Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Matthew Bishop4 said:Thanks for the help.
Just making sure I've got this straight.
For 2016, I should enter the depreciation amount under "in-kind expenses" in the P-PPI, put the older depreciation under "write-off expenses," and then from next year onward, everything goes under write-off expenses.
Thanks.

Personally, I’ve always just categorized the total depreciation as non-cash expenses—both the old stuff and the new. I haven't really touched the write-off section, so if anyone else on the forum wants to weigh in on whether that specific category is intended for depreciation, I'd love to hear it. To be honest, I've done it this way for years and nobody has ever flagged it; everything has always been perfectly fine. If it turns out it's more accurate to list it under write-offs, then by all means, go ahead and do that—I'm just hoping someone else can jump in here and confirm the best way to handle it.

placidlynx92 said:Yes—the moment you're hit with an obligation to file a return for that tax period, you're on the hook. Even if the business was active for just one single day during the entire year, that obligation remains...

Well, yeah, I figured as much.
I just know how things can get a little weird with specific edge cases here in the States, so I wondered if the rules might shift slightly when someone transitions from being an employee to running their own small business. 🤣
Up until now, every situation I've run into involved someone starting their own LLC right after leaving a regular W-2 job.

Thanks! 😉

neonsurfer13 said:But that December form was probably processed ages ago. You really think I can just go in and change it like that?
And how exactly am I supposed to do that on the form? How do I actually correct the amount? Do I just subtract it from the totals in II1 and III1 (since the invoice is from a company outside the US), or is there some other way to handle it?

Look, since this pertains to the 2016 tax year, the correction really needs to be reflected within 2016 as well. Think of it like balancing a ledger; the cleanest way is to simply file a revised 12/2016 form with those incorrect amounts adjusted downward. Once you resubmit it for processing, just reach out to the IRS agent and let them know you spotted an error so they can pull the updated version. I realize the original 12/2016 filing is already finalized, but following this path is by far the most accurate way to fix the books.

Peter Young5 said:I’m running into a bit of a headache with my sales tax filings for February and March of 2016—essentially, looking back at the end of the year, I’ve realized the totals don't match what was actually submitted to the IRS due to some mid-year adjustments. Is it better to just adjust the December filing—either increasing or decreasing the amount—to account for those discrepancies from earlier in the year?

In the past, I would have always filed amended returns for each individual month, which feels like the most precise way to handle it—but let's be honest, when you're dealing with corrections spanning several months, it becomes a massive chore for me and a total nuisance for the agent at the local tax office...

That's actually exactly why the IRS suggested that once they eliminated those specific error-correction forms, everything should be reconciled in the final December 2016 filing. So, not only is it the smarter move now, it's essentially required to nullify those differences in the last tax return of the year if you didn't catch them sooner. My advice? Just make the correction and file it. It’ll save you a lot of trouble, ensure your 2016 books are perfectly squared away, and give you total peace of mind.

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...

Look, we were debating this exact same thing last year around this time regarding that infamous IRS mess. This is the clearest explanation I've seen—it actually makes sense, and this is how I'm handling it again this year 🙂 for 😁

Thanks, I actually did things the exact same way last year, but this time around the NPR system was giving me a bit of a headache regarding section V.2.1... apparently, I need to report any cash income that wasn't actually deposited into the business account, since the owner kept some of those funds on hand to cover various cash expenses, right?

When I’m working through the CDC forms, I’m calculating contributions based on secondary employment.
The form does a pretty decent job of running the math for me.
The catch is, the system keeps calculating contributions for both Social Security and Medicare—basically treating everything as if it falls under both pillars—but my employer is actually only registered under the first one.
I’ve looked everywhere, and I just don't see an option to specify that the employer belongs to the second category.
Do you think the IRS will just automatically adjust it to only charge for the first pillar once they realize no contributions were ever due for the second? Or am I going to have to jump through hoops providing formal explanations and paperwork to clear this up?

I'm trying to file a tax return for a small business owner who just closed down their shop, but I've hit a snag.
The system keeps throwing this error at me:
•1.5000.2.0.2.25 - Only individual taxpayers are authorized to submit this specific IRS form.🤔

It’s a bit frustrating—everything else went through perfectly fine without any issues.

Nancy Jones said:Thanks, I actually did things the exact same way last year, but this time around the NPR system was giving me a bit of a headache regarding section V.2.1... apparently, I need to report any cash income that wasn't actually deposited into the business account, since the owner kept some of those funds on hand to cover various cash expenses, right?

Same here. Last year, this year, and probably next year too.

Because that un-deposited cash—which, let’s be honest, never matches the actual cash receipts on my QuickBooks—is exactly what I use to pay my vendor invoices in cash.

And according to the law, you can keep doing that as long as you aren't falling behind on your taxes.

🕺

Jessica Gonzalez30 said:I'm trying to file a tax return for a small business owner who just closed down their shop, but I've hit a snag.
The system keeps throwing this error at me:
•1.5000.2.0.2.25 - Only individual taxpayers are authorized to submit this specific IRS form.🤔

It’s a bit frustrating—everything else went through perfectly fine without any issues.

You might want to try adjusting the reporting period—if I recall correctly, there’s an option for that right on the first page.

placidlynx92 said:You might want to try adjusting the reporting period—if I recall correctly, there’s an option for that right on the first page.

