Accounting for Sole Proprietors: Tax & Bookkeeping Tips

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.

Thanks for the heads-up. It would be great if it actually works that way... if we can really settle the prepayment issue just by filing that request. 👏

casualorca5 said:Through February 29, 2016, prepayments follow the old Police Department rules.
Starting March 1, 2016, everything follows the 2015 filing through February 28, 2016.👍

So, it's the exact same amount, sent to the same invoice number and account as last year...
And I don't need to file this using the standard federal form?

Asked the IRS a few times and nobody seems to have a clue.🙂

Jessica Gonzalez30 said: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. 😵

Here’s the catch: imagine a Small Business Owner gets an incentive for hiring someone, and that money hits their account in November. That grant is intended to cover the new employee for the following year. You can't exactly burn through all that cash in two months when the credit is meant to span a full twelve-month cycle—especially since you have to submit proof of payroll and tax contributions every quarter. But the reality is, the entire lump sum of $9.25 lands in the bank account all at once. The moment it arrives, it artificially inflates the owner's income for the current year, even though they haven't actually incurred any of the expenses yet to offset it.

So, I’m looking at how this travel agency works—they basically act as a middleman. I haven't dealt with their specific setup before, so I'm a little tripped up on the bookkeeping side of things. Here is how it goes down: an agency gets one big payment from a customer that covers everything—the actual stay plus their commission. Then, on the next bank statement, the agency sends the remaining balance over to the property owner, keeping just the commission for themselves. Now, when looking at the agency's income, only the commission actually counts as revenue. My question is about that transfer they send to the owner. Since that money is really just passing through their hands, how should I record that outflow? Does it count as a business expense, or should I just bypass it entirely? Or is there a specific way to track it so it's documented? Any help would be appreciated...🤔

Does a Small Business Owner on income-based tax still need a liquidator to verify their paperwork
before handing it over for bookkeeping under the accounting laws?

The folks at my local bank told me that starting January 1st, even a Small Business Owner has to comply, but I want to hear what you all think.

Arthur Bishop6 said:Does a Small Business Owner on income-based tax still need a liquidator to verify their paperwork
before handing it over for bookkeeping under the accounting laws?

The folks at my local bank told me that starting January 1st, even a Small Business Owner has to comply, but I want to hear what you all think.

I have to disagree there. Liquidations are governed by the SEC, and we all know exactly which entities are actually required to follow that specific Act.

But then again, since things can get pretty chaotic and nobody ever seems to be quite sure who’s in charge or who’s footing the bill, anything could happen. 🥱

Brenda Chase3 said:Here’s the catch: imagine a Small Business Owner gets an incentive for hiring someone, and that money hits their account in November. That grant is intended to cover the new employee for the following year. You can't exactly burn through all that cash in two months when the credit is meant to span a full twelve-month cycle—especially since you have to submit proof of payroll and tax contributions every quarter. But the reality is, the entire lump sum of $9.25 lands in the bank account all at once. The moment it arrives, it artificially inflates the owner's income for the current year, even though they haven't actually incurred any of the expenses yet to offset it.

You've got a point there.
I was actually thinking about self-employment incentives.
I've been dealing with them so much lately that my brain is basically just a revolving door of incentive programs at this point.😵

I am looking for some guidance here if anyone happens to have experience with this.
During the last fiscal year, certain bills were settled by a creditor as part of a pre-bankruptcy settlement I was pursuing. A notice was issued writing off 30% of the balance, while the remaining 70% was paid in full. I recorded the paid amount in the general ledger, which leaves that outstanding 30% sitting there as an unfulfilled balance. Consequently, when we closed out the year, those accounts rolled over into the current year as open items. What is the proper procedure to write off that 30%? I need them to stop appearing in this year's books since they were officially written off under the settlement terms. I hope I’ve explained the situation clearly enough. Thanks in advance for any help.

