Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Brenda Chase3 said:Actually, it makes perfect sense when you look at how it works. The inventory ledger is maintained based on the retail price. Your entries should reflect the retail value including sales tax from your supplier, rather than the net cost. Think of it like tracking the full value held in stock.

http://www.irs.gov/regulations/inventory_valuation_rules

Fine, then what price am I using for depreciation?

Robin Cook4 said:Fine, then what price am I using for depreciation?

Let’s look at an example. Say you buy 5 boxes of nails for $33 and you're setting up your retail inventory. In this scenario, your total cost basis is 5 x 100 = $167. Now, let's say you decide to set the retail price at $83 per box, including sales tax. That means your total potential sales value for this stock is $417.

If you end up selling 3 boxes, your actual revenue comes out to $250.

When you're recording the debit, you use the retail value of the inventory setup = $417
. When you're recording the credit, you use the total amount collected from the sale including tax, which is $250.
That leaves you with an ending inventory value of $167.

The general ledger doesn't really care about what you originally paid for the items; it focuses on the retail valuation you've assigned to them (the debit side) versus the total amount you actually charge the customer (the credit side).

Brenda Chase3 said:Let’s look at an example. Say you buy 5 boxes of nails for $33 and you're setting up your retail inventory. In this scenario, your total cost basis is 5 x 100 = $167. Now, let's say you decide to set the retail price at $83 per box, including sales tax. That means your total potential sales value for this stock is $417.

If you end up selling 3 boxes, your actual revenue comes out to $250.

When you're recording the debit, you use the retail value of the inventory setup = $417
. When you're recording the credit, you use the total amount collected from the sale including tax, which is $250.
That leaves you with an ending inventory value of $167.

The general ledger doesn't really care about what you originally paid for the items; it focuses on the retail valuation you've assigned to them (the debit side) versus the total amount you actually charge the customer (the credit side).

Thanks so much. You're totally right—been staring at this all day and it finally clicked! 😍😍

Brenda Chase3 said:Let’s look at an example. Say you buy 5 boxes of nails for $33 and you're setting up your retail inventory. In this scenario, your total cost basis is 5 x 100 = $167. Now, let's say you decide to set the retail price at $83 per box, including sales tax. That means your total potential sales value for this stock is $417.

If you end up selling 3 boxes, your actual revenue comes out to $250.

When you're recording the debit, you use the retail value of the inventory setup = $417
. When you're recording the credit, you use the total amount collected from the sale including tax, which is $250.
That leaves you with an ending inventory value of $167.

The general ledger doesn't really care about what you originally paid for the items; it focuses on the retail valuation you've assigned to them (the debit side) versus the total amount you actually charge the customer (the credit side).

Also, quick one—do I log that debit in the KPI or just the vendor invoice amount? thx

Just the vendor invoice amount

David Green642 said:If you’re asking which account we're talking about—you’ve got four different ones sitting there with those nasty interest rates from the commercial contracts. But if you mean the position in the URI, then forget it; those aren't subject to sales tax. 😉

Thanks, Stela27!

So, here’s the deal. An employee took four days of vacation back in April, so I assume we need to scale back her travel reimbursement accordingly... she usually pulls in $83 every month... how do you all typically run those numbers?

cosmictinker24 said:So, here’s the deal. An employee took four days of vacation back in April, so I assume we need to scale back her travel reimbursement accordingly... she usually pulls in $83 every month... how do you all typically run those numbers?

By what logic is she receiving $83 every single month?
That would imply $3.75 per day, multiplied by four days... which doesn't seem quite right, does it?

amberdrifter14 said:By what logic is she receiving $83 every single month?
That would imply $3.75 per day, multiplied by four days... which doesn't seem quite right, does it?

And why wouldn't she receive it $83 monthly? It really just comes down to which city she's in and what her monthly transit pass costs. Not every US city has the same rates.

amberdrifter14 said:By what logic is she receiving $83 every single month?
That would imply $3.75 per day, multiplied by four days... which doesn't seem quite right, does it?

That's just how my boss laid it out... she lives five minutes from work, but there isn't a single city bus that covers that route... so I suppose she's just walking in those $83... How do you all think this should actually be calculated?

cosmictinker24 said:That's just how my boss laid it out... she lives five minutes from work, but there isn't a single city bus that covers that route... so I suppose she's just walking in those $83... How do you all think this should actually be calculated?

