Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Technically, you should record the card transaction as a receipt at the exact moment the payment hits the bank account. You can't just ignore the bank fees—you have to log them as both an expense and a separate receipt to balance things out.
That’s where the headache starts. Those fee statements arrive incredibly late, and sometimes they get lost in the shuffle or show up all at once covering two different months.
Since I can't properly reconcile the card transactions through the bank statement without those numbers, I've decided to just close them out immediately. It feels like picking the lesser of two evils.
The bookkeeper before me used this same method, so my previous financial statements weren't exactly perfect either.

shadowdrifter99 said:The point being made there is about the timing of the payment, not whether it's treated as cash or a bank deposit. It makes zero sense to claim a check counts as cash when the bank doesn't even drop the money into your account until the check actually clears.

Right, we are discussing the timing of payment.
But look, the point is you aren't actually chasing down the customer who swiped their card; you're dealing with the processor. In other words, a receivable is created that eventually gets settled via bank transfer upon maturity.
Don't let checks throw you off (even if you technically collect them from the buyer). It doesn't matter what our personal opinions are regarding cash versus non-cash; what matters is what the official regulations dictate counts as cash.
Once you factor in what needs to be recorded in the sales ledger, you end up right back at the definition of cash and what specifically needs to be logged under cash receipts in the KPI.

I record the full card transaction amount directly to the checking account upon payment, rather than splitting it between cash and bank deposits. At the same time, I book the merchant processing fee—the difference between the gross sale and the actual settlement—to the checking account as an expense.
We receive our merchant statements right on schedule, alongside our regular bank statements.

Charles Turner13 said:I record the full card transaction amount directly to the checking account upon payment, rather than splitting it between cash and bank deposits. At the same time, I book the merchant processing fee—the difference between the gross sale and the actual settlement—to the checking account as an expense.
We receive our merchant statements right on schedule, alongside our regular bank statements.

That’s how I used to handle it. But back then, if I were filing with the IRS, I’d probably include some kind of bank reconciliation to prove everything was above board, since I’d be listing the processor's commission as a negative line item in my explanation.
However, now that the PPI is the "official" standard designed to match up against the annual revenue flows the Police Department will pull from bank records, you'll likely need to reverse the entire processor fee against your bank receipts at year-end and move it over to your non-cash income.

Richard Howard55 said:Right, we are discussing the timing of payment.
But look, the point is you aren't actually chasing down the customer who swiped their card; you're dealing with the processor. In other words, a receivable is created that eventually gets settled via bank transfer upon maturity.
Don't let checks throw you off (even if you technically collect them from the buyer). It doesn't matter what our personal opinions are regarding cash versus non-cash; what matters is what the official regulations dictate counts as cash.
Once you factor in what needs to be recorded in the sales ledger, you end up right back at the definition of cash and what specifically needs to be logged under cash receipts in the KPI.

I couldn't help myself, so I went digging through my own KPI earlier, and sure enough, looking at the register totals, some stuff is booked as cash and some as bank transfers. The problem is the system only gives me options for cash, wire transfers, or trade credits, so I have to just click "wire transfer" even though it doesn't perfectly fit the bill.🐔

Richard Howard55 said:That’s how I used to handle it. But back then, if I were filing with the IRS, I’d probably include some kind of bank reconciliation to prove everything was above board, since I’d be listing the processor's commission as a negative line item in my explanation.
However, now that the PPI is the "official" standard designed to match up against the annual revenue flows the Police Department will pull from bank records, you'll likely need to reverse the entire processor fee against your bank receipts at year-end and move it over to your non-cash income.

I remember the first time I had to deal with the PPI; the agent looked at my bank balance versus what I had recorded in the sales ledger and told me I was short about $200... or whatever the equivalent was. I ended up wasting hours digging through old bank statements and checking my KPIs just to realize I hadn't logged two tiny interest payments from the bank into my receipts... It was a total headache. In years past, nobody ever gave a damn about those little discrepancies.

I’ve got a question about the depreciation schedules. I have items listed that haven't been used for years, or they've already been fully written off. I was told they still have to stay on the list regardless. Is that actually true? On my end, the value is zero, but they're still showing up on the registry.
Should I just scrub everything from the list that isn't currently in use and only keep the active assets and the ones that are officially written off?
The software automatically calculates depreciation every year... but the list is just massive, filled with endless entries and a ton of zeros. Now I’m stuck wondering what on earth I'm supposed to actually report on the new IRS electronic filing form out of all this mess.