Thomas Diaz8 said:I am looking for some guidance here if anyone happens to have experience with this.
During the last fiscal year, certain bills were settled by a creditor as part of a pre-bankruptcy settlement I was pursuing. A notice was issued writing off 30% of the balance, while the remaining 70% was paid in full. I recorded the paid amount in the general ledger, which leaves that outstanding 30% sitting there as an unfulfilled balance. Consequently, when we closed out the year, those accounts rolled over into the current year as open items. What is the proper procedure to write off that 30%? I need them to stop appearing in this year's books since they were officially written off under the settlement terms. I hope I’ve explained the situation clearly enough. Thanks in advance for any help.

From what I understand, when a debtor goes through bankruptcy or liquidation, you don't record income under Section 8 of the Corporate Income Tax Regulations for uncollectible claims. To be honest, I'm not entirely certain about how it works specifically for pre-bankruptcy settlements, though my gut feeling is that the same logic should apply.

Now, obviously, you can't just void the original invoice. You might consider recording it as an in-kind receipt and marking it as unrecognized so it doesn't impact the S&P 500. Just make sure to attach all the supporting documentation to the entry.

Jessica Gonzalez30 said:From what I understand, when a debtor goes through bankruptcy or liquidation, you don't record income under Section 8 of the Corporate Income Tax Regulations for uncollectible claims. To be honest, I'm not entirely certain about how it works specifically for pre-bankruptcy settlements, though my gut feeling is that the same logic should apply.

Now, obviously, you can't just void the original invoice. You might consider recording it as an in-kind receipt and marking it as unrecognized so it doesn't impact the S&P 500. Just make sure to attach all the supporting documentation to the entry.

Thanks for the input.
Under the Sarbanes-Oxley Act regarding pre-packaged bankruptcy, Article 85 states:
(4) Value adjustments based on impairment of receivables are determined as tax-deductible expenses in the amount of the write-offs approved under a settlement pursuant to this Act.

Does this imply that I should book the remaining balance of the invoice as an expense? Specifically, if I book the amount actually paid as revenue, but then simultaneously book that 30% portion as an expense on the same date—since I handle sales tax based on actual payments received—would that be the correct approach?

Thomas Diaz8 said:Thanks for the input.
Under the Sarbanes-Oxley Act regarding pre-packaged bankruptcy, Article 85 states:
(4) Value adjustments based on impairment of receivables are determined as tax-deductible expenses in the amount of the write-offs approved under a settlement pursuant to this Act.

Does this imply that I should book the remaining balance of the invoice as an expense? Specifically, if I book the amount actually paid as revenue, but then simultaneously book that 30% portion as an expense on the same date—since I handle sales tax based on actual payments received—would that be the correct approach?

What you pointed out makes total sense for corporations or profitable small businesses—they already recognized the full revenue and paid taxes on it at the moment they issued the invoice.
So, in those cases, that 30% really does act as a tax-deductible expense once the value adjustment happens.

But for a sole proprietor using a cash-basis accounting method, that money was never actually recorded as income in the first place; it only shows up when the payment is finally received. So, to my mind, it doesn't quite track that they would get to claim that 30% as a deductible expense if it wasn't even considered income to begin with.
😉

Can a small business owner import bank statements using the Goldman Sachs module? Does anyone here have hands-on experience with this? I handle all my own bookkeeping for my LLC (under the standard tax structure), and since I manage quite a few different transaction accounts, I’m really looking for a way to streamline how I track payments. I currently work over at Silicon Valley, so if anyone has some solid advice, I would be incredibly grateful—doing this manually is honestly such a slog... If I were to pick up the Goldman Sachs module (which is what they suggested to me at Silicon Valley), I’m just not sure how it would integrate with my existing accounting setup or other modules like Payroll or my basic Business management tools. I’d love to hear from the pros here—please share any smart solutions you might have!

Hey, I'm checking in here. Quick question—what am I supposed to put under "value correction"? Is that just last year's ending book value or what?

This new depreciation module they shoved into the IRS portal is pure idiocy. Honestly, someone needs to be publicly shamed for designing this mess...

Basically, the system refuses to accept fractional depreciation rates (like 12.50%); it only recognizes whole numbers...

The real headache happens when you're trying to depreciate an asset down to zero, but the math doesn't perfectly align with the rate provided... there is absolutely no way to file...

