Accounting for Sole Proprietors: Tax & Bookkeeping Tips

Arthur Bishop6 said:I need some help here... I'm dealing with card payments for the first time. A local auto electrician client just started taking credit cards, and now I'm stuck on how to book this properly. Do I record the card sales in the same month they happen, closing them out against cash, then immediately account for the sales tax and the cash receipt, and wait to book the processing fee until the money actually hits the bank?

Or

do I just wait until the funds hit the business checking account? Obviously, the amount will be lower because the processor already took their cut. In that case, do I wait until the deposit lands to book the full invoice against the bank transaction, and then just list the fee as a separate business expense?

I’ve asked a few consultants and gotten totally different answers, so now I’m just spinning my wheels. I'm sure you guys have covered this before, but I honestly don't have the time to dig through every single old thread... I'm genuinely lost on what the right way to handle this is.

Thanks.

Nobody seems to know! This is urgent—the advisors are all saying different things and the accounting firms are booking it differently too...

I book those payments as revenue on my business account the second the cash actually hits the bank, and I record the full amount right then. Same goes for sales tax—I pay it once the money lands, because as small business owners using the cash basis, that’s exactly what we’re allowed to do. When the monthly processing fees finally show up on the statement, I just deduct them from the total revenue recorded and then log the fee itself as a separate expense.

And honestly? Everyone handles their bookkeeping differently. My system is a bit of a headache to set up, but man, it makes reconciling everything at the end of the year an absolute dream.

You're spot on... honestly, just do whatever works best for you!
:-))

You’re spot on... honestly, just do whatever works best for you! :-)

If anyone feels like helping... I’m finally pulling the plug on my small business. I get the whole deal with reporting unpaid income as paid, but I’m stuck on the logistics. Can I just file my sales tax through the IRS website? And if I officially shut things down by September 30th, is my deadline actually October 20th? Also, can I handle the deregistration for Social Security and Medicare online, or am I going to have to trek down to the local SSA office in person? And please tell me I don't have to physically show up at the courthouse to file for basic state registration.

Thanks a million.

Need some advice here. This is critical...
So, here’s the situation. On July 11, 2016, we issued an invoice for a down payment. It was paid and recorded that same day. A few days later, we sold them goods, and we aren't settling the accounts until September. We’re doing a full offset—balancing out services rendered against some invoices they sent us. But there’s a catch: this offset document doesn't explicitly state that the initial down payment is being deducted. To fix this, we issued a credit memo for that down payment. Since they still owe us money from the overall settlement, they just subtracted the down payment amount from their final payout to us. Now our accountant has processed that credit memo, and the IRS is breathing down our necks. They want us to pay the VAT difference because we essentially "returned" the money, yet we have zero paperwork from the client proving a refund was ever issued. How? We didn't send cash back; we just took a smaller check at the end of the deal. Is there any way to prove to the IRS that the funds were effectively returned through this deduction when no actual wire transfer occurred?
Any help would be appreciated.

Could someone walk me through the exact process for recording an advance payment invoice—specifically for construction work? In this scenario, the client is a sole proprietor filing as an individual under the standard sales tax system. The advance was paid back in October, but the actual work isn't scheduled to be completed until November.

I’ve got a quick question regarding how we should be logging work hours—here is the situation: our team doesn't work on Sundays, but back on October 8th, 2017, it happened to be both a Sunday and a public holiday. Should I be recording that day as standard time off, just like any other typical Sunday, or should I specifically log it as a holiday, even though nobody was scheduled to work anyway? I am currently using the HR module in SAP to manage this. Thanks in advance for the help!

Keith Martinez5 said:I’ve got a quick question regarding how we should be logging work hours—here is the situation: our team doesn't work on Sundays, but back on October 8th, 2017, it happened to be both a Sunday and a public holiday. Should I be recording that day as standard time off, just like any other typical Sunday, or should I specifically log it as a holiday, even though nobody was scheduled to work anyway? I am currently using the HR module in SAP to manage this. Thanks in advance for the help!

You should just log it like any other Sunday, since your business is closed every single week on Sundays anyway. 😉

Brenda Chase3 said:You should just log it like any other Sunday, since your business is closed every single week on Sundays anyway. 😉

Thanks, Brenda Chase3—you're a legend! 🙂

Hey there!

Quick question for you guys—if I'm running my own business (sole proprietorship style), can I technically pay myself a tax-free jubilee bonus?
I’m assuming the answer is yes, but I figured I’d run it by the group just to be absolutely sure before I go making any moves.

Thanks!

Can I write off the cost of buying wood pellets for heating my office as a business expense?
I mean, I figure if a small business owner heats their place with electricity, they just write off the utility bill. Wood pellets are basically just fuel, just like electricity, gas, or whatever else.
The total comes out to about $2667 including tax.
How do I list this without it being flagged as a fixed asset, since the amount is over $1167?

neonsurfer13 said:Can I write off the cost of buying wood pellets for heating my office as a business expense?
I mean, I figure if a small business owner heats their place with electricity, they just write off the utility bill. Wood pellets are basically just fuel, just like electricity, gas, or whatever else.
The total comes out to about $2667 including tax.
How do I list this without it being flagged as a fixed asset, since the amount is over $1167?