Henry Edwards33 said: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. 👋

person, that "informative message" being sent out was actually my doing... because before I stepped in, the system was throwing a restrictive error for these cases and wouldn't let anyone submit the form at all... so I wrote a formal letter to the folks over at the IRS, explained the whole mess, and they finally switched it from a hard block to an informative notice so we could actually file it... so yeah, I'm basically a hero... 😵

Basically, when an asset is fully depreciated, you can successfully submit the form even if it just throws that informative warning...

But if the asset was stolen during the year, you just enter "0" for the remaining life. In that case, it won't trigger any error message at all—it'll just accept whatever you type in... tried and tested!

Carol Price4 said:I think Richard Howard55 made a good point there—you’re kind of blurring the lines between tax compliance law and income tax regulation.

When it comes to KPIs, cash should only include what was actually paid in cash—basically just the banknotes and coins tracked under tax compliance law.

Cards, checks, and everything else? That all goes straight to the bank account. 👍

Fair enough, I completely agree with you there! But let me tell you how things played out when I dealt with the IRS last year—I categorized all my card payments as bank deposits. When they pulled the total sum from my reported sales for 2014, it obviously included those card transactions too. Then, a referentica from the local tax office called me up and told me the numbers didn't match. Once I added the card totals back in, everything lined up perfectly. The catch? I had to file a formal written explanation to justify why there was a discrepancy in the first place. Honestly, I'm at a bit of a loss—I've already redone this twice, and it looks like I might be doing it a third time...

Keith Martinez5 said: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?

What part exactly are you struggling to wrap your head around...?

One thing is clear: that cash you’re recording in the KPI under cash receipts... that money stays sitting right there in the petty cash drawer until the moment you actually drop the deposit off at the bank to hit the checking account...

It’s one thing to collect that cash, sure... but then you actually have to take it from the register, haul it down to the bank, and deposit it into the business account as a cash payment...

I mean, sure, you could spend the entire year issuing cash invoices and collecting payments without ever actually depositing a single cent into your business account... If you do that, you won't have any discrepancies to report at the bottom of the ledger. But don't think you're off the hook. You’ll still need a damn good explanation for where all that unrecorded cash went—like actual cash register reports or something...

If we didn't have that specific column to break down loans, credits, and reimbursements, the IRS would just look at every single deposit hitting a bank account and flag it as taxable income. It’s a total nightmare. They’d treat everything—loans, personal transfers, even simple reimbursements—as pure profit... because at the end of the year, the bank just sends over one massive, cumulative total of all deposits to the IRS without any context or explanation. Just a raw number... and they assume the worst.

Since the cash sales have already been recorded under cash receipts, depositing that same cash into the business checking account shouldn't be treated as a separate stream of income. It’s not an extra receipt... it's just clarifying how much of that reported cash turnover was actually deposited into the account as a cash deposit...

Charles Turner13 said:I record the full card transaction amount directly to the checking account upon payment, rather than splitting it between cash and bank deposits. At the same time, I book the merchant processing fee—the difference between the gross sale and the actual settlement—to the checking account as an expense.
We receive our merchant statements right on schedule, alongside our regular bank statements.

That’s exactly how I handle mine, too...

graniterider10 said:I’ve got a question about the depreciation schedules. I have items listed that haven't been used for years, or they've already been fully written off. I was told they still have to stay on the list regardless. Is that actually true? On my end, the value is zero, but they're still showing up on the registry.
Should I just scrub everything from the list that isn't currently in use and only keep the active assets and the ones that are officially written off?
The software automatically calculates depreciation every year... but the list is just massive, filled with endless entries and a ton of zeros. Now I’m stuck wondering what on earth I'm supposed to actually report on the new IRS electronic filing form out of all this mess.

You include every single asset that hasn't been sold or otherwise disposed of (like being sent to a landfill with an IRS certification and all that)... even if the value is $0.00, you have to keep them in your records...