Say you buy something for $33 in November 2011 and you're depreciating it at a 25% rate
2011 depreciation - 2,083.33 (from Dec 1st to Dec 31st)
2012 depreciation - 25,000.00
2013 depreciation - 25,000.00
2014 depreciation - 25,000.00
2015 depreciation - 22,916.67

You can't submit the form because there's this mindless validation check requiring the amount to equal exactly "purchase price x rate / 100," and to make matters worse, it won't even let you input decimals for the rate itself... just integers...

I have no idea who designs the logic for these forms, but whoever it is deserves a very stern talking-to from their parents and a long stint sitting in a corner...

Timothy Morgan38 said:This new depreciation module they shoved into the IRS portal is pure idiocy. Honestly, someone needs to be publicly shamed for designing this mess...

Basically, the system refuses to accept fractional depreciation rates (like 12.50%); it only recognizes whole numbers...

The real headache happens when you're trying to depreciate an asset down to zero, but the math doesn't perfectly align with the rate provided... there is absolutely no way to file...

Say you buy something for $33 in November 2011 and you're depreciating it at a 25% rate
2011 depreciation - 2,083.33 (from Dec 1st to Dec 31st)
2012 depreciation - 25,000.00
2013 depreciation - 25,000.00
2014 depreciation - 25,000.00
2015 depreciation - 22,916.67

You can't submit the form because there's this mindless validation check requiring the amount to equal exactly "purchase price x rate / 100," and to make matters worse, it won't even let you input decimals for the rate itself... just integers...

I have no idea who designs the logic for these forms, but whoever it is deserves a very stern talking-to from their parents and a long stint sitting in a corner...

😁😁
This is just awful! I "can't wait" to start dealing with these lovely little forms 🙂

I just don't get it—look, I totally realize IT folks aren't experts in our field and they don't need to know every single nuance, but why can't someone who actually understands the day-to-day workflow sit down with them? It would be so simple to explain the possible variations so those templates actually work right the first time...

It's enough to drive you crazy when you can't get your job done and we're all just spinning our wheels!

I actually reached out to them regarding that digital interface and told them they might want to consider providing some clear, step-by-step guidance on their website on how to even fill out a form that’s essentially useless. It’s a bit of a headache because we are required to follow the letter of the law—everything has to balance perfectly from a financial standpoint—yet the form itself isn't even designed to comply with those legal requirements.

So, I’m staring down this N/A form right now and I’ve got some questions:
III. EXPENSES - what's the deal with in-kind expenses versus write-off expenses? Does AM go under write-offs? Because my software keeps dumping AM into the in-kind category!
Also, regarding V. SUMMARY OF INCOME AND EXPENSES
point 2—what is the actual difference between the turnover per the ledger and the reported income???
2.1. cash deposits??
Here’s my situation: I have incoming funds hitting the account, but they're actually being paid out to third parties (it's just a pass-through item for us). At the end of the year, I put together a full list and handed everything that hit the account over to the FBI to show it isn't considered actual income... so where am I supposed to plug that in now???

1. So, regarding the tax return for sole proprietors—are we done with the old KPI filings? Is it just the new N/A form now?
2. Does that island job retention credit actually count toward my receipts?
3. What’s the deal with the historical preservation rent?
4. Has anyone here used Accenture and tried calculating self-employment contributions with a February 15th date while attempting the N/A? I’ve entered everything, but whenever I try to save the N/A, it just throws an error at me...
Tnx

Olivia Cruz86 said:So, I’m staring down this N/A form right now and I’ve got some questions:
III. EXPENSES - what's the deal with in-kind expenses versus write-off expenses? Does AM go under write-offs? Because my software keeps dumping AM into the in-kind category!
Also, regarding V. SUMMARY OF INCOME AND EXPENSES
point 2—what is the actual difference between the turnover per the ledger and the reported income???
2.1. cash deposits??
Here’s my situation: I have incoming funds hitting the account, but they're actually being paid out to third parties (it's just a pass-through item for us). At the end of the year, I put together a full list and handed everything that hit the account over to the FBI to show it isn't considered actual income... so where am I supposed to plug that in now???

Those transit items should probably be accounted for in the discrepancy between the General Ledger turnover and the reported receipts. Up until now, we've just included those in the attachment used to explain any differences—things like interest earned, loan repayments, and stuff like that. 😉