Category Archives for Bookkeeping

We’ve hit the mid-year mark…

Tax Tips mid-year 2013

Uncle Sam is coming!

An inventory helps you tax-time 2013

Chance favors the prepared mind but doesn’t help when you face your accountant for those happy end-of-year get-togethers.  The key to any tax return is documentation. Don’t wait until a day before your scheduled meeting to compile your invoices and bank statements. In the 21st century, we depend upon our computers to enhance profits and to manage our ‘lists’. Why not also consider them as an important part of our storage solution?

Keep a list of what goes in your cardboard banker’s boxes.  Many people suggest you attach it to the outside of the storage box.  We suggest you leverage your efforts. A checklist will not only remind you what to put in the box but what is inside when you stash it on some back shelf. Consider a digitized inventory list as both ‘tickler file’ (what needs to be saved) and final inventory of all stored items.  Use your computer list to tag important ‘evergreen’ material like travel and entertainment receipts along with one-time documents like big item purchase records.  Why distribute your important material across many separate boxes when you can create a digitized inventory and consolidate your physical storage in fewer boxes listed on one big spreadsheet? Consider several ‘user-defined’ columns (fields) that might provide that special bit of information without a physical search.

Benefits of a spreadsheet inventory list

You can temporarily resort items according to specific column heading (fields) to bring items to the front of the list in seconds. Use a separate column for storage date (when you put the item in the box) as well as a column for the book or post date of the item in question. Consider a separate column on your spreadsheet for special notes. Remember you can compile the inventory of many boxes into one giant list that might cover the entire year or more.  One quick temporary data sort and you can locate a cluster of items and locate them in their labelled box!

Compile an inventory of many boxes into a giant spreadsheet

Remember payroll records including time sheets, registers, and W4/W2 copies should be stored for seven years. Keep a list of current addresses of each employee relevant to the tax year. Store this information in a color-coded box separate from other filing or banker’s boxes so that they can be located quickly. Consider including IRS W9. Form 1096, and Form 1099 in this storage area depending on whether you have employees or hire subcontractors.  One benefit of using a computerized spreadsheet is creating one workbook and having separate worksheets.  Once again, consider compiling the digital information sorted across years. Wouldn’t it be nice to peak at your tax-related information on a year-to-year basis at the click of a mouse button?  If columns (fields) are carefully designed, you could sort all your payroll information by a specific employee name on demand and have an immediate inventory listing of what paperwork you have on file for that person.

Inventory your current data and plan your future

A small business owner needs to project their sales and their estimated tax payments.  Strategic use of column date (fields) and separately linked worksheets within a large workbook can help not only remind you what to store and where you store it, but simplify your ‘what if’ when you need to plan you future.  There are many free or inexpensive phone applications that download data to a comma-separated values (CSV) file; this is another name for a spreadsheet file.  Consider linking this data to a physical storage box with a single number!  Consider adding one data field with a dollar amount.  All these fancy money management software tools are nothing more than spreadsheets with pretty pictures. With a little planning, you can integrate your physical storage location with your operational data as each event occurs.  Tickler files become inventory lists and inventory lists become summarized schedules that simplify your operations, your record keeping and preparing your 2013 tax return.

 

IRS citations pertaining to acquisition and disposition of property

As a small business owner you need to consider the following IRS reading list pertaining to the acquisition and disposition of property:

IRS Pub 544 – Sales and Other Dispositions of Assets
IRS Pub 547 – Casualties, Disasters, and Thefts (Business and Nonbusiness)
IRS Pub 551 – Basis of Assets
IRS Pub 552 – Recordkeeping for Individuals

You may want to reference instructions for IRS Form 4797 – Sales of Business Property, IRS Form 8594 – Asset Acquisition Statement Under Section 1060, IRS Form 8824 – Like-Kind Exchanges, and IRS Form 8949 – Sales and Other Dispositions of Property.  Also consider barter exchange transactions.

What is the Schedule C-EZ

1040 Schedule C-EZ

1040 Schedule C-EZ calculates your net profit.

In order to understand what the Schedule C-EZ is, you need to understand the format of the related IRS Form 1040 Schedule C. Are you self-employed or a sole proprietor of a small business?  When you file your income tax return, you use the longer Schedule C to report your business income or loss on your personal (rather than corporate) income tax return.  Your net business profits, calculated on either schedule, are summarized on the top page of your IRS 1040, US Individual Income Tax Return.  You can also use either Schedule C to report wages or expenses you accumulate during a tax year if you are a statutory employee, are involved in qualified joint ventures, or have income that is reported on an IRS Form 1099-MISC, Miscellaneous Income.  You need to complete either Schedule C in order to calculate self-employment tax.

 

Why is Schedule C-EZ the “short form”?

Just like the 1040EZ “short form” for personal income tax, Schedule C-EZ is based on VERY simple business information. You provide information in Part I, such as name and principal business activity,  your gross and net profit in Part II, and information about any vehicle expenses you want to claim, in Part III.  There are eight separate questions in total; Schedule C has 48 separate questions.  Both schedules are fundamentally the same. They are financial statements of profit and loss (P&L) that provide current information about operating revenue and offsetting expenses.

Are there requirements for using the short Schedule C-EZ?

In order to use the Schedule C-EZ, your business or profession must:

  • have a net profit running a business as a sole proprietor
  • use the cash method of bookkeeping
  • have no employees
  • have neither inventory nor fixed assets
  • have neither a home office deduction (IRS Form 8829) nor report depreciation (Form 4562)
  • have business expenses less than $5,000

Are there disadvantages to using Schedule C-EZ?

Since both schedules help you calculate the net profit (or loss) for your business, there is no fundamental difference in the forms. However, part of successfully running your own business is to track all business expenses in order to determine how much it REALLY costs to run your business. The Schedule C might have more questions to answer but, if correct understood, helps you better identify how you spend money in the pursuit of profit. Categorizing and tracking your business-related expenses throughout the year might save you from misreading a business trend or wishful thinking.  Running a successful business in a competitive world requires strategic planning and concentration on more than just business goals; you need to account for every dollar spent in pursuit of profit. Schedule C-EZ might provide the general answer about pursuing profit but it won’t identify where your money goes on the way to achieving your business revenue.