Sunday, January 1, 2012

It's a new year, time to think about t*x*s

As a small business owner for almost 30 years I've learned a thing or two about
T* a*x *e* s and record keeping. I hear lots of questions about this subject while I'm out and about, and so I thought I'd take a moment to share what I know (which is only a little bit of what there is to know, about the subject).

It is so important to have good records for any business, and one of the only ways to know how you are doing throughout the year. As a bookkeeper by day, with a wonderful Mom, who is a CPA, I have some unique advise on this subject. So please bear with me, I'll make it all as simple as possible.

Having been A*u*dit*ed twice, I can tell you that good records are a must and being truthful is absolutely necessary.
(BTW I came out great both times due to excellent records.)

My motto is "be truthful, keep records, and when you get the a*u**di*t letter, you'll have nothing to worry about".

You need to keep track of your sales, and your expenses, That's it in a nutshell.
Your profit is your Sales minus your expenses. That is what you pay tax on.
I could go on here about Cash accounting versus Accrual account but I don't want to bore you. Most small businesses like ours, use the Cash accounting method, and that is what I'm explaining here. Note: unsold inventory is not an expense until it is sold.

How best to do this? There are several ways depending on how computer savvy you are.

The simplest way is a paper journal. Every time you sell... write it down, every time you spend money... write it down.
Have separate columns for product purchases, supplies, advertising etc.

Keep a continuous total of each column so you know how you are doing throughout the year.

(Note: Not all your product purchases are deductible as an expense. They are only deductible after you sell them or write them off. This is where a professional can be of great help.)

Having this information will help you to make business decisions as well. When to buy, when to sell, when to have a sale and even when to re-arrange your booth space to generate sales.

If you want to get a little more sophisticated you could use an XL spreadsheet (learning XL changed my life) or even a computer program like QuickBooks to keep your records (they have an online program available that is very affordable.)

At the end of the year you will provide these numbers to your accountant for your t*a*x return. I strongly encourage you to hire a CPA to do your t*a*x*es. Get a good one, they are worth their weight in gold. If you decide to fill out your own return you'll need to use a Sc*he**du**le C for you business income.

We'll talk about the Sc*he**du**le C next .
Now see that wasn't so painful.

Note the *** are there to keep my blog post from being flagged and also note, that I am not a CPA or an expert and none of my advise should be taken without consulting a CPA first. As they say with medication, "consult your doctor before starting any treatment plan :)"


Prairiedog said...

Margo, good advice, did you notice, you've skipped a year, it's not '13 yet, and it will be odd saying that year. Have a happy new year, happy month, and easy tax accounting. Karen

Sueann said...

Me and Schedule C...we be mates!! Ha!!
Great advice!
Have a blessed and joyous 2012.

Margo said...

Prairie, I guess I'm in a hurry???
Thanks for letting me know.


Jane said...

Great advice!! Thanks!!

Vickie said...

Oh no Margo, Say it isn't so!!! Tax time again!

Unknown said...

This is GREAT advise! And people these days need all the great advise that they can get. You are just to the rim. Great ideas and great advise. Keep it up! Antiquingarky (Rhonda)

Blog Widget by LinkWithin