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View Full Version : Can Anyone Give a Newbie Some Accounting and Tax Advice?



marmiteman
02-09-2011, 04:28 PM
The problem is that I don't really have a set of books and I find it really confusing to try and go back through my paperwork to put together a set of books for an accountant.

I filed online last year and has to pay the IRS around $20 which was my first year not getting a refund. This year I made a lot more money and I owe the IRS quite a bit this time.

The other problem is that I have been running everything from my personal accounts. I haven't opened a business bank account although I now realise this is something I should do.

I intend to go to an accountant but I would like to put together a set of books myself, both to save money but also so that I understand more about the business finances.

I think I was supposed to make estimated payments to the IRS this year since I owe them more than $5000. How will they determine any penalties/interest when I file?

Last year when I filed online I just have details about my income but it didn't ask any questions about when I earned that income during the year.

Also, how am I supposed to pay myself. I know nothing about payroll or claiming expenses. I've been just taking what I needed out of my personal account. I think I have kept enough back to pay the IRS but i'm not sure if they're going to apply interest for me not making estimated payments quarterly.

I read somewhere that when you operate as a sole proprietor you are free to keep any profits after tax has been paid, so I kind of figured that I could spend anything I made as long as I paid my taxes at the end of the year.

Any guidance and help would be really appreciated. Thanks!

Evan
02-09-2011, 10:54 PM
The IRS will determine your penalties and interest based on the amount of your underpayment. There are forms that calculate all of this. There are underpayment penalties, estimated tax penalties, and interest...

As you seem to be operating as a sole proprietor -- may I suggest you FIRST get an accounting program, or create a spreadsheet. Next, open a bank account dedicated STRICTLY to the business. This should give you a great idea of how much you truly have that relates to the business.

As an accountant, our worst clients are the one that couldn't tell us what they made, or what expenses they incurred. We cannot do your job, and we expect that you'll have some documentation to support it. Either you spend the 5-10 minutes every day to handle these matter, or hours upon hours and hours at the end of the year to figure out this stuff.

Steve B
02-10-2011, 05:41 AM
What kind of business do you have? Congratulations on having such a good year that you now owe 5k versus $20!

Take an accounting 101 class and start doing all the basic things that will make it possible to accurately account for where your money comes from and where it goes. This tax year is going to be rough; no getting around it.

My guess, is that you should hire someone to do all of your accounting and bookkeeping tasks so you can focus on your business.

Spider
02-10-2011, 09:09 AM
The trouble with computer accounting programs is they don't necessarily tell you what they are doing with the numbers you enter. I thnk it is useful to know what's going on, so a rudimentary understanding is desirable. For this purppose and early days one-person business accounting, your books are best done by hand.

Dome Publishing have a "Simplified Weekly BOOKKEEPING RECORD" - a ledger book that is available from Office Depot and other office supply stores. My wife's one-person pet grooming business is still done this way after 20 years, except she uses the Weekly Record as a monthly ledger. She enters from checkbook to a 4 column daily journal and from there to the monthly ledger. It's very simple and she knows at a glance where every penny went and why. Plus a simple, end-of-page calculation shows us how the business is doing on a continuing basis.

End of December figures serve for preparing tax forms, or can be handed to an accountant to prepare them for you.

ChrisHeggem
02-10-2011, 12:53 PM
Marmiteman, congratulations on the growth, but I'm sorry to hear about the accounting and tax complications. I've been learning a lot about taxes and accounting from The Bottom Line (http://bottomline.outright.com), a small business accounting and tax advice blog. Lot's of small business owners and CPAs are on there helping people in your position. Regarding your estimated taxes question, they have a lot of information on there including a post called Outright Quarterly Taxes Cheat Sheet (http://bottomline.outright.com/support/outright-quarterly-estimated-taxes-cheat-sheet/). Hope that helps.

marmiteman
02-10-2011, 02:14 PM
Thanks to everyone who replied so far. I'm opening a basic business account this afternoon which should help simplify things a bit.

I've also bought a copy of Quickbooks and just need to figure out how to use it!

One thing I am still confused about is how I pay myself. As a sole proprietor I am free to keep any profits from the business after tax right?

So do I just take cash out and claim it as an expense or do I need to be thinking about Payroll. Sorry if this sounds like dumb question but I just can't get my head around it.

Evan
02-10-2011, 08:54 PM
Yes, you're free to take what is left.. What you take out is called a "Draw", and it's not an expense and isn't deductible.

Over simplified... You started the business with $100 you contributed... go through the year and after income/expenses, you have $500 in the account. That $500 is yours, and you can keep it there, withdraw it -- whatever, but when you take it out, it's not an expense, just really a "draw" from your equity of the proprietorship.

jamesray50
02-11-2011, 07:33 PM
Congratulations on the sucess of your business this year. Your purchase of Quickbooks was a wise choice. Once you get your books set and learn how to use the software you will have everything your accountant needs to prepare your taxes. But, you will probably need help to get it set up correctly. Under the Help tab go to Find A Local QuickBooks Expert. It will take you to their Find a ProAdvisor website where you can enter your zip code and then a list of experts will show up and you can call around to see if you can find someone to work with you. (Or you can call me.) Good Luck!

marmiteman
02-16-2011, 08:50 PM
I have a couple more questions....

I used PayPal a lot in the previous tax year and received quite a few payments. When I am entering these amounts into account software do I use the gross amount or the amount I receive after the PayPal fee is taken out? So if I sell an item for $7.00 and PayPal takes out $0.50 leaving me with $6.50 which amount should I enter into the accounting software?

