Accounting for Sole Proprietors: Tax & Bookkeeping Tips

amberbadger17 said:Hey, look, to be honest—I have absolutely no clue. I think I saw something about it in one of those old threads regarding small business taxes, but honestly, my memory is shot. Sorry if I'm spreading misinformation here. :-D

You don't need to send income tax prepayments through those specific small business filing forms (at least, that's what I've heard for now).
But does anyone know if a freelancer who makes peanuts or takes a loss—meaning they don't actually owe any tax—is also exempt from paying the 2016 estimated tax installments?

Also, I'm booking passive interest under receipts. Hope I'm not screwing this up.

So, I’m looking into liquidating a small business here in the States, and I’ve got a bit of a head-scratcher regarding the final books... If there's some equipment that was already fully written off way back in 2013, do I still need to account for its value on the balance sheet if the book value is basically zero? And while we're at it, what's the deal with office supplies and small inventory—do those actually get recorded in the closing books?
Thanks for any insight you guys can throw my way...

Hi everyone, I was hoping someone might be able to lend me a hand with a quick accounting question. I’m feeling a little stuck on how to properly handle our books for a recent shift in our business model. Essentially, when we purchase the raw materials used to create a finished product that eventually goes to a customer, am I simply recording the material purchases as expenses and keeping a log of what gets used up? Or is there more to the equation regarding what actually counts as an expense for those consumed materials? I'm also wondering if there's additional record-keeping I should be doing beyond just tracking usage. To give you some context, we run a small construction services firm here in the States. We’ve recently expanded into a new area where, instead of just buying pre-made components to install, we’re manufacturing them ourselves. We use most of what we make for our installations, but we also produce a small amount specifically to sell as standalone products. This whole transition has left me a bit foggy on the specifics of the workflow. If anyone could clarify this for me, I would truly appreciate it. Thank you!

Help! I’ve never worked with small business owners before, so I’m trying to figure out what kind of bookkeeping is required for a sole proprietor running a fast food joint. Just a heads-up, the owner already has a full-time job and won't be working at the shop himself.
I’ve been doing some reading, and honestly, everything looks incredibly complicated. It really should be way simpler than managing a full corporation, right? 😵

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MARY2001 says: So, we're looking at a sole proprietor who used to be registered for sales tax but opted out back in 2015. Now he's sitting on a bunch of unpaid invoices. They're all under $1667, and since nobody filed a lawsuit over them, can they even be written off? Or am I totally off base there? Maybe he could just claim they were paid... but the thing is, those old invoices from 2010 through 2014 have sales tax baked in at 23% and 25%. How do you even log all that in the accounting software? And if he claims them as paid, does he actually owe taxes on those amounts? 🤔 His previous accountant just left everything hanging, and honestly, now it's my headache to deal with.😵

I'm not sure if anyone actually answered you yet, but I've been wrestling with this exact same mess for a while now. From what I gather, if a small business owner decides to walk away from what customers owe them for goods or services—just because they feel like it—that write-off essentially becomes a kind of deemed income for the year they make that call, per the IRS guidelines. If they've already sued to collect, then it doesn't count as income. In my gut, I think he'd have to pay sales tax on those invoices (though part of me thinks he could just write them off and skip the sales tax, but I might be wrong), plus whatever income tax applies. And I don't think that $1.75 limit even applies here. If I've got this wrong, please, someone set us both straight and help us out 😵

You’re getting hit with sales tax on top of an increased income tax rate.
It’s the exact same headache you get with any standard invoice.

Morning! I just sold a car that was being used by our sole proprietorship. I’ve already issued the paid sales invoice, so it’ll be included in the sales tax filings for January 2016.
I have a quick question regarding the sales tax return, though—the sale amount is currently showing up under reverse charge supplies along with all my other paid outgoing invoices, but since I also need to report it on the other side under section VIII for vehicle sales, am I doing this correctly?

amberbadger17 said:1. Yep.
2. You can either enter the total receipt including sales tax (minus VAT) and then subtract it with the next line item. Or, just enter the total amount without sales tax and then adjust it through expenses so everything "evens out." Most people do it that way—honestly, I do too, because my software doesn't separate sales tax for me.
3. Just look at how much the card payments actually hit the bank account and list that as the receipt. Then, list the processing fee as a non-cash receipt.

Wait, how exactly is a credit card processor fee considered an "in-kind" receipt? Could you walk me through that logic a bit? Thanks!

silvertrucker9 said:Hi everyone, I was hoping someone might be able to lend me a hand with a quick accounting question. I’m feeling a little stuck on how to properly handle our books for a recent shift in our business model. Essentially, when we purchase the raw materials used to create a finished product that eventually goes to a customer, am I simply recording the material purchases as expenses and keeping a log of what gets used up? Or is there more to the equation regarding what actually counts as an expense for those consumed materials? I'm also wondering if there's additional record-keeping I should be doing beyond just tracking usage. To give you some context, we run a small construction services firm here in the States. We’ve recently expanded into a new area where, instead of just buying pre-made components to install, we’re manufacturing them ourselves. We use most of what we make for our installations, but we also produce a small amount specifically to sell as standalone products. This whole transition has left me a bit foggy on the specifics of the workflow. If anyone could clarify this for me, I would truly appreciate it. Thank you!

