Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Keith Martinez5 said:Hey 🙂Shunshin, so if I'm following you correctly—under V.2, am I supposed to enter the actual cash sitting in my register? Like, the total cash revenue that hasn't been deposited into the bank yet? And then V.2.1 would be the specific amount that actually made it into the bank account?? Thanks!

Under 2.1, you put the un-deposited revenue, and then 2 becomes the total sum of rows 2.1 through 2.5.

I just got off the phone with my advisors, and they told me that what goes here is whatever was filed under the Quote. Honestly, it makes sense to me, but I can't tell if I'm just overthinking the whole thing or if I've completely misread the situation 🤣

It doesn't make sense to me to list the actual deposit amount there—part of the form specifically asks for the discrepancy between the KPI and the account balance. Plus, the description for point 2 says: "2. difference between turnover per bank account and the reported receipts under II.2. (2.1.+2.2.+2.3.+2.4.+2.5.)." So, if we're reporting the difference, then what was deposited isn't actually the delta. I don't know—I just did it the same way for everyone. If it needs fixing later, I'll handle it.

Ryan Rogers4 said:It doesn't make sense to me to list the actual deposit amount there—part of the form specifically asks for the discrepancy between the KPI and the account balance. Plus, the description for point 2 says: "2. difference between turnover per bank account and the reported receipts under II.2. (2.1.+2.2.+2.3.+2.4.+2.5.)." So, if we're reporting the difference, then what was deposited isn't actually the delta. I don't know—I just did it the same way for everyone. If it needs fixing later, I'll handle it.

Look, I’m not claiming to be right here. I might have completely misread the situation, so I’m curious to hear what everyone else thinks.
The way this pattern looks to me makes about as much sense as trying to teach a goldfish how to read; it's entirely possible I've just made a total mess of things. 🤷

The advisor mentioned that I shouldn't stress too much over completing the P-PPI, and honestly, I actually kind of like her. 🙂

A cash receipt represents the total cash turnover deposited into the bank account. Cash transactions are recorded as cash receipts. Essentially, the receipt is the net difference in turnover on the account.

It doesn't make any sense to me either.
I entered the cash deposit into my checking account under section 2.1.
As for section 2, I can't even input anything because the system calculates everything automatically.
The wording under 2.1 is what really trips me up: "deposit of the amount shown under II.1."
But under II.1., I haven't listed a cash deposit; I've listed total cash flow. Part of that went into my checking account, part covered my cash expenses, and whatever small change was left stayed in the petty cash drawer.

Henry Edwards33 said:Look, I’m not claiming to be right here. I might have completely misread the situation, so I’m curious to hear what everyone else thinks.
The way this pattern looks to me makes about as much sense as trying to teach a goldfish how to read; it's entirely possible I've just made a total mess of things. 🤷

The advisor mentioned that I shouldn't stress too much over completing the P-PPI, and honestly, I actually kind of like her. 🙂

You're spot on...

What you're seeing there is the deposited cash receipt... because above it, the receipts show cash intake (daily register totals) and bank deposits (payments via ACH or credit card)...

So...

1. Let's say you have $50 revenue collected through your business checking account.
2. And let's say you also have $100,000 in cash registered at the till...

From that, you've deposited $32

The total bank turnover—which the IRS views as taxable income—is $82

But looking at the receipts, you only see $150,000 via wire and $100,000 in cash...

That specific field exists to report the value of the cash deposit made into the bank account (which was already accounted for in the cash receipts). This prevents double taxation, since the bank reports total deposits to the IRS, and the IRS doesn't distinguish between a cash deposit, a loan, or actual revenue...

As for the rest of the $1.75... it either needs to be sitting in the register, spent on something, or treated as unearned revenue, and that's that...

Personally, I think it's a solid system. I won't have to write endless explanations about exactly what was wired where; I just fill out the form, copy the entries from my loan and credit statements, and call it a day...

In the past, I had to write pages upon pages of explanations every single year...

That’s exactly how I interpreted it, too, so I’ve been filling out my new income and expense reports the same way.

Timothy Morgan38 really put that perfectly.🙂

I don't think it's quite that straightforward.
What’s the deal with credit cards? Everything gets logged through the POS system, yet the funds aren't even being collected in cash—they're hitting a bank account via wire transfer, often after being shaved down by processing fees.
In my case, I receive a significant amount of foreign currency payments, which then requires me to convert them back to USD once the customer pays. For all of that, I still find myself having to submit formal written explanations regardless of this "famous" P-PPI system.