That’s why, for the clients I handle, I give them the fixed asset list at the end of every year. I have them clearly mark which assets are no longer physically there. Then, in the following periods, I "sell" those same items back to the owner based on a transfer memo at market value, recording it as an in-kind receipt... It’s a much cleaner way to handle things than trying to prove something was tossed in the trash or calling the IRS to verify that some old office furniture actually went to the dump. Honestly, I can't remember the last time I heard of someone calling an IRS agent to ask them to go to the landfill just because they needed to get rid of an old desk...

Timothy Morgan38 said:What part exactly are you struggling to wrap your head around...?

One thing is clear: that cash you’re recording in the KPI under cash receipts... that money stays sitting right there in the petty cash drawer until the moment you actually drop the deposit off at the bank to hit the checking account...

It’s one thing to collect that cash, sure... but then you actually have to take it from the register, haul it down to the bank, and deposit it into the business account as a cash payment...

I mean, sure, you could spend the entire year issuing cash invoices and collecting payments without ever actually depositing a single cent into your business account... If you do that, you won't have any discrepancies to report at the bottom of the ledger. But don't think you're off the hook. You’ll still need a damn good explanation for where all that unrecorded cash went—like actual cash register reports or something...

If we didn't have that specific column to break down loans, credits, and reimbursements, the IRS would just look at every single deposit hitting a bank account and flag it as taxable income. It’s a total nightmare. They’d treat everything—loans, personal transfers, even simple reimbursements—as pure profit... because at the end of the year, the bank just sends over one massive, cumulative total of all deposits to the IRS without any context or explanation. Just a raw number... and they assume the worst.

Since the cash sales have already been recorded under cash receipts, depositing that same cash into the business checking account shouldn't be treated as a separate stream of income. It’s not an extra receipt... it's just clarifying how much of that reported cash turnover was actually deposited into the account as a cash deposit...

We are just circling the same drain here—does a card transaction go toward checking account receipts or cash? Honestly, I'm losing my mind over this. I read through the rules front to back, and to me, it seems perfectly logical that it counts as a checking account receipt, but apparently, the FBI doesn't see it that way.

Keith Martinez5 said:We are just circling the same drain here—does a card transaction go toward checking account receipts or cash? Honestly, I'm losing my mind over this. I read through the rules front to back, and to me, it seems perfectly logical that it counts as a checking account receipt, but apparently, the FBI doesn't see it that way.

It’s not about the FBI as an agency; it’s about a specific agent and how they choose to interpret the situation.

Years ago, there was this wonderful woman posting here under the name Dubravka 20 who, when faced with questions like this, used to drop a bit of old-school wisdom: "Tie the ox where the boss tells you to." 😉

If they want cash, they'll get cash, and that'll be the end of it. 🤷

Timothy Morgan38, nice work on that DI form. You nailed it. 😉

Timothy Morgan38 said:You include every single asset that hasn't been sold or otherwise disposed of (like being sent to a landfill with an IRS certification and all that)... even if the value is $0.00, you have to keep them in your records...

That’s why, for the clients I handle, I give them the fixed asset list at the end of every year. I have them clearly mark which assets are no longer physically there. Then, in the following periods, I "sell" those same items back to the owner based on a transfer memo at market value, recording it as an in-kind receipt... It’s a much cleaner way to handle things than trying to prove something was tossed in the trash or calling the IRS to verify that some old office furniture actually went to the dump. Honestly, I can't remember the last time I heard of someone calling an IRS agent to ask them to go to the landfill just because they needed to get rid of an old desk...

So, I’ve currently got 34 items on my list... but about 10 of those aren't even in use anymore and have basically been written off. Some of them have been obsolete for ages, yet they're still sitting there on my list. Which means I have to go ahead and write up a formal report for them and calculate their market value? And apparently, that goes toward my incoming assets!? 🤦 Look, let's say this doesn't work for me at all this year because I'm already sitting on a massive windfall and the tax bill is going to be brutal. Is there any way I can just push this off until next year and leave things exactly as they are right now? If I report everything based on current market value, it’s going to spike my income through the roof.
So, what exactly is that clause in the FBI filing regarding alienation payments?
Could you give me an example of that record regarding the exemption based on market value?
🙏

Henry Edwards33 said:It’s not about the FBI as an agency; it’s about a specific agent and how they choose to interpret the situation.

