Accounting for Sole Proprietors: Tax & Bookkeeping Tips

I'm working on filing a tax return for a small business owner and I have a quick question: if she was out on maternity leave for all of 2015, but she has two kids listed on her tax card, should I still include the personal tax credits for them? 🤔

When exactly is the deadline for filing the DI form? I haven't even had a chance to sit down and look at what it actually looks like yet—but after reading through all your comments here, I’m starting to get a very interesting sense of how everyone is reacting to this whole mess.

urbangull65 said:When exactly is the deadline for filing the DI form? I haven't even had a chance to sit down and look at what it actually looks like yet—but after reading through all your comments here, I’m starting to get a very interesting sense of how everyone is reacting to this whole mess.

You have to file that DI form by February 28th along with your tax return.

ruggedlynx63 said:You have to file that DI form by February 28th along with your tax return.

Fine... Look, I’m brand new to this whole field. Just two months ago, I started some professional training at an accounting firm, but now—get this—my colleague is moving to a different position, and suddenly I’m expected to take over all his small business accounts.
2😵
To put it bluntly, I've been thrown straight into the deep end...

urbangull65 said:When I actually sat down to write that, I realized—I think I was thinking one thing and typing another—so you’re totally right there. I meant she uses the kids as a way to lower her tax burden; they aren't listed under her husband since he's currently employed.
One more thing, if you happen to know: in the new income tax filing, section 4.2.5 covers "Reduction of Income under 1. Salaries of newly hired employees." Now, she has an employee who is flagged in the NASA Apollo 11 system as a "new hire" per the employment incentive laws. Am I supposed to enter this worker's salary here? Like, do I take the net pay and multiply it by 12 months, or... does this not even fall under this category at all??

To be able to claim that reduction for new hires, you have to meet specific criteria—basically, the position has to be permanent, and the person needs to have been registered with the IRS for at least a month prior to being hired. So, it's essentially the definition of a new employee, plus people entering the workforce for the very first time.

Take a look at Article 56 of the Internal Revenue Code.😉

Just a little tip from my own experience—if you’re running your own business but used to be an employee before that, you might still have an active tax ID on file... and you really need to watch out for that when reporting non-taxable income. I dealt with this one case where a guy worked in Chicago, then moved away and started his own thing—when I went to report some non-taxable stuff, everything flagged because his records with the FBI still showed his old city! 👍

Could someone please explain what happens when you blow past the flat-tax threshold and transition to being a standard taxpayer? What are the most significant shifts?
Can a standard taxpayer draw a salary and use that to justify business expenses?
Roughly how much higher is the tax burden compared to the flat-tax model if one maximizes their deductible expenses?
What are the specific thresholds for hitting profit margins or triggering sales tax requirements?
Is it possible for a standard taxpayer to hire employees to account for additional revenue?
What are the most common, easy, or efficient ways to handle expense reporting?

If anyone feels inclined to answer even a fraction of this... I'm weighing whether to shut things down entirely or stick with being a standard taxpayer, though it's starting to look like a losing game.

Jessica Gonzalez30 said: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. 😉

Under the new rules, interest on those assets counts as income all at once, so they have to show up in the S&P 500 as such...
at least that's what I heard from the LAPD...

stormybadger8 said:Under the new rules, interest on those assets counts as income all at once, so they have to show up in the S&P 500 as such...
at least that's what I heard from the LAPD...

That’s actually why I mentioned it earlier 😉
They're rolling out a new form now, and interest isn't listed separately because it's all categorized under general receipts 😉

David Mitchell4 said:Could someone please explain what happens when you blow past the flat-tax threshold and transition to being a standard taxpayer? What are the most significant shifts?
Can a standard taxpayer draw a salary and use that to justify business expenses?
Roughly how much higher is the tax burden compared to the flat-tax model if one maximizes their deductible expenses?
What are the specific thresholds for hitting profit margins or triggering sales tax requirements?
Is it possible for a standard taxpayer to hire employees to account for additional revenue?
What are the most common, easy, or efficient ways to handle expense reporting?

If anyone feels inclined to answer even a fraction of this... I'm weighing whether to shut things down entirely or stick with being a standard taxpayer, though it's starting to look like a losing game.

A small business owner isn't technically an employee—you don't get a W-2 salary; instead, you take draws from your income, which aren't treated as business expenses.

If you max out your deductions, you’ll minimize your taxable income and, by extension, your tax bill. It's hard to give a precise answer to that without knowing the specifics of your industry or what kind of business you're running. Unlike the flat-tax system, you'll be dealing with progressive tax brackets based on your net profit.