Charles Turner13 said:I don't think it's quite that straightforward.
What’s the deal with credit cards? Everything gets logged through the POS system, yet the funds aren't even being collected in cash—they're hitting a bank account via wire transfer, often after being shaved down by processing fees.
In my case, I receive a significant amount of foreign currency payments, which then requires me to convert them back to USD once the customer pays. For all of that, I still find myself having to submit formal written explanations regardless of this "famous" P-PPI system.

This might clear things up for you:
Under Section 2, Subsection 5 of the tax reform law, "cash transactions" are defined as payments for goods or services made via banknotes, coins, cards, checks, or any similar method, unless the law specifically dictates otherwise regarding direct bank transfers.

Because of that, using a Visa, Mastercard, or American Express card—or any other credit or debit card—counts as a cash transaction, which means you still have to go through the whole receipt logging process. Basically, paying via a direct wire transfer from one bank account to another or using a standard check doesn't count as "cash" under this rule, so those types of payments don't require the same fiscal reporting.

Well, my take on things is a bit different 🐔

I completely agree.
Back when I was still in college, they taught us that cash meant nothing but physical bills and checks—that was the only thing that truly counted toward revenue.
Sure, card transactions go through the tax reporting system, but they aren't technically cash payments, so for the last 15 years, I've been recording them as bank transfers in my KPI.
The tax reform law shouldn't be able to override the existing payment services law.

Charles Turner13 said:I completely agree.
Back when I was still in college, they taught us that cash meant nothing but physical bills and checks—that was the only thing that truly counted toward revenue.
Sure, card transactions go through the tax reporting system, but they aren't technically cash payments, so for the last 15 years, I've been recording them as bank transfers in my KPI.
The tax reform law shouldn't be able to override the existing payment services law.

Honestly, if this weren't such a headache, it would almost be funny... I spent all of yesterday fixing my entire 2015 ledger because I had been closing out every single card transaction as a bank deposit—which, to me, is the most logical way to do it since that's where the money actually lands, rather than being physically in my Hand (which is the only true "cash" in my book). But apparently, under current tax rules, anything that isn't a wire transfer is treated as cash. I suspect that back when you were sitting in those lecture halls, this specific type of digital fiscalization didn't even exist yet... so they probably just didn't mention it! :P
Now I’m sitting here scrolling through all these threads, holding this frustrating little handheld terminal, trying to make sense of how everyone else is coding their entries... and I'm still lost. I work over at Silicon Valley, and some of these entries are automated by the software itself, so I can't even go in and manually tweak them... I'm still stuck looking like this🐔

Timothy Morgan38 said:You're spot on...

What you're seeing there is the deposited cash receipt... because above it, the receipts show cash intake (daily register totals) and bank deposits (payments via ACH or credit card)...

So...

1. Let's say you have $50 revenue collected through your business checking account.
2. And let's say you also have $100,000 in cash registered at the till...

From that, you've deposited $32

The total bank turnover—which the IRS views as taxable income—is $82

But looking at the receipts, you only see $150,000 via wire and $100,000 in cash...

That specific field exists to report the value of the cash deposit made into the bank account (which was already accounted for in the cash receipts). This prevents double taxation, since the bank reports total deposits to the IRS, and the IRS doesn't distinguish between a cash deposit, a loan, or actual revenue...

As for the rest of the $1.75... it either needs to be sitting in the register, spent on something, or treated as unearned revenue, and that's that...

Personally, I think it's a solid system. I won't have to write endless explanations about exactly what was wired where; I just fill out the form, copy the entries from my loan and credit statements, and call it a day...

In the past, I had to write pages upon pages of explanations every single year...

Could you please clarify that first sentence: "That field is where you report the cash deposit... because up above under 'receipts,' you've already listed the cash receipts (your daily register totals) and the bank deposits (payments made via wire transfer or credit card)..."

Wait, those credit card payments go into the bank account, right? They aren't physical cash for the register—so does that mean they count as bank receipts rather than cash? Is that right or not?

Ugh, honestly, it’s so typical here that one rule just completely sidesteps another. Like, my card transaction hits my checking account automatically—I didn't manually deposit it myself, the merchant processed it. Period.

I'm not saying the other way is wrong, and I'm sure any excuse works as long as the income is reported and we aren't screwing over the good old US economy.

