Accounting for Sole Proprietors: Tax & Bookkeeping Tips

steelbadger22 said:I purchased a lathe back in December. Do I need to report this on my sales tax return under section VIII. 1.4?

??

Carol Price4 said:Yeah, it says "due" rather than "issued"—just like I mentioned earlier—but honestly, any debt older than six years should be written off regardless of how you slice it. Per accounting standards, if you haven't written them off by then, you're just presenting a totally unrealistic picture of the company... so...

Here I go again, rambling about writing off receivables! Looking back through the previous posts, it seems a few of us are still scratching our heads over this one. As a small business owner, how does this actually work on the books? Do I just close out those receivables as if they were paid and then deal with the sales tax implications, or is there a different way to handle it? I'm looking forward to hearing some concrete advice—thanks in advance!

Keith Martinez5 and I are about to lose our minds.

I mean, the advisors over at the IRS don't have a clue what they're talking about anyway.

I’d love to just group two identical responses together to make things easier, but apparently, that's not an option.

Anyway, I got a reply from my accounting firm yesterday that actually makes some sense—they've been in business for over 20 years, so they know their stuff:

They told me I should just stornirati those unpaid invoices. Since I'm running a small business, if I haven't paid them, I haven't collected any sales tax either.

What do you veterans think? Just a heads-up, we're talking income accounting here, not tax law.

amberbadger17 said:Keith Martinez5 and I are about to lose our minds.

I mean, the advisors over at the IRS don't have a clue what they're talking about anyway.

I’d love to just group two identical responses together to make things easier, but apparently, that's not an option.

Anyway, I got a reply from my accounting firm yesterday that actually makes some sense—they've been in business for over 20 years, so they know their stuff:

They told me I should just stornirati those unpaid invoices. Since I'm running a small business, if I haven't paid them, I haven't collected any sales tax either.

What do you veterans think? Just a heads-up, we're talking income accounting here, not tax law.

I’d really love to know what legal grounds you actually have to stornirati an invoice.
An invoice represents a service rendered or goods sold—it's done. So what? You think you can just stornirati it because someone hasn't paid yet? Because the cash isn't in the bank? That's not how this works.

I don't buy it for a second. You can't just void an invoice when the debt is legitimate. You can't just write it off either, because that counts as income; you'd still be on the hook to pay the sales tax and income tax on it. Your other option is to sue them, but we all know how expensive that gets.
A consultant once told me he couldn't wrap his head around why I was being so reckless with my own money by not suing for amounts up to $667 🙄

Back when I ran my own small business, I dealt with plenty of unpaid bills. I tried everything under the sun to handle it differently, but honestly, it doesn't work. At least not legally.

If you don't want to deal with it, then don't close them out now. Who knows, maybe the laws will change down the road. 🤷

Thanks, Henry Edwards33, I really appreciate that—it’s definitely my favorite way to do things. I think I mentioned in an earlier post that this was exactly how I wanted to handle it, and well, here we go. I'm actually doing it. Honestly, the whole idea of a cancellation just doesn't sit right with me.

Uh... I’m honestly a little bit in shock right now. I’m working on my income tax return, and since last year was my first actual year in business, I was supposed to be exempt from paying taxes. But then, I also received those funds from the Department of Labor—which you mentioned counts toward gross income—and now I'm staring down a massive tax bill. 😢 Honestly, it would have been so much better if I had just been paying quarterly estimated taxes throughout the year... this is just... brutal. 😢 And then there's that extra cash from the Department of Labor... On top of that, all of this is going to hike up my monthly estimated payments for this year. If I'm understanding this correctly, I take that total income from 2015, divide it by 12, and that becomes my monthly estimate? If that's how it works, I am absolutely screwed, because we're talking several thousand dollars a month here. 😢

Raymond Martinez10 said:You count the entire year. Pretty sure that was settled in the latest updates to the tax regulations, so there shouldn't be any need for an adjustment.

Thanks for the heads-up. The folks over at the IRS told me I actually have to calculate an input tax adjustment for the remaining months until we hit the full five-year mark. Just great...

Got another one for you: can I book the unamortized portion of sold fixed assets as fringe benefits?