As for Sales Tax, you hit those requirements once you cross $76667.

Employee wages count toward your business expenses and reduce your taxable income, but only once they've actually been paid.

Beyond your standard overhead, you can sometimes issue tax-free bonuses up to $2,500 which counts as an expense—plus there's mileage if you're using your own car for work trips rather than a company vehicle, and so on.

I honestly don't get why people are so terrified of moving away from the flat-tax model. Usually, hitting that limit is a sign that your business is actually growing, not a reason to shut down. Everyone wants more cash in their pocket without spending a dime of their own, even when the math actually works in their favor.
🕺

Exactly. It isn’t even about the money—which, by the way, won't be high enough this year to even clear the threshold 😢
. It’s the mountain of paperwork, the endless red tape, and the increased fees, all for what?

So, from what I've gathered, we're now entering the second month of paying contributions for the first month, and we handle that through the e-tax form via JPMorgan Chase.

Does anyone know if there are actual instructions out there for small business owners on how to fill out the JPMorgan Chase form for these payments?

I read somewhere that there’s a specific software you can install that flags any potential errors in the JPMorgan Chase form before you send it off.

Does anyone know where to download that program or how it actually works?
And does it have a specific name?

Also, are the payment account numbers for the contributions still the same?

I heard the reference number format changed... apparently, you use those four digits, then the SSN, and then some other codes after the SSN that I couldn't quite make sense of.

What are those extra codes for?
Thanks for the help,

So, you trigger the requirement to register for sales tax once you cross $77 in total receipts? I'm talking gross revenue, not actual profit—just the raw intake from the business, right?
Also, is it true that if we opt in voluntarily, we're basically stuck in the system for five years without being able to opt out?

graniterider10 said:So, you trigger the requirement to register for sales tax once you cross $77 in total receipts? I'm talking gross revenue, not actual profit—just the raw intake from the business, right?
Also, is it true that if we opt in voluntarily, we're basically stuck in the system for five years without being able to opt out?

Actually, no—for sales tax registration, it’s not about your total cash coming in, but rather the value of your taxable sales. You really have to be careful about what qualifies as a taxable sale and what doesn't. And as for the commitment part, under the current rules, if you choose to register voluntarily, you're looking at a 3-year period.

I tried logging into the IRS portal, but they’re telling me my certificate has been revoked and I can't get in at all.

It doesn't make any sense... my certificate isn't supposed to expire until 2027.

Has anyone else run into this? Is it possible their system is just glitching out?

I'm really hoping it's just a technical error on their end... otherwise, I'll have to pay an IT specialist to fix it again.

Any advice would be appreciated...
Thanks

Brandon Jackson4 said:I tried logging into the IRS portal, but they’re telling me my certificate has been revoked and I can't get in at all.

It doesn't make any sense... my certificate isn't supposed to expire until 2027.

Has anyone else run into this? Is it possible their system is just glitching out?

I'm really hoping it's just a technical error on their end... otherwise, I'll have to pay an IT specialist to fix it again.

Any advice would be appreciated...
Thanks

Was it the actual certificate that got revoked, or was it your power of attorney for the IRS site?

ruggedlynx63 said:Was it the actual certificate that got revoked, or was it your power of attorney for the IRS site?

It just says my certificate has been revoked.
That pop-up window asking for my password doesn't even show up...

ruggedlynx63, everything is sorted now, I can finally get back into the IRS portal.

I saw on the forums that a few others ran into this exact same issue, and it turns out the error was on their end. Probably just some backend maintenance... the usual stuff.

If you don't mind, I have one quick question for you.

When I'm submitting payroll taxes, I put a dash after the SSN and then enter about five digits.
Are those numbers the "report identifier" from the PPP?

For example: if I'm paying for February 2nd, 2016, it would be 16033.

Thanks...

I’m thinking income tax prepayments don't actually count as business expenses. Am I on the right track here? Is it just the self-employment taxes that go toward my overhead? And for VAT and income tax, am I just supposed to deduct those directly from my checking account?

Brandon Jackson4 said:ruggedlynx63, everything is sorted now, I can finally get back into the IRS portal.

I saw on the forums that a few others ran into this exact same issue, and it turns out the error was on their end. Probably just some backend maintenance... the usual stuff.

If you don't mind, I have one quick question for you.

When I'm submitting payroll taxes, I put a dash after the SSN and then enter about five digits.
Are those numbers the "report identifier" from the PPP?

For example: if I'm paying for February 2nd, 2016, it would be 16033.

Thanks...

Yeah, that's the report identifier, you've got it right 🙂