Keith Martinez5 said:Honestly, if this weren't such a headache, it would almost be funny... I spent all of yesterday fixing my entire 2015 ledger because I had been closing out every single card transaction as a bank deposit—which, to me, is the most logical way to do it since that's where the money actually lands, rather than being physically in my Hand (which is the only true "cash" in my book). But apparently, under current tax rules, anything that isn't a wire transfer is treated as cash. I suspect that back when you were sitting in those lecture halls, this specific type of digital fiscalization didn't even exist yet... so they probably just didn't mention it! :P
Now I’m sitting here scrolling through all these threads, holding this frustrating little handheld terminal, trying to make sense of how everyone else is coding their entries... and I'm still lost. I work over at Silicon Valley, and some of these entries are automated by the software itself, so I can't even go in and manually tweak them... I'm still stuck looking like this🐔

If I recorded credit card payments as cash receipts, how on earth am I supposed to make my register balance?

Can someone tell me how you guys are handling long-term asset depreciation forms on the IRS website? Most of mine go through fine, but two of them keep throwing this error message at me: it says the write-off amount has to equal the acquisition cost multiplied by the depreciation rate divided by 100.

But that’s impossible! If the book value is already way lower, then multiplying the initial cost by the rate gives me a number that’s too high. I can only take up to the remaining book value. Even if I try to reverse-engineer the percentage to match the book value, the IRS site rejects the decimals, and if I round to a whole number, I get the exact same error. It's driving me insane... I just submitted it exactly as it was.
Especially when there's a long-term write-off involved—the system doesn't even seem to recognize it properly when you don't enter a disposal date this year. But I actually sold it during the current year, so I shouldn't be depreciating it for the full year, just up until the sale date. I booked the rest of the unamortized book value as business expenses.

Still, I'm assuming it's just an informative warning message.

How did you all deal with this?😵

Carol Price4 said:Look, I'm just gonna report it. It’s not like we're talking huge money here—let them deal with the headache and the legal jargon... damn, we shouldn't have to be lawyers too 😵 just to get through our actual jobs...

NPR released an explanation regarding the KMT.
In the end, they won't go through with it, even though at first everyone was like, "Of course we're doing this," colleagues and all🎉:klap:

They’ve really started getting on my nerves with how they write their articles.
It’s always just a copy-paste job of the Law, followed by half a day of trying to explain what they just pasted.
I think I’ll just stick to my way of doing things—there’s no way I’m going to spend my time fixing every single tiny calculation over a few cents or dollars.☕

Exactly—that’s what I was thinking too, and I’m totally on the same page as ajnat. To me, "cash" is just the physical bills you grab and toss straight into the register. But here’s the kicker: if you actually dig into the tax code regarding fiscalization, it clearly states that card transactions are treated as cash equivalents. Everything reported to the IRS via the local LAPD office counts toward your total cash turnover. Back in 2014, I actually went down to the LAPD branch to try and argue my case—to show them that these two things aren't the same—but they couldn't care less about my logic. From their perspective, they just look at the grand total of all fiscalized receipts, and that number has to match the cash intake, which includes those credit card swipes... It’s possible that not every LAPD office handles it quite the same way, though. I’d honestly love it if someone could tell me how this is managed in other parts of the country, so maybe I could try using those arguments with our local officials...

Arthur Bishop6 said:Can someone tell me how you guys are handling long-term asset depreciation forms on the IRS website? Most of mine go through fine, but two of them keep throwing this error message at me: it says the write-off amount has to equal the acquisition cost multiplied by the depreciation rate divided by 100.

But that’s impossible! If the book value is already way lower, then multiplying the initial cost by the rate gives me a number that’s too high. I can only take up to the remaining book value. Even if I try to reverse-engineer the percentage to match the book value, the IRS site rejects the decimals, and if I round to a whole number, I get the exact same error. It's driving me insane... I just submitted it exactly as it was.
Especially when there's a long-term write-off involved—the system doesn't even seem to recognize it properly when you don't enter a disposal date this year. But I actually sold it during the current year, so I shouldn't be depreciating it for the full year, just up until the sale date. I booked the rest of the unamortized book value as business expenses.

Still, I'm assuming it's just an informative warning message.

How did you all deal with this?😵

So far, I haven't found a way 👏

I'm just waiting for someone smarter than me to come along and teach me how to do it. 😒

What do you think about all of us just spamming them with emails asking for instructions on how to fill out the form? Maybe if we actually make some noise, they'll finally get off their butts and fix this nonsense. 👋