Quick question about the OPZ-STAT-1 filing...
If I’ve got an invoice from 2013 that didn't actually get paid until January 19, 2016—does that mean I can just leave it off the report??
The thing hit its due date on December 31, 2015, but the cash didn't actually move until the first week of 2016.

amberbadger17 said:Thanks, Henry Edwards33, I really appreciate that—it’s definitely my favorite way to do things. I think I mentioned in an earlier post that this was exactly how I wanted to handle it, and well, here we go. I'm actually doing it. Honestly, the whole idea of a cancellation just doesn't sit right with me.

On my end, I once had a veteran accountant tell me, "Just wipe those uncollectible invoices from the books at the end of the fiscal year, and when you run the opening balances for the new year, they'll be gone for good..."—which sounds suspiciously easy, right? But personally, I just don't have the nerve to pull a move like that. It’s one of those gray areas where you wonder: would anyone ever even notice, or would it eventually come knocking at your door?🤔>

Henry Edwards33 said:I’d really love to know what legal grounds you actually have to stornirati an invoice.
An invoice represents a service rendered or goods sold—it's done. So what? You think you can just stornirati it because someone hasn't paid yet? Because the cash isn't in the bank? That's not how this works.

I don't buy it for a second. You can't just void an invoice when the debt is legitimate. You can't just write it off either, because that counts as income; you'd still be on the hook to pay the sales tax and income tax on it. Your other option is to sue them, but we all know how expensive that gets.
A consultant once told me he couldn't wrap his head around why I was being so reckless with my own money by not suing for amounts up to $667 🙄

Back when I ran my own small business, I dealt with plenty of unpaid bills. I tried everything under the sun to handle it differently, but honestly, it doesn't work. At least not legally.

If you don't want to deal with it, then don't close them out now. Who knows, maybe the laws will change down the road. 🤷

Alright, I’m going to hold onto them for a little while longer instead of closing them out immediately... but I can't help but wonder what exactly this new form is supposed to mean for us. I get the feeling there’s something a bit unfavorable tucked in there—I mean, everyone seems to be in such a massive rush to dodge the paperwork and shut down their old accounts as quickly as possible. It feels like a collective instinct to steer clear of it, doesn't it?🤷

Do I still need to pay the income tax and payroll tax prepayments for January and February based on my old paperwork, or is that off the table?
Also, am I still using the same payment code, 1430, or did they change things up on me? And do I actually need to file the JOPPD for those first two months?

stormybadger8 said:Do I still need to pay the income tax and payroll tax prepayments for January and February based on my old paperwork, or is that off the table?
Also, am I still using the same payment code, 1430, or did they change things up on me? And do I actually need to file the JOPPD for those first two months?

I took a look, and it doesn't seem like they've automatically charged the estimates for December or January yet. From what I understand, we don't actually file the monthly reports until March, once we've completed the annual tax return and have all the finalized figures for the monthly assessments.
According to rif, the 1430 code remains the same.

Brenda Chase3 said:I took a look, and it doesn't seem like they've automatically charged the estimates for December or January yet. From what I understand, we don't actually file the monthly reports until March, once we've completed the annual tax return and have all the finalized figures for the monthly assessments.
According to rif, the 1430 code remains the same.

Yeah, the fact that they aren't showing up yet is driving me crazy too...
So what’s the move? Is the deadline to pay really January 31st? 🤔

I went ahead and paid for January and February last year just to be safe, but they ended up rolling everything over to 1619 anyway... so my effort was basically useless.😵

graniterider10 said:Uh... I’m honestly a little bit in shock right now. I’m working on my income tax return, and since last year was my first actual year in business, I was supposed to be exempt from paying taxes. But then, I also received those funds from the Department of Labor—which you mentioned counts toward gross income—and now I'm staring down a massive tax bill. 😢 Honestly, it would have been so much better if I had just been paying quarterly estimated taxes throughout the year... this is just... brutal. 😢 And then there's that extra cash from the Department of Labor... On top of that, all of this is going to hike up my monthly estimated payments for this year. If I'm understanding this correctly, I take that total income from 2015, divide it by 12, and that becomes my monthly estimate? If that's how it works, I am absolutely screwed, because we're talking several thousand dollars a month here. 😢

Take the total annual taxable amount and divide it by 12 to get your monthly base, then multiply that by your tax rate. Or, just keep it simple: take the total tax you owe and divide it by 12 to figure out what your monthly estimate needs to be.