Actually, we have documentation from back in 2009 via the Associated Press stating that local transit rides are $83..

Hey everyone, I could really use some advice from the seasoned pros here!
I’ve got a small business set up with no employees, and the owner actually holds a full-time job at another company. It’s just him running the show for this side gig.
Since I'm totally new to the world of small business ownership, I have a few questions:

1) How do you handle fuel expenses or reimburse yourself for gas if the car isn't registered under the business name??? Am I allowed to use the business debit card or credit card for gas? This is huge because there's a ton of driving involved.
The car isn't going to be moved over to the business right now. So, I need tips on how to maximize those fuel deductions legally without anything getting "off the books."

2) Also, regarding business travel—can the owner claim per diems and reimbursements for things like tolls, meals, or even taking a client out to lunch?

3) Can a monthly life insurance premium for the owner be listed as a business expense?

4) Could you give me a quick rundown of what typically counts as a deductible expense for a business specializing in lighting and event planning?

- We aren't registered for sales tax purposes.
Thanks in advance... I'll probably have more questions once I dig into this deeper.🙂

Sophia Sanders3 said:Hey everyone, I could really use some advice from the seasoned pros here!
I’ve got a small business set up with no employees, and the owner actually holds a full-time job at another company. It’s just him running the show for this side gig.
Since I'm totally new to the world of small business ownership, I have a few questions:

1) How do you handle fuel expenses or reimburse yourself for gas if the car isn't registered under the business name??? Am I allowed to use the business debit card or credit card for gas? This is huge because there's a ton of driving involved.
The car isn't going to be moved over to the business right now. So, I need tips on how to maximize those fuel deductions legally without anything getting "off the books."

2) Also, regarding business travel—can the owner claim per diems and reimbursements for things like tolls, meals, or even taking a client out to lunch?

3) Can a monthly life insurance premium for the owner be listed as a business expense?

4) Could you give me a quick rundown of what typically counts as a deductible expense for a business specializing in lighting and event planning?

- We aren't registered for sales tax purposes.
Thanks in advance... I'll probably have more questions once I dig into this deeper.🙂

1) You should track mileage for using a personal vehicle for business purposes and calculate a reimbursement $0.67 per mile. (You can technically use the business card for gas, but it won't count as a direct business expense; you'd just note that it was for the owner's personal use)
2) Yes, you can. Use a standard travel expense report; all business trip costs and per diems are fine.
3) No.
4) Anything directly related to operating the business. 🤷
Don't forget to account for payroll taxes regarding the payments in 1) and 2). 😉

placidlynx92 said:1) You should track mileage for using a personal vehicle for business purposes and calculate a reimbursement $0.67 per mile. (You can technically use the business card for gas, but it won't count as a direct business expense; you'd just note that it was for the owner's personal use)
2) Yes, you can. Use a standard travel expense report; all business trip costs and per diems are fine.
3) No.
4) Anything directly related to operating the business. 🤷
Don't forget to account for payroll taxes regarding the payments in 1) and 2). 😉

Hey placidlynx92, how sure are you about this?
Because this small business owner actually works somewhere else first.

Jack Young said:Hey placidlynx92, how sure are you about this?
Because this small business owner actually works somewhere else first.

I’m pretty damn sure. He runs his own business—it’s his livelihood—and he has the exact same rights to claim business expenses as any other entrepreneur in the States.

placidlynx92 said:1) You should track mileage for using a personal vehicle for business purposes and calculate a reimbursement $0.67 per mile. (You can technically use the business card for gas, but it won't count as a direct business expense; you'd just note that it was for the owner's personal use)
2) Yes, you can. Use a standard travel expense report; all business trip costs and per diems are fine.
3) No.
4) Anything directly related to operating the business. 🤷
Don't forget to account for payroll taxes regarding the payments in 1) and 2). 😉

okay thanks, but I'm lost on number 1). so, if I pay for gas with the business card, what happens to that receipt if it isn't a business deduction? like, if I pay for gas $167 with the business card but that receipt doesn't count as an expense (since the car isn't owned by the LLC), how do I explain why the business card was used if it's not a deduction? (since I'm already paying myself via $0.67/mile). please, could you clarify that a bit better? thanks a lot.😕😕