You certainly can, but you need to be careful about one specific detail. If you also live in that same building, you shouldn't claim 100% of the cost as a business expense because that would include your personal residential utilities. Most professionals suggest claiming about 30%, though some accountants might tell you to go with 50%. Personally, I always book it at 30% because that’s what most of the accounting firms I've consulted have advised me to do.
Naturally, you wouldn't list this as a fixed asset. A single pellet or even a bag doesn't cost more than $1.25; the total value of the whole batch is only $2.75. It's considered a consumable heating supply, treated exactly like natural gas or electricity. When someone gets an electric bill for $1.75, they don't capitalize it as a fixed asset—they simply record it as an operating expense.

Brenda Chase3 said:You certainly can, but you need to be careful about one specific detail. If you also live in that same building, you shouldn't claim 100% of the cost as a business expense because that would include your personal residential utilities. Most professionals suggest claiming about 30%, though some accountants might tell you to go with 50%. Personally, I always book it at 30% because that’s what most of the accounting firms I've consulted have advised me to do.
Naturally, you wouldn't list this as a fixed asset. A single pellet or even a bag doesn't cost more than $1.25; the total value of the whole batch is only $2.75. It's considered a consumable heating supply, treated exactly like natural gas or electricity. When someone gets an electric bill for $1.75, they don't capitalize it as a fixed asset—they simply record it as an operating expense.

So, if I buy this pellet under my own name instead of through the business, and then just write off 30% of the invoice... is that it? Are there any other catches I should know about? Or do I just attach the receipt and claim my 30%, or do I actually need to make some kind of note on it since I'm not claiming the full amount?

Hello there!
I run my own small freelance translation business here in the States; I operate as a sole proprietor, I'm not registered for sales tax, and I work out of my own apartment.
I just recently learned that I might actually have the right to rent my own living space to myself through a formal lease agreement and then write those expenses off against my business income. How exactly does one go about this? Would I simply draft an agreement on $333, sign it as both the landlord and the tenant, and then $333 transfer the funds from my business account over to my personal checking account?
I’ve heard that this is a common practice among others in my position. Does anyone here actually do this, or could someone provide some clarity on the process I described above?

Timothy Torres3 said:Hello there!
I run my own small freelance translation business here in the States; I operate as a sole proprietor, I'm not registered for sales tax, and I work out of my own apartment.
I just recently learned that I might actually have the right to rent my own living space to myself through a formal lease agreement and then write those expenses off against my business income. How exactly does one go about this? Would I simply draft an agreement on $333, sign it as both the landlord and the tenant, and then $333 transfer the funds from my business account over to my personal checking account?
I’ve heard that this is a common practice among others in my position. Does anyone here actually do this, or could someone provide some clarity on the process I described above?

I assume that, as the landlord, you’d also have to deal with paying some kind of income tax on those rental earnings, right?

Timothy Torres3 said:Hello there!
I run my own small freelance translation business here in the States; I operate as a sole proprietor, I'm not registered for sales tax, and I work out of my own apartment.
I just recently learned that I might actually have the right to rent my own living space to myself through a formal lease agreement and then write those expenses off against my business income. How exactly does one go about this? Would I simply draft an agreement on $333, sign it as both the landlord and the tenant, and then $333 transfer the funds from my business account over to my personal checking account?
I’ve heard that this is a common practice among others in my position. Does anyone here actually do this, or could someone provide some clarity on the process I described above?

You technically can, but the actual benefit is pretty questionable. You’d have to pay the standard income tax on rental income as an individual immediately, and then at the end of the year, everything just rolls back into your business income anyway (aside from the standard deductible maintenance costs and depreciation). Since it's all tied to the same Social Security number, the math usually ends up being a wash...

I just picked up a vehicle diagnostic program while traveling through Europe—it cost me about $975$2277. I’m assuming this would be categorized as a long-term asset for tax purposes, right? I'd love some advice on how to handle this... Thanks!

Keith Martinez5 said:I just picked up a vehicle diagnostic program while traveling through Europe—it cost me about $975$2277. I’m assuming this would be categorized as a long-term asset for tax purposes, right? I'd love some advice on how to handle this... Thanks!

That’s correct; you'd list it as a fixed asset.

I'm finally closing down my independent dental lab business—retiring at last!—so if anyone could walk me through the actual shutdown process, I'd really appreciate it...

From what I know, I gotta hit up CMS first to get the official closure paperwork, then take that over to the FBI... do I need to deal with the IRS after that? And then just handle the social security and health insurance deregistration?

thanks!