Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Nancy Jones said:So, what’s the actual process here—do I really need to go back and file an amendment for 2015?
I used to book credit card payments as income on my general ledger too, so honestly, I’m just sitting here waiting for the IRS to give me a call.

I actually dealt with this exact situation for two different clients. In my experience, all you have to do is submit a formal statement explaining that the credit card transactions were incorrectly recorded as deposits into the operating account. That was more than enough to clear it up; I didn't even have to touch the sales tax summaries.

Thanks, Brenda Chase3, I’m really hoping things turn out just as well on my end too.

Olivia Cruz86 said:So, I just went ahead and paid for some voluntary health insurance—you know, like a full preventative checkup policy—for my boss, who’s basically running his own thing as a freelancer. Now I'm stuck wondering, how on earth do we actually write this off for tax purposes?

Thanks!

Sorry, I don't really feel like digging through the tax code right now.
But I suppose that checkup isn't a requirement for his business operations,
so it would likely be a non-deductible expense for a freelancer / just like supplemental health coverage. ☕

casualorca5 said:Sorry, I don't really feel like digging through the tax code right now.
But I suppose that checkup isn't a requirement for his business operations,
so it would likely be a non-deductible expense for a freelancer / just like supplemental health coverage. ☕

it's not a requirement for the job..
Yeah, they used to let you write that off as an expense until back in mid-2010, then the IRS just pulled the rug out from under us.
So, I'll just record that payment as straight-up income..
Thanks, casualorca5!

amberbadger17 said:placidlynx92, one more thing.

I’m looking at paying out wages for the period from June 13th to July 8th—let's say that's 182 hours, $333.

Does that mean I also need to factor in the payroll taxes for this specific scenario:

http://www.irs.gov/forms...practice.pdf

If not, does anyone have a link showing how the JPMorgan Chase calculation should actually look? My aunt's old school teachers didn't exactly cover modern payroll accounting.

That link refers to the school's obligation to cover contributions for their student. You are simply paying a stipend or internship fee, and you only file the JPMorgan Chase report for that specific amount. Those employer-side taxes don't apply to you—that's the school's headache to deal with.
This internship compensation—or whatever they want to call it—is considered tax-exempt income up to $533 per month. You just file the JPMorgan Chase paperwork after the payment is made, by the 15th of the following month. I don't recall the exact filing codes off the top of my head. It could have been paid in cash, though I'm not sure if that's still an option. If you're paying via the student's bank account, you'll just need their routing and account numbers.

I had to go back and fix my accounts payable and switch everything over to cash basis, plus sort out the sales tax adjustments. I realized I hadn't included the stuff from December that hasn't actually been collected yet—that didn't hit the bank until January 2016—so I didn't account for the sales tax on it. Of course, that created a tiny discrepancy in my net income too, which meant I had to amend my tax return. Yay me! But hey, you live and learn, right? Now I'm just recording everything on a cash basis, calculating the sales tax as I go, and everyone is happy and satisfied.

I had to go back and fix my accounts payable and switch everything over to cash basis, plus handle the sales tax adjustments. See, I hadn't included the stuff from December that hadn't actually been collected yet—that didn't hit the bank until January 2016. Because of that, there was this tiny discrepancy in my income, so naturally, I had to go in and amend my tax return too. Yay me! But hey, you live and learn, right? Now I’m just recording everything on a cash basis, calculating the sales tax, and everyone is happy and satisfied.

Mark Torres45 said:I really need some help here! I’ve been recording all our credit card sales as direct deposits into our business checking account since that's where the cash actually lands. But when it came time for our tax filings, the IRS agents called me out. They're insisting that every single cent we ring up through the POS system needs to be booked as cash receipts. Honestly, it makes zero sense to me—why would I call it cash when the money hits our bank account directly? Who's actually in the right here, the tax authorities or me?

It doesn't make sense. The IRS agents were wrong. Card payments are treated as cash under the tax compliance law, but they aren't under the income tax law.
Since KPIs are managed according to income tax regulations rather than tax compliance law, they messed up—you shouldn't have even bothered amending the tax return.
With credit cards, you're supposed to record them as receipts on the day the processor clears the funds into the account.
Check out the income tax regulations; here is the relevant part:

Article 8, Paragraph 9 of the income tax regulations:

(9) Sold goods or services are considered paid when a check is received. If payment is via promissory note, the receipt occurs upon the collection or transfer of said note. If payment is made via credit card, the receipt occurs when the funds are deposited into the checking account. If payment is handled through offsetting, assignment, or cession, the moment of payment is when the required conditions are met (i.e., signed contracts or other documentation).

Mark Torres45 said:I had to go back and fix my accounts payable and switch everything over to cash basis, plus handle the sales tax adjustments. See, I hadn't included the stuff from December that hadn't actually been collected yet—that didn't hit the bank until January 2016. Because of that, there was this tiny discrepancy in my income, so naturally, I had to go in and amend my tax return too. Yay me! But hey, you live and learn, right? Now I’m just recording everything on a cash basis, calculating the sales tax, and everyone is happy and satisfied.

And this shouldn't have been done at all.
You can't use tax compliance law to verify receipts. That's apples and oranges.
Under tax compliance law, transaction accounts can be logged, but we have our own hurdles. Plus, the "miscellaneous" category is just a black hole for tracking.

This wasn't really a "learn from your mistakes" lesson in terms of gaining new knowledge. It's more of a lesson—maybe think twice about that "everyone's happy and satisfied" part—to ensure that next time, nobody can pressure you into doing what you just did just to keep the peace because you doubted your own expertise.

