Monday, January 17, 2011

Tips for Etsy Success: Tax Preparation

Taxes stink. Period. They are easily the worst part of running any small business. Unfortunately taxes are a necessary evil. If you want a successful business then you have to act like a successful business and file your taxes responsibly.

Let me make something very clear, I am not a tax professional. I know nothing about accounting. I am just going to share some things that I do when it is tax time for Noodles & Milk.

During the year I make sure that all my sales are listed in etsy. Meaning, when a friend asks me to make a gift for them to give at a baby shower I set up a custom listing and make them purchase through the etsy site as anyone else would do. Why do I do this? Because I can run one sales report and know that all my sales are included. It streamlines bookkeeping.

Similar to keeping all my sales in etsy, I make sure that all my purchases are through paypal. How do I do this? I have a paypal debit card and I highly recommend you get one too. Again, it really streamlines my record keeping. I make all my business purchases (whether online or at a store- whether postage or fabric or new business cards) using my paypal card.

If you don't have a paypal debit card or you do not want to open one, then you need to keep track of all your expenses the old fashion way. Any business related purchase that is made and does not withdrawl from your paypal account, you need to keep track of. You can either save your receipts and tuck them into an envelope or keep a spreadsheet or keep credit card statements.

For reporting, I use the paypal downloadable history report. This report is super helpful because you can set it to run for whatever dates you want. I run it quarterly to pay my state sales taxes. At year end I run it for the entire year and use the data for my income taxes. The report will open in excel which is helpful so that you can sort and add calculations in.

When your paypal report downloads, it will be in date order. This is not ideal for calculating your tax information. Without giving you a lesson in excel (you can google it if you need help), the best thing to do is sort the report so that all the like transactions are together...meaning all your purchases are together and all your sales are together. Taking it a step further, you can sort your purchases so that you can separate what you spent on shipping and etsy fees or anything else you want to break out.

1040 Schedule C - This is the form that you will fill out and include in your personal taxes. If you file with Turbo tax or some other program that you do on your own there is a place where you will indicate you own a business and it will prompt you to fill in the 1040SC. It is easy.

Instuctions for the Schedule C

This article has good information that is all linked to the IRS so it is legit.

Another great place to check for information is in the etsy forums. Just search "taxes" under forum titles.

Good Luck!

And just because posts are better with pictures...here is a picture of my 4 month old baby boy from last week. He loves to chew on his hands right now. Oh, and I think he's pretty cute:)




 
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3 comments:

bethany said...

The other perk to a Paypal debit card is the cash back!! You can sign up to get a certain percentage back on everything you spend with the card when you have a business-it's great!!

Vanessa said...

I love my Paypal debit card! I also use Outright.com. It imports all the info from Paypal and categorizes everything rather easily. It also gives you a heads up on what you might owe tax wise. Only thing I'm dreading is inventory! Any advice there??

Heidi said...

Awesome, this was a big help. Thanks!

 
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