Accounting for Sole Proprietors: Tax & Bookkeeping Tips

amberbadger17 said:That idea about transferring funds from the business account to a personal one is solid. I mean, didn't amberbadger17 mention once that when she couldn't make it into the bank, she just zipped some cash over to her personal account as a deposit? Granted, that was ages ago, and what Unicom is saying is more recent... but they're probably spot on.

By the way, whatever happened to Lili P.? Is she still moderating?

P.S. Obviously it's a good move. Look, I've been running my own business since early 2013, so I tend to watch every single cent that moves, and honestly, it’s started driving me absolutely nuts seeing all my hard-earned dollars just drifting straight into the pockets of big bank executives for nothing. For that kind of money, I could buy a top-of-the-line high-end fridge every single year instead of letting those corporate suits pad their wallets for zero reason. 😠
Anyway, I went ahead and sent an inquiry to the Department of the Treasury to get their official take on this, because I really don't see any issue with monitoring the flow of funds. They already have access to everything through my SSN—they can see all my accounts, whether it's checking or savings—so there’s zero room for shady business; everything is totally transparent. Plus, I'll just specify the type of transaction being made. From my perspective, as someone actually doing the work, I don't see a single problem with it.

I received some information from the IMF stating that any cash sitting in the petty cash drawer has to be deposited into the business checking account first (via a bank teller or through the IRS...). However, there isn’t anything stopping you from then transferring those funds from that checking account directly to the owner's personal account as an advance on income (basically, I just use online banking to move money from the business account to my personal one)... 🤔

The explanation I got was that you can absolutely handle payouts this way—just using online banking to transfer funds to your personal account. Since a small business owner can pay for just about anything out of their business checking account, an advance on income is no different. You just have to be careful about what you actually claim as a business expense on your KPI. Naturally, if the accounting software sees that a specific transfer was just an advance on income, they won't record that payout as a business expense in the KPI.

In fact, I even heard that you could technically continue making these advances on income directly from the cash drawer without bothering to deposit the cash into the business account first 🤷. That’s what I read in an old IRS bulletin from March 2014 in an article titled "Answers to Frequently Asked Questions Regarding Tax Filings." In the section regarding payouts to business owners under line item p.99, it says "the business owner may still, as before, withdraw from the cash drawer or from their business checking account to make various other payments (advances on income, paying off suppliers, etc.)..."

I regularly transfer my "salary" from savings to checking. Naturally, I don't bother reporting that in the KPI.

You definitely shouldn't be moving earned income straight into a savings account under the guise of a deposit.
The actual earnings should go into the checking account first, then you move them to savings. I might have said a loan could work that way, but not direct income. Or maybe I’ve finally lost my mind. 😬
Advance payments on income can go directly into checking.
Jack Young, are you dealing with income or capital gains? I can't quite remember. It sounds like you're talking about income, but you keep using the term capital gains... 🤔
I'm still around, even if I haven't been an active moderator for a while now. 😉

Hi there!
I have a quick question regarding those infamous forestry fees. I just realized that my former accountant completely missed the payments for 2012 and 2013—oops!—so now I’m trying to get everything squared away. If I go ahead and settle the outstanding debt for both of those years, do I need to file separate reports for each individual year, or can I just submit one report covering 2013? I tried reaching out to the US Forest Service for some clarity, but I haven't had any luck getting a response from them.
Thanks so much for the help!

Can anyone who’s recently shuttered a small business give me the quick rundown on how they wrapped up their books and when the final reports actually got filed? 😛

David Green642 said:Can anyone who’s recently shuttered a small business give me the quick rundown on how they wrapped up their books and when the final reports actually got filed? 😛

Think of it this way: you essentially have to clear all those outstanding invoices and bills by recording them in your cash flow statements as if they've been settled. For any long-term assets you still hold, you need to calculate the depreciation right up until the closing date and book that as an expense. However, you also have to account for the fair market value of those same assets as incoming revenue. It’s almost like you’re selling the equipment or property to yourself. If you're registered for sales tax, you'll need to factor that into the whole process. To figure out the market value, you can just check sites like Craigslist or Facebook Marketplace; but if you're dealing with real estate or land, you'll definitely want to hire a professional appraiser to provide a formal valuation to include in your receipts.
Regarding the sales tax filings, those usually need to be submitted within three months of the official closing date, while everything else should be wrapped up and filed alongside your annual tax return by February 28th.