Guys, hold up—was I supposed to start paying the monthly tax prepayments based on my annual filing back in April for the March period? Because I already went ahead and paid the prepayment based on my filing in March, and now I’m sitting here staring at a massive overpayment...

Mark Torres45 said:I really need some help here! I’ve been recording all our credit card sales as direct deposits into our business checking account since that's where the cash actually lands. But when it came time for our tax filings, the IRS agents called me out. They're insisting that every single cent we ring up through the POS system needs to be booked as cash receipts. Honestly, it makes zero sense to me—why would I call it cash when the money hits our bank account directly? Who's actually in the right here, the tax authorities or me?

I ran into this exact same headache last year—I ended up having to reclassify everything from bank deposits to cash receipts, which felt completely nonsensical to me. I actually wrote a whole post about it back then... This year, before submitting my Form 1040, I gave the local Tax Department a call. The manager there actually told me to just list them as bank deposits, explaining that when we file with the IRS, we are following the standard tax compliance law rather than the specific rules governing POS systems. She even admitted it wasn't totally clear to them either—honestly, if you look closely, those two sets of regulations seem to contradict each other quite a bit. Anyway, I decided to stick to my guns and record them as bank deposits. Now, I'm just bracing myself for those inevitable follow-up calls from the IRS, but if they push it, I am more than ready to hold my ground and sort it out with them.

Richard Howard55 said:And this shouldn't have been done at all.
You can't use tax compliance law to verify receipts. That's apples and oranges.
Under tax compliance law, transaction accounts can be logged, but we have our own hurdles. Plus, the "miscellaneous" category is just a black hole for tracking.

This wasn't really a "learn from your mistakes" lesson in terms of gaining new knowledge. It's more of a lesson—maybe think twice about that "everyone's happy and satisfied" part—to ensure that next time, nobody can pressure you into doing what you just did just to keep the peace because you doubted your own expertise.

Richard Howard55, I really appreciate your perspective here👍,but I'm still entering card payments under the Regional Office category. Regarding what you mentioned about miscellaneous entries—I actually had one invoice where part was paid by insurance via the Regional Office and the rest was cash from the client. Synesis told me to just dump it all under "miscellaneous" just so the receipt would clear through the system, but it definitely didn't feel like the right way to do things. Anyway, if anyone has a better way to handle this, I'd love to hear your thoughts...

Synesis support suggested using the "miscellaneous" category for fiscalization, which seems fine since that’s how you handle mixed payment types. As far as the fiscal side goes, everything looks solid.

The remaining issues are sales tax (since you mentioned it) and the KPI.
In the IRS system, the entire receipt and the settlement of payments need to match exactly what was actually paid—the cash portion hits the sales tax return immediately, while the bank transfer portion gets recorded once the funds actually clear.
And based on the payment dates, it'll be reported in the KPI too: the cash part shows up on the day the cash is received, and the bank transfer part shows up on the day it hits the account.

Just to wrap this up...
.... The IRS can cross-reference fiscal data using KPI reports and Form 1040. They basically just compare the cash payment totals from the fiscal records against column 5 of the KPI and field II.1 on Form 1040 (cash receipts).
And that’s really it. Case closed.
Well, almost. 😁 Because there might be a stray receipt flagged as "fiscalization-other." In those cases, you'll have to explain how that specific entry impacts the reported figures in both the KPI and the Form 1040 cash receipts section.

Richard Howard55 said:Just to wrap this up...
.... The IRS can cross-reference fiscal data using KPI reports and Form 1040. They basically just compare the cash payment totals from the fiscal records against column 5 of the KPI and field II.1 on Form 1040 (cash receipts).
And that’s really it. Case closed.
Well, almost. 😁 Because there might be a stray receipt flagged as "fiscalization-other." In those cases, you'll have to explain how that specific entry impacts the reported figures in both the KPI and the Form 1040 cash receipts section.

Huge thanks to Richard Howard55 for the advice—not just on this topic, but for everything he's shared... Honestly, if the folks over at the local Police Department were even half as well-informed and could offer a bit of practical guidance, I think we'd all be having a much easier time navigating this stuff.

It’s good we have this space. A place to swap knowledge, trade info, and actually be useful to one another when things get messy. 🙂

I totally missed the deadline to file my sales tax return by the 20th. I finally just sent it over today. What am I looking at now? 😢

graniterider10 said:I totally missed the deadline to file my sales tax return by the 20th. I finally just sent it over today. What am I looking at now? 😢

Don't sweat it—it’s not like the IRS agents sit there waiting for the clock to strike midnight on the 21st just to pounce on you. 😁
Honestly, there's a good chance it won't even trigger a red flag.

Richard Howard55 said:It’s good we have this space. A place to swap knowledge, trade info, and actually be useful to one another when things get messy. 🙂

A little heads-up for those of you running the Fiskal1 software for your tax reporting. A few folks just had their annual filings rejected by the IRS because, apparently, the total revenue from fiscalized receipts in 2016 didn't match the aggregate turnover reported by the Fiskal1 cash register system. It's funny... well, not funny, more frustrating, really... how you can think everything is perfectly squared away, only to find out the math doesn't add up in their eyes.

I am seeking some guidance here, if anyone happens to have any insight.
I mistakenly sent my quarterly estimated income tax payments for my freelance business to the wrong account—specifically, I sent them to the account designated for annual filings (1619), when they actually should have gone to account number 1430. As a result, my IRS record currently shows an outstanding balance on account 1430, even though the funds were paid toward account 1619. I suppose I am wondering how one goes about rectifying this error. Would the appropriate course of action be to submit a formal written request to the IRS for a reclassification of funds, or is there perhaps another way to handle this?
Thank you in advance.