What exactly is a payroll tax filing? Is it something you have to submit somewhere, and if so, when is the deadline?🤷

Sophia Sanders3 said:okay thanks, but I'm lost on number 1). so, if I pay for gas with the business card, what happens to that receipt if it isn't a business deduction? like, if I pay for gas $167 with the business card but that receipt doesn't count as an expense (since the car isn't owned by the LLC), how do I explain why the business card was used if it's not a deduction? (since I'm already paying myself via $0.67/mile). please, could you clarify that a bit better? thanks a lot.😕😕

What exactly is a payroll tax filing? Is it something you have to submit somewhere, and if so, when is the deadline?🤷

Look, that gas receipt just isn't a deductible expense—you can toss it or tuck it away with a mileage log if you really want to 😉, but the point is that using a personal vehicle for work is handled differently. As an LLC owner, you have total control over the funds in your business checking account; you can withdraw cash, pay personal bills, whatever—it doesn't need to be "justified" to anyone because it's your money for your own needs. However, if you want to actually pay yourself that $0.67 per mile, you need actual documentation to back up that deduction in your books (like a mileage log or a travel voucher).

As for Form 941, you can check out the details here http://www.irs.gov/forms-pubs/about-form-941 and there's also a dedicated thread about 941s right here on this forum.

placidlynx92 said:Look, that gas receipt just isn't a deductible expense—you can toss it or tuck it away with a mileage log if you really want to 😉, but the point is that using a personal vehicle for work is handled differently. As an LLC owner, you have total control over the funds in your business checking account; you can withdraw cash, pay personal bills, whatever—it doesn't need to be "justified" to anyone because it's your money for your own needs. However, if you want to actually pay yourself that $0.67 per mile, you need actual documentation to back up that deduction in your books (like a mileage log or a travel voucher).

As for Form 941, you can check out the details here http://www.irs.gov/forms-pubs/about-form-941 and there's also a dedicated thread about 941s right here on this forum.

So, if I'm following correctly, if a small business owner has $1667 in their account and pulls out $1000 for themselves (personal stuff, food, drinks, bills, going out, whatever...) they don't actually have to "prove" how that $1000 was spent??? I don't quite get that... can they really just spend that money without any receipts? I mean, if that's true, that sounds awesome!!😍
Because with an LLC or a corporation, everything has to be accounted for...

Thanks for the info on the tax forms, I already took a look..

Sophia Sanders3 said:So, if I'm following correctly, if a small business owner has $1667 in their account and pulls out $1000 for themselves (personal stuff, food, drinks, bills, going out, whatever...) they don't actually have to "prove" how that $1000 was spent??? I don't quite get that... can they really just spend that money without any receipts? I mean, if that's true, that sounds awesome!!😍
Because with an LLC or a corporation, everything has to be accounted for...

Thanks for the info on the tax forms, I already took a look..

Yes, it is exactly as she described. A sole proprietor doesn't need to provide documentation for withdrawing funds from the business account because, at the end of the year, they’ll be paying taxes on everything that wasn't categorized as a business expense anyway. That money effectively becomes their income, and they’ll pay the appropriate income tax on it. It’s a bit different from a corporate director, who draws a set salary and therefore has to justify every dollar spent outside of that paycheck. A sole proprietor doesn't have a fixed salary in the traditional sense; instead, they have net income (which essentially functions as their pay), which is why the tax return is filed based on that total income.

Brenda Chase3 said:Yes, it is exactly as she described. A sole proprietor doesn't need to provide documentation for withdrawing funds from the business account because, at the end of the year, they’ll be paying taxes on everything that wasn't categorized as a business expense anyway. That money effectively becomes their income, and they’ll pay the appropriate income tax on it. It’s a bit different from a corporate director, who draws a set salary and therefore has to justify every dollar spent outside of that paycheck. A sole proprietor doesn't have a fixed salary in the traditional sense; instead, they have net income (which essentially functions as their pay), which is why the tax return is filed based on that total income.

Great, thanks for the clear explanation! And thanks to lady g too..🙂