Brenda Chase3 said:Think of it this way: you essentially have to clear all those outstanding invoices and bills by recording them in your cash flow statements as if they've been settled. For any long-term assets you still hold, you need to calculate the depreciation right up until the closing date and book that as an expense. However, you also have to account for the fair market value of those same assets as incoming revenue. It’s almost like you’re selling the equipment or property to yourself. If you're registered for sales tax, you'll need to factor that into the whole process. To figure out the market value, you can just check sites like Craigslist or Facebook Marketplace; but if you're dealing with real estate or land, you'll definitely want to hire a professional appraiser to provide a formal valuation to include in your receipts.
Regarding the sales tax filings, those usually need to be submitted within three months of the official closing date, while everything else should be wrapped up and filed alongside your annual tax return by February 28th.

Brenda Chase3, you are a lifesaver! Seriously, thank you!!

Rachel Allen21 said:Hi there!
I have a quick question regarding those infamous forestry fees. I just realized that my former accountant completely missed the payments for 2012 and 2013—oops!—so now I’m trying to get everything squared away. If I go ahead and settle the outstanding debt for both of those years, do I need to file separate reports for each individual year, or can I just submit one report covering 2013? I tried reaching out to the US Forest Service for some clarity, but I haven't had any luck getting a response from them.
Thanks so much for the help!

Just send the OFS form for 2013 and pay it off... forget about the previous years, unless you happen to have extra cash lying around.🤷

I’m getting conflicting advice on this one, so if anyone here has dealt with something similar, I could really use your insight.

Here’s the situation: Pero Perić owns a house. He’s been renting it out to tenants and has been reporting that rental income to the IRS, paying his taxes accordingly.

In the meantime, Pero started a small business—a sole proprietorship—and keeps full books. That business is registered for sales tax.

Now, Pero goes to the IRS, and an agent tells him he needs to be issuing formal invoices to his tenants and paying a 25% tax rate on that income.

The catch? The house isn't listed as a business asset. Pero hasn't moved the property onto his business balance sheet or anything. It isn't used for the business at all—his actual business is running a restaurant, which has zero connection to residential rentals.

Some people are telling him he *has* to issue those invoices because his business is in the sales tax system—basically treating Pero the individual and Pero the business owner as one and the same.

Others argue he shouldn't have to issue those invoices since the house isn't owned by the business, isn't on the business ledger, and the rental activity is totally separate from his restaurant work. From their perspective, Pero as a private citizen isn't part of the sales tax system; only his business is.

So, who actually has a leg to stand on here? 🙂 🙂

Pero is registered for sales tax under his SSN, which means every single delivery he makes includes sales tax, regardless of whether the house is set up as a sole proprietorship or not. Since the property is owned by someone who is already in the sales tax system, they’re required to charge tax on rent—unless, of course, the house is being used strictly as a primary residence 😉

Henry Edwards33 said:Pero is registered for sales tax under his SSN, which means every single delivery he makes includes sales tax, regardless of whether the house is set up as a sole proprietorship or not. Since the property is owned by someone who is already in the sales tax system, they’re required to charge tax on rent—unless, of course, the house is being used strictly as a primary residence 😉

So what’s even the point of listing business assets? For everything else, the rule is you check if it's on the asset list and if it's actually being used for business purposes.

By that logic, if Pero buys a chocolate bar at the grocery store, he could claim the sales tax credit just because he’s a registered taxpayer. It wouldn't matter if the chocolate has anything to do with running his business.🙂

David Green642 said:So what’s even the point of listing business assets? For everything else, the rule is you check if it's on the asset list and if it's actually being used for business purposes.

By that logic, if Pero buys a chocolate bar at the grocery store, he could claim the sales tax credit just because he’s a registered taxpayer. It wouldn't matter if the chocolate has anything to do with running his business.🙂

And where does the official business purpose of the LLC fit into all this?

Honestly, we might as well scrap the whole requirement. No matter what kind of deliveries a small business owner handles, they record it all as part of their business operations—even when it clearly has zero connection to their registered industry. 🙂

David Green642 said:I’m getting conflicting advice on this one, so if anyone here has dealt with something similar, I could really use your insight.

Here’s the situation: Pero Perić owns a house. He’s been renting it out to tenants and has been reporting that rental income to the IRS, paying his taxes accordingly.

In the meantime, Pero started a small business—a sole proprietorship—and keeps full books. That business is registered for sales tax.

Now, Pero goes to the IRS, and an agent tells him he needs to be issuing formal invoices to his tenants and paying a 25% tax rate on that income.