Regarding future tax prepayments... when a Small Business Owner receives a one-time subsidy (take >'s situation for example), their income for that specific year looks significantly higher on paper. However, it feels completely illogical to be forced into massive upfront prepayments based on a windfall that won't be repeated in 2025. This isn't even standard business revenue; it’s pure support. I suspect—and I plan to double-check this—that it's possible to submit a formal explanation to calculate the prepayment based solely on regular business operations rather than including that one-off grant. They've added a new line item in the updated income section specifically for entering the prepayment amount.

I’ve got some firsthand intel here, straight from two different IRS representatives:

Regarding prepayments, they aren't being submitted manually anymore. Instead, the prepayment amount will be calculated based on the 2015 figures within the new tax form. The IRS will then bill for those prepayments, much like how they handle corporations. They can't give a specific start date because, frankly, things are a total mess over there right now—at least, that's what they told me. Regardless, all taxes and surcharges for 2015 must be settled by February 29, 2016, upon filing the tax return. Further prepayments will kick in once their system is actually up and running and processing data again.

For anyone who received various subsidies that caused their prepayment amounts to spike artificially, you can file a request to reduce those prepayments. You'll just need to provide a written explanation along with an updated summary showing that your actual income doesn't justify such high prepayment amounts. Once processed, the IRS will issue a new determination with adjusted prepayment totals.

Brenda Chase3 said:Regarding future tax prepayments... when a Small Business Owner receives a one-time subsidy (take >'s situation for example), their income for that specific year looks significantly higher on paper. However, it feels completely illogical to be forced into massive upfront prepayments based on a windfall that won't be repeated in 2025. This isn't even standard business revenue; it’s pure support. I suspect—and I plan to double-check this—that it's possible to submit a formal explanation to calculate the prepayment based solely on regular business operations rather than including that one-off grant. They've added a new line item in the updated income section specifically for entering the prepayment amount.

If a Small Business Owner receives a one-time grant from the State Employment Agency, that money should technically be treated as earmarked funds that have to be reinvested back into the business. If you can justify those expenditures to the agency within three months, it effectively counts as a business expense. Which means it lowers the taxable base—🤔 unless I've completely lost my marbles here. 😵

John Price92 said:Take the total annual taxable amount and divide it by 12 to get your monthly base, then multiply that by your tax rate. Or, just keep it simple: take the total tax you owe and divide it by 12 to figure out what your monthly estimate needs to be.

Thanks, Elly... I figured out the same thing later on. I realized I could just divide the total tax owed by 12, but my brain was totally fried at the time. Seeing that massive tax bill from my annual filing sent me into such a panic that I couldn't think straight.😵😠🙂

Brenda Chase3 said:I’ve got some firsthand intel here, straight from two different IRS representatives:

Regarding prepayments, they aren't being submitted manually anymore. Instead, the prepayment amount will be calculated based on the 2015 figures within the new tax form. The IRS will then bill for those prepayments, much like how they handle corporations. They can't give a specific start date because, frankly, things are a total mess over there right now—at least, that's what they told me. Regardless, all taxes and surcharges for 2015 must be settled by February 29, 2016, upon filing the tax return. Further prepayments will kick in once their system is actually up and running and processing data again.

For anyone who received various subsidies that caused their prepayment amounts to spike artificially, you can file a request to reduce those prepayments. You'll just need to provide a written explanation along with an updated summary showing that your actual income doesn't justify such high prepayment amounts. Once processed, the IRS will issue a new determination with adjusted prepayment totals.

So, basically, we need to file the tax return by February 29, 2016, and pay off any remaining 2015 tax and surcharge balance once that's done...
But does that mean we also have to pay double monthly advances based on that return by Feb 29, 2016? Or should the advances for January and February still follow the old rules? 🤷

Also, is it 100% certain that no special forms are being sent for those advances? 🤷

stormybadger8 said:So, basically, we need to file the tax return by February 29, 2016, and pay off any remaining 2015 tax and surcharge balance once that's done...
But does that mean we also have to pay double monthly advances based on that return by Feb 29, 2016? Or should the advances for January and February still follow the old rules? 🤷

Also, is it 100% certain that no special forms are being sent for those advances? 🤷

Through February 29, 2016, prepayments follow the old Police Department rules.
Starting March 1, 2016, everything follows the 2015 filing through February 28, 2016.👍