Yes they are