It’s there, but it only gives me the year rather than a specific date range, 🤔
so I can really only type in 2016.

Jessica Gonzalez30 said:It’s there, but it only gives me the year rather than a specific date range, 🤔
so I can really only type in 2016.

Then you just take a screenshot and hit the Contact Us section 🙂—in my experience, the IRS got back to me by the next business day and actually followed up to make sure everything had processed correctly

I finally got an official response from the IRS regarding those little notification messages that pop up when you're filing the DI form:
If the only code you're seeing is this one:
''1.2200.2.0.3.28 - Informational Message: The write-off amount must equal the purchase value multiplied by the write-off rate and divided by 100, per Section 35(2)(8) of the Internal Revenue Code'',
then you are totally fine to hit submit—it’s just an informational note.

It won't actually block you from submitting the form correctly; think of it more like a helpful heads-up rather than a red flag. Even after you send it off, you might see it again marked with a little yellow triangle—don't panic! That just confirms it was merely a notice and not an actual error.

I really hope this clears things up for someone out there!!!!

I gave the IRS a call today—just to be absolutely certain—and they informed me that any funds received as loans should be logged under section V.2.1., while actual loans themselves go under 2.4., and interest payments fall under "other."

The sum of sections II.2. and V.2. needs to match your total bank account turnover exactly.

Peter Young5 said:I gave the IRS a call today—just to be absolutely certain—and they informed me that any funds received as loans should be logged under section V.2.1., while actual loans themselves go under 2.4., and interest payments fall under "other."

The sum of sections II.2. and V.2. needs to match your total bank account turnover exactly.

That’s exactly how I handled it too. If you were to include those un-deposited receipts, the math wouldn't square with the total bank turnover at all. You have to report the deposited receipts specifically because, normally, we'd just book those as cash receipts, but the IRS needs to see exactly how much of that cash actually hit the bank account.

Brenda Chase3 said:That’s exactly how I handled it too. If you were to include those un-deposited receipts, the math wouldn't square with the total bank turnover at all. You have to report the deposited receipts specifically because, normally, we'd just book those as cash receipts, but the IRS needs to see exactly how much of that cash actually hit the bank account.

Now, someone really ought to give the IRS a call and let them know about this blunder they've made—it's caused nothing but a massive headache. 🙂 😁

placidlynx92 said:Now, someone really ought to give the IRS a call and let them know about this blunder they've made—it's caused nothing but a massive headache. 🙂 😁

Personally, I don't mind if they make mistakes.
We all trip up sometimes—it's just part of being human.
What actually bothers me is having had to call them out multiple times because they misinterpreted the Internal Revenue Code, or worse, cited outdated laws in their recent publications. It honestly baffles me that they couldn't just post a clarification online explaining that those specific articles contained incorrect interpretations. Or, at the very least, they could have included a correction on the front page of the next issue—just a simple way to provide the right info.
The most important thing is that they track who is using their articles, especially when those articles end up causing legal disputes.
Ever since I stepped away from working with them, I feel like I can finally breathe again. 😁

I’m running into a bit of a headache where my sales tax figures in the PPP don't align with the total sales tax reported on my annual tax return.
I think I finally pinpointed the culprit. It turns out that for things like leasing rates and long-term assets acquired this year, I categorized the payments outside of the KPI—which means the system isn't pulling the sales tax from those specific entries into the PPP form.

At this point, my only workaround seems to be recording them under Section 22 via the checking account, just so the sales tax actually shows up in the PPP, even if the expense itself remains non-deductible.
Is it actually acceptable to categorize those types of costs under Section 22?

Thanks for the help. 🙂

Peter Young5 said:I’m running into a bit of a headache where my sales tax figures in the PPP don't align with the total sales tax reported on my annual tax return.
I think I finally pinpointed the culprit. It turns out that for things like leasing rates and long-term assets acquired this year, I categorized the payments outside of the KPI—which means the system isn't pulling the sales tax from those specific entries into the PPP form.

At this point, my only workaround seems to be recording them under Section 22 via the checking account, just so the sales tax actually shows up in the PPP, even if the expense itself remains non-deductible.
Is it actually acceptable to categorize those types of costs under Section 22?

Thanks for the help. 🙂

No, you shouldn't put those in Section 22.
I used to drive myself crazy trying to figure out how to record everything correctly, but there’s always some kind of mess when dealing with that KPI.
At first, I would record them as deductible expenses just so the sales tax would flow through the KPI properly, and then I'd try to reverse the entry somehow so everything would balance out. Honestly, I can't even remember the exact way I handled the reversals—I basically just tinkered with the entries until I finally got the result I wanted. 🤣

Peter Young5 said:I’m running into a bit of a headache where my sales tax figures in the PPP don't align with the total sales tax reported on my annual tax return.
I think I finally pinpointed the culprit. It turns out that for things like leasing rates and long-term assets acquired this year, I categorized the payments outside of the KPI—which means the system isn't pulling the sales tax from those specific entries into the PPP form.

At this point, my only workaround seems to be recording them under Section 22 via the checking account, just so the sales tax actually shows up in the PPP, even if the expense itself remains non-deductible.
Is it actually acceptable to categorize those types of costs under Section 22?

Thanks for the help. 🙂

Whenever I run into a situation like that, I just leave the discrepancy as is and attach a detailed explanation regarding the difference as a supporting document to the PPI filing.