Years ago, there was this wonderful woman posting here under the name Dubravka 20 who, when faced with questions like this, used to drop a bit of old-school wisdom: "Tie the ox where the boss tells you to." 😉

If they want cash, they'll get cash, and that'll be the end of it. 🤷

Timothy Morgan38, nice work on that DI form. You nailed it. 😉

well

So, in the meantime, I actually gave our local police department a call and spoke with the manager. She admitted she wasn't exactly an expert on the technical side of things—suggested I check with her own bookkeeper, which is a bit funny, right?—but she promised to look into it and call me back in about 30 minutes. When she did, she explained that the confusion really stems from how the laws are structured. Basically, she said that when we're putting together the tax returns, we should follow the income tax regulations rather than the credit card processing rules. According to her, a card transaction counts as a deposit to the checking account on the actual day the funds land. So, I think I'll just proceed that way... Anyway, if anyone happens to have a solid Excel template for a sales ledger that includes credit card entries, I would be incredibly grateful if you could send it my way!

graniterider10 said:So, I’ve currently got 34 items on my list... but about 10 of those aren't even in use anymore and have basically been written off. Some of them have been obsolete for ages, yet they're still sitting there on my list. Which means I have to go ahead and write up a formal report for them and calculate their market value? And apparently, that goes toward my incoming assets!? 🤦 Look, let's say this doesn't work for me at all this year because I'm already sitting on a massive windfall and the tax bill is going to be brutal. Is there any way I can just push this off until next year and leave things exactly as they are right now? If I report everything based on current market value, it’s going to spike my income through the roof.
So, what exactly is that clause in the FBI filing regarding alienation payments?
Could you give me an example of that record regarding the exemption based on market value?
🙏

Sorted. I went down to the FBI office and the woman there told me that if the items aren't usable anymore, I should just write up a write-off report due to unserviceability, state that they were discarded, and that will be perfectly fine. It just means they stay on my list this year, but won't be there next year. If she says it's okay, then it's okay. She mentioned that it doesn't count as in-kind income because they aren't functional anymore. I also asked her if I needed any proof that they were tossed, and she said no.🎉 That’s how I’ll file it, and I’m just hoping it works out exactly like she said.🙂

graniterider10 said:Sorted. I went down to the FBI office and the woman there told me that if the items aren't usable anymore, I should just write up a write-off report due to unserviceability, state that they were discarded, and that will be perfectly fine. It just means they stay on my list this year, but won't be there next year. If she says it's okay, then it's okay. She mentioned that it doesn't count as in-kind income because they aren't functional anymore. I also asked her if I needed any proof that they were tossed, and she said no.🎉 That’s how I’ll file it, and I’m just hoping it works out exactly like she said.🙂

I was at the IRS office today asking the clerk if I could hand-deliver Form DI, and she just shot me down immediately—said "not a chance, you have to use the e-filing system." I told her, "I know, but for all the assets where the book value is $0.00, I keep getting an error message saying my entry is incorrect." She just shrugged and said, "Oh, they probably messed up the programming again, but you still have to submit the form through the online portal."
Well, isn't that just wonderful? I have 44 items on my Form DI, all of which are currently in use, and their book value is $0.00 because they were fully depreciated ages ago. Yet, I still have to waste half a day manually entering everything from the FBI records into that infamous DI form.

graniterider10 said:Sorted. I went down to the FBI office and the woman there told me that if the items aren't usable anymore, I should just write up a write-off report due to unserviceability, state that they were discarded, and that will be perfectly fine. It just means they stay on my list this year, but won't be there next year. If she says it's okay, then it's okay. She mentioned that it doesn't count as in-kind income because they aren't functional anymore. I also asked her if I needed any proof that they were tossed, and she said no.🎉 That’s how I’ll file it, and I’m just hoping it works out exactly like she said.🙂

It seems like it might depend on which tax agent you deal with, too. In my case, they told me I either have to toss them in the trash right there in front of an FBI official, get a receipt from a waste management company proving I handed them over to an authorized collector, or draft an exemption report and sell them myself at their current market value at the time of disposal.🤷

It feels like everyone is just playing by their own set of rules... which is exactly why I asked her if she actually needed some kind of proof that they were thrown out. I mean... I really hope we were on the same page... and when it comes time to file my tax return, I’ll probably double-check with her one more time to make sure I handled everything correctly... and that I didn't totally misread the situation. Because, honestly, it was pretty surprising how willing she was to help me out with all those questions.🙂