If you're operating as a sole proprietorship on a cash basis, basically everything you pay for counts as an expense—except for things like owner draws.
Since you're buying raw materials to create a finished good, you definitely need to keep material logs (like inventory cards). And if you end up making finished products that sit in stock, you'll need to track those as inventory too.

Nancy Jones said:Morning! I just sold a car that was being used by our sole proprietorship. I’ve already issued the paid sales invoice, so it’ll be included in the sales tax filings for January 2016.
I have a quick question regarding the sales tax return, though—the sale amount is currently showing up under reverse charge supplies along with all my other paid outgoing invoices, but since I also need to report it on the other side under section VIII for vehicle sales, am I doing this correctly?

Yep

Thanks so much, Sunlight!

Hey, can I just set the rate at 1% since I don't need to cover extra costs, or is it better to leave it blank and just attach a list instead?

Keith Martinez5 said:Wait, how exactly is a credit card processor fee considered an "in-kind" receipt? Could you walk me through that logic a bit? Thanks!

Look, if we're treating card transactions like cash, it just doesn't make sense to log them as bank deposits. And even if you did go that route, the commission should be recorded right there in the bank deposits as a negative entry. Personally, I just put those amounts under cash receipts.

Hey, anyone know where I can track down those docs for my tax audit? Also, are they actually required for the 2015 filing?

Susan Cruz48 said:Look, if we're treating card transactions like cash, it just doesn't make sense to log them as bank deposits. And even if you did go that route, the commission should be recorded right there in the bank deposits as a negative entry. Personally, I just put those amounts under cash receipts.

As for the processing fees, I book those as non-cash adjustments—similar to how one might handle a discount, since it functions quite similarly. It’s not like actual money hit our bank account, nor did we pay the fee through a separate wire transfer; instead, we simply offset the total amount received by deducting the fee upfront. Following the guidance from our financial advisor, we treat these as non-cash items. This is the method we've used for years when submitting our summaries to the IRS, and it has always been perfectly acceptable. If we didn't do this, we'd constantly be stuck explaining discrepancies between our bank statements and our reported income to tax auditors. By handling it this way, our cash deposits and our bank totals align perfectly with the merchant statements provided to the IRS.

Hey everyone, what’s the deal with the Chamber of Commerce dues? I haven't received my invoice yet and I'm starting to get a little anxious here. 😁

[QUOTE=amberbadger17;57272651]Hey everyone, what's the deal with the Chamber of Commerce dues? I haven't received my invoice yet and I'm starting to get a little anxious. 😁[/QUOTE
Look, those Chamber fees aren't due until February 29th, so there's still plenty of time for the mail to actually show up at your door.[/QUOTE]

I have an incoming invoice where 60 percent is for business expenses and 40 percent is for personal use.

In my KPI, I only record that 60 percent portion (plus the related sales tax).

I wasn't quite sure how to handle this in the purchase ledger.

I called the IRS, and they told me to enter the FULL amount of the invoice into the purchase ledger, then just split the sales tax between those two columns—the 60 percent that’s deductible and the 40 percent that isn't.

Wouldn't it make more sense to just list the 60 percent that actually applies to the business in the ledger?

How are you all handling this?

They also mentioned that I should only be entering invoices into the purchase ledger if they include sales tax, and that others—like bank fees or stuff when you aren't on a sales tax schedule—don't need to be entered there. But I read somewhere else here that you guys do include them, so now I'm confused...
For those invoices without sales tax, I just put them in the KPI and attach them to my bank statements.
Thanks

Henry Edwards33 said:You’re getting hit with sales tax on top of an increased income tax rate.
It’s the exact same headache you get with any standard invoice.

Thanks for getting back to me! So, since this small business owner isn't part of the sales tax system right now—meaning they wouldn't be claiming those credits—does sales tax still apply to these invoices? Or do you just record the total value of the service, including the tax, as an in-kind receipt without actually paying any tax out of pocket?

I need some help deciphering this form. I can't make heads or tails of what actually goes under section V. SUPPLEMENT TO THE REVIEW OF BUSINESS INCOME AND EXPENSES

Specifically, under point 2, regarding the discrepancy between the bank account turnover and the reported income.

Also, does a small business owner have to deposit every single cent into the business account? Or can I just pull cash from the register and issue petty cash vouchers? A huge chunk of my bills are paid in cash, and I haven't been depositing those amounts into the account. Thanks a million.