The catch? The house isn't listed as a business asset. Pero hasn't moved the property onto his business balance sheet or anything. It isn't used for the business at all—his actual business is running a restaurant, which has zero connection to residential rentals.

Some people are telling him he *has* to issue those invoices because his business is in the sales tax system—basically treating Pero the individual and Pero the business owner as one and the same.

Others argue he shouldn't have to issue those invoices since the house isn't owned by the business, isn't on the business ledger, and the rental activity is totally separate from his restaurant work. From their perspective, Pero as a private citizen isn't part of the sales tax system; only his business is.

So, who actually has a leg to stand on here? 🙂 🙂

I dealt with a headache like this a few years back with a family farm setup. Once the owner registered for sales tax to cover their agricultural work, they were suddenly forced to charge sales tax on their vacation rentals too—even though the properties weren't part of the farm's assets and they had been renting them out as individuals long before the farm was even established. The IRS looks at everything through the lens of the SSN; the logic is that since Pero Perić is in the sales tax system, everything tied to his SSN gets caught in the dragnet, regardless of whether it's the business or the man himself.

placidlynx92 said:I dealt with a headache like this a few years back with a family farm setup. Once the owner registered for sales tax to cover their agricultural work, they were suddenly forced to charge sales tax on their vacation rentals too—even though the properties weren't part of the farm's assets and they had been renting them out as individuals long before the farm was even established. The IRS looks at everything through the lens of the SSN; the logic is that since Pero Perić is in the sales tax system, everything tied to his SSN gets caught in the dragnet, regardless of whether it's the business or the man himself.

In the US, it seems you just have to follow the reverse logic and everything becomes obvious.☕

Henry Edwards33 said:You definitely shouldn't be moving earned income straight into a savings account under the guise of a deposit.
The actual earnings should go into the checking account first, then you move them to savings. I might have said a loan could work that way, but not direct income. Or maybe I’ve finally lost my mind. 😬
Advance payments on income can go directly into checking.
Jack Young, are you dealing with income or capital gains? I can't quite remember. It sounds like you're talking about income, but you keep using the term capital gains... 🤔
I'm still around, even if I haven't been an active moderator for a while now. 😉

So, I was waiting on a response from the Treasury Department... and instead, I just got a cookie. 😁

Whatever, I guess I’ll just have to scrap my idea of running everything through the checking account for now. It’s driving me absolutely insane how much they charge in fees for cash deposits, and don't even get me started on those ridiculous overnight vault deposit options—the fee is barely lower than what they'd charge you at a Chase teller window. 😠

P.S. You're right, I am technically an income earner, but whatever I pay myself is essentially "profit." If I wasn't pulling profit out of this business, we'd be filing for Chapter 11 bankruptcy by now. 😁

So, I’ve been sitting on this open pro forma invoice since 2010—back when the sales tax was at 23%—for a single debtor who happens to be an individual. They made some tiny little payment way back then, which we recorded against that old debt from 2010.
Fast forward to today, and we finally received the rest of the balance along with interest. Now we need to actually book this properly and issue a real invoice. The headache is the sales tax... we originally just used pro formas because dealing with these types of individuals who don't pay on schedule is always such a mess.

Hey there!
I’m not entirely sure if this is the right corner of the forum to drop these questions, but I figured I’d give it a shot—if anyone happens to have the answers, I would be incredibly grateful! I'm looking for some guidance regarding my small family farm business.

1. Is it possible to write off a washing machine as a business expense for the farm? And if I do, does it need to be officially recorded as a fixed asset on the books, or can I just expense it?

2. We recently went through a transfer of ownership for the farm, and I was wondering about the paperwork side of things—what is the deadline for the previous owner to file their final sales tax return once the business is no longer in their name?

vividcanyon6 said:Hey there!
I’m not entirely sure if this is the right corner of the forum to drop these questions, but I figured I’d give it a shot—if anyone happens to have the answers, I would be incredibly grateful! I'm looking for some guidance regarding my small family farm business.

1. Is it possible to write off a washing machine as a business expense for the farm? And if I do, does it need to be officially recorded as a fixed asset on the books, or can I just expense it?

2. We recently went through a transfer of ownership for the farm, and I was wondering about the paperwork side of things—what is the deadline for the previous owner to file their final sales tax return once the business is no longer in their name?

1. Yes, you can, provided it’s used specifically for business purposes. You don't necessarily have to list it as a depreciable asset.
2. The final sales tax return needs to be filed within three months after the business closure.

Is the IRS sending out new notices regarding those recent healthcare premium hikes, or am I just bad at my own math?