shouldn't bring it up. You could have just answered the question and explained why this is routine business—it wouldn't have been that hard.

Emily Myers8 said:Filing a regular return isn't the same thing as filing when someone changes their tax status. Once the SD form is submitted, the old ruling is voided and it gets updated in the RNC; you can't be taxed under two methods simultaneously.
They pay via SD, settle the difference for the current year, and the monthly amount becomes a tax prepayment for the next period.

Making assumptions about people isn't the point here and you shouldn't bring it up. You could have just answered the question and explained why this is routine business—it wouldn't have been that hard.

Let me try to break down the whole process one more time just to be clear... You have to file the SD by January 15th, regardless of when the business owner officially started generating income, and in this specific scenario, it covers the period from January 1st through August 31st. Then, the annual tax return is due by February 28th for the full year, but in section 4.3.1.1, you only report the business income earned from September 1st to December 31st—which is when they started keeping formal books—plus the difference between their total receipts and the amount over $100 earned up until August 31st. The SD is sent for the amount of $100, showing the flat tax obligation for the highest bracket pro-rated for those eight months... On top of that, if there's any remaining balance for the flat tax, that needs to be paid too. If there happened to be an overpayment sitting in account 1449, you can manually transfer those funds to account 1430 or 1619 if needed, though the system doesn't handle those transfers automatically...

Nathan Kim5 said:Let me try to break down the whole process one more time just to be clear... You have to file the SD by January 15th, regardless of when the business owner officially started generating income, and in this specific scenario, it covers the period from January 1st through August 31st. Then, the annual tax return is due by February 28th for the full year, but in section 4.3.1.1, you only report the business income earned from September 1st to December 31st—which is when they started keeping formal books—plus the difference between their total receipts and the amount over $100 earned up until August 31st. The SD is sent for the amount of $100, showing the flat tax obligation for the highest bracket pro-rated for those eight months... On top of that, if there's any remaining balance for the flat tax, that needs to be paid too. If there happened to be an overpayment sitting in account 1449, you can manually transfer those funds to account 1430 or 1619 if needed, though the system doesn't handle those transfers automatically...

What's the basis for the IRS to cancel a flat tax assessment?
How can someone be registered for sales tax if they were paying under the flat tax system?
The tax might stay the same as last year or even go up depending on the previous year's revenue, so that determined tax gets paid once they meet the requirements to register with the RNC.
Just a heads up, 1430 and 1619 aren't the same thing; prepayments toward the tax are made to 1430 until the annual return is filed.