Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Alright, I think I’ll go ahead and handle it that way too. My clients just settled their invoice, but they actually ended up sending $10 more than what was due. What’s the best move regarding that extra amount? Just as a heads-up, the invoice was issued without sales tax because we used that reverse charge clause.

Hi there,
I run a small business that isn't registered for sales tax, and I need to issue an R2 invoice. I was wondering if I'm actually allowed to issue one under my current setup, and if so, are there any specific details or little things I should be careful about when putting it together?

Keith Martinez5 said:Alright, I think I’ll go ahead and handle it that way too. My clients just settled their invoice, but they actually ended up sending $10 more than what was due. What’s the best move regarding that extra amount? Just as a heads-up, the invoice was issued without sales tax because we used that reverse charge clause.

Just book it as a positive foreign exchange gain through "Bank Receipts" on the checking account.🤔

Anthony Cruz13 said:Hi there,
I run a small business that isn't registered for sales tax, and I need to issue an R2 invoice. I was wondering if I'm actually allowed to issue one under my current setup, and if so, are there any specific details or little things I should be careful about when putting it together?

You need to label it as an "R2 Statement based on collected fees," and you have to include a clause stating the transaction is exempt from sales tax under Section 90, Subsection 2 of the Tax Code—honestly, I don't know the exact legal phrasing off the top of my head, so if anyone actually knows the precise wording, it would be great if you could drop it here for her...

Thanks so much for getting back to me!

Is it actually possible to generate a payout slip from the register to take out, say, $100, and then just record that as a cash deposit back into the till so I have enough change ready at the start of my shift? Up until now, our starting float has always been $0.00...
If I want to scale the opening float down to $33, can I use a deposit slip to move $67 back into the main drawer and just label it on the slip as a "return of register float"?

Also, what’s the current deal regarding paying out cash advances directly from the register? Is that still an option, or am I now required to process the deposit through the accounting software first before I can issue the advance?

I need some advice. A client just handed me a cash receipt for $2667 and wants to write it off as a business expense. He completely overlooked the $1667 limit.
How do you all handle these types of receipts? Do you claim them in full, reject them, or maybe just take a partial deduction? Is that even legal? To top it all off, he’s actually asking for a VAT refund on it.

Just record the invoice and report the sales tax. Exceeding the cash payment limit doesn't suddenly make the receipt invalid, I guess.

Quick question regarding the KPI—which specific column are you guys using to report compensations? Also, I’m debating the accounting side of things here: is it technically correct to book compensation as payment in kind? Or should it be logged as a payment through the clearing account, even if the clearing account hasn't actually seen the transaction yet?

...that's just how I roll. Honestly, it’s probably the only thing making sense right now.

I’ve been recording my computer expenses under the general supply column, but then a colleague mentioned she tracks them under the miscellaneous overhead section instead. Now I’m sitting here wondering which way is actually the right way to handle this. 🤷 🤔

Look, I’m not exactly an accountant. My goal is just to keep my books organized enough so I actually know where my money is at any given second. Sure, I probably mess up sometimes, but if the IRS ever knocks on my door asking what this or that charge was, I want to have an answer ready. I live by one simple rule: don't screw with the government. That’s why I don't mix cash payments with my bank transfers; it's just common sense. It makes things way easier when I'm doing my year-end totals because I can see exactly what hit my Chase account without losing my mind. Plus, since the tax man can see my bank statements anyway, there's no point in creating stupid discrepancies that'll trigger an audit...

I personally prefer to record compensations as in-kind transactions since the IRS hasn't established a clear precedent for how to handle them otherwise. That said, I know a few accountants who go ahead and book them as income and expenses through their payroll software. At the end of the fiscal year, they just file detailed explanations with the IRS regarding the discrepancies, because the tax authorities end up seeing a lower total income than what was actually reported on the books.

Can someone help me out here? Please...

How am I supposed to log the insurance payout I just got after my building got broken into in the KPI? And what’s the deal with the stolen property that was already on my SI inventory list?

amberbadger17 said:Can someone help me out here? Please...

How am I supposed to log the insurance payout I just got after my building got broken into in the KPI? And what’s the deal with the stolen property that was already on my SI inventory list?

Just book the insurance payout as a deposit into your business checking account—assuming they wired it there, which they usually do.
As for the stolen gear, just record everything lost as an in-kind expense.

If there’s a significant gap between the insurance settlement and your own assessment—specifically if you think you lost more than they paid out—keep the police report and all your original purchase receipts handy. You'll need that documentation to justify the numbers if the IRS ever comes knocking.
In the unlikely event the payout actually exceeds your estimated loss, there isn't much to explain—it's straightforward. The tax implication is simply that you'll show a higher net income for the year because of that difference, and you'll pay taxes on it accordingly.

thanks a million!!!!

Hey everyone—quick question for the group. Has anyone here ever tried to list handmade tools, like a custom saw I built myself, as business assets? I’m trying to figure out how to actually pin down a fair market value for gear like that. More importantly, though, how do you justify it if an IRS auditor shows up at your door and you don't have a formal receipt or official documentation for everything? Any advice would be huge, thanks!

Brian Brown31 said:Hey everyone—quick question for the group. Has anyone here ever tried to list handmade tools, like a custom saw I built myself, as business assets? I’m trying to figure out how to actually pin down a fair market value for gear like that. More importantly, though, how do you justify it if an IRS auditor shows up at your door and you don't have a formal receipt or official documentation for everything? Any advice would be huge, thanks!

I would just estimate what you could realistically get for it on the secondary market right now. Just try to avoid picking some arbitrary, inflated number out of thin air...

If you are worried that the tax authorities might push back on your numbers (they’ve never given us any trouble, personally), you can always hire a certified professional appraiser to provide an official valuation...

I’ve got about 5,000 ZARA transactions a year and maybe 10 cash ones. Is there any way to copy them into my Excel KPI from a ZARA statement saved as a PDF, or am I stuck manually typing out every single line item?

Not an accountant, thanks for the help

Nicole Lee6 said:I’ve been recording my computer expenses under the general supply column, but then a colleague mentioned she tracks them under the miscellaneous overhead section instead. Now I’m sitting here wondering which way is actually the right way to handle this. 🤷 🤔

I suspect the in-kind entry is the right way to go. It seems like ZARA might just be a holdover from back when everything was handled via those old ZAP compensation vouchers.