Also, I have made several one off payments to individuals who did not provide me with a receipt at the time. I have been unable to contact a few of them to get a receipt. Since my bank records / paypal records show the transaction is that sufficient? For the smaller amounts i'm not really worried and would happily not claim the amount. It's just that a few of the transactions were for larger amounts.

Evan
02-16-2011, 10:32 PM
You enter $7.00 as sales, and $0.50 as credit card processing fees, or however you wish to name it. Your net income will still be $6.50 in this case, but you never just "net" the numbers.

If you don't have receipts, I'd make one by identifying the date, merchant, item purchased, and business purpose for the item. That should suffice.

marmiteman
02-16-2011, 11:10 PM
I can get a transaction summary from PayPal which I think shows all the relevant information along with a transaction "completed" status.

I think this will do the trick since it is only for a few transactions.

Evan
02-16-2011, 11:13 PM
That works too... That is, essentially, a receipt.

jamesray50
02-17-2011, 01:45 AM
If you are doing this in QuickBooks you would enter this as a sales receipt if you don't track payments from each customer, if you do track payments from customers you would enter and invoice and then receive payment and apply to the invoice. The payment would be for $7.00 because you want the sales on your profit and loss report to show $7.00 in sales. Then you would do a journal entry for the expense that PayPal charged you. Your would credit the cash account and debit an expense account for bank charges. The bank charges is on your profit and loss statement so you net income still nets out correctly. Hope this helps.

Evan
02-17-2011, 10:40 PM
Then you would do a journal entry for the expense that PayPal charged you. Your would credit the cash account and debit an expense account for bank charges. The bank charges is on your profit and loss statement so you net income still nets out correctly. Hope this helps.

I usually never recommend my clients do journal entries unless they know what they're doing. If you have "PayPal" as a bank account, they should use the Write Checks function to record the bank fee... the effect is still the same. Or they can go into the PayPal account register and add the bank fee that way. But not a journal entry. :)

lccglobals
06-02-2011, 09:03 AM
You must hire an accountant on urgent basis as you may get punished for underpayment, faulty estimated tax penalties, and interest saving in wrong manner, if not planning of hiring account then go for an accounting software that help you doing all your accounts related works... you can also take help of business services provider in Auditing, accounting, taxation and tax relief.

tylerhutchinson
06-02-2011, 04:34 PM
I would get to know quickbooks. Link your new business account to it as well as your personal account (easy to do). This will get it to track how much you pay yourself. Quickbooks will solve all your problems. You can mark every credit and debit that comes out of your business account to organize EVERYTHING. So if you have to drive somewhere for business and have to get gas you pay out of your business account then mark it in quickbooks as an expense. That way when tax season comes you can pull that as a business write off.

Good luck. Payroll and books are one of the most complicated parts of having a business.

jamesray50
06-02-2011, 10:08 PM
I usually never recommend my clients do journal entries unless they know what they're doing. If you have "PayPal" as a bank account, they should use the Write Checks function to record the bank fee... the effect is still the same. Or they can go into the PayPal account register and add the bank fee that way. But not a journal entry. :)

Once again Evan you are right about clients not doing journal entries. And the Pay Pal account should be set up as a bank account in Quickbooks and then it can be reconciled each month and the service fee entered on the reconciliation page.

jamesray50
06-02-2011, 10:16 PM
I would get to know quickbooks. Link your new business account to it as well as your personal account (easy to do). This will get it to track how much you pay yourself. Quickbooks will solve all your problems. You can mark every credit and debit that comes out of your business account to organize EVERYTHING. So if you have to drive somewhere for business and have to get gas you pay out of your business account then mark it in quickbooks as an expense. That way when tax season comes you can pull that as a business write off.

Good luck. Payroll and books are one of the most complicated parts of having a business.

Quickbooks will NOT solve ALL your problems. It is an excellent program and one I am certified in. However, there are limitations. Also, I do not advise my clients to mix personal and business expenses in their business books. Not a good idea. Some of them do it, but it will cost them more money come tax time for someone to clean up the mess because more often than not some of their personal expenses will be listed as businesses and will have to be reclassified, which is of course billable time. If clients want to computerize their personal expenses, they can set up a second set of books. As a friend of mine says, easy peasy.

CakeIO
07-05-2011, 12:55 PM
I want to chime in on this too... as a small business that is just starting out, learning quick books may be quiet a feat, and I am talking from my own experience. You may want to use a simple bookkeeping program that will let you keep track of your money but will be easy to learn and quick to use. I personally know of people that have spent weeks trying to figure out quickbooks after which they just switched back to paper spreadsheet. If you are able to pick up the qb program and are able to use it, that is great! I wish you a great business year!

nophin
07-26-2011, 11:28 PM
Good advice everyone. I just learned that the accountant that was doing my taxes for 2 year was doing it wrong. Now I have to do amendment for both years. However it may benefit me in the long run. My advise for any small business owner is your never too small to seek out help and don't try to keep the books yourself. If you can afford it hire a book keeper I did now that 500lbs gorilla is off my back.

SmallBman
08-24-2011, 03:51 PM
When I first started a small business I had no idea how to to pay myself or do the taxes. I just saved every recent and was able to keep very good records for the first year. Then I found an account who I could sit down with and watch then do the work and answer any questions that came up. It cost more the first year to do it this way but by time it was over I had an ideal of what needed to be done for payroll, taxes, and accounting when it was over with. I am sure there is a better way but the stress involved was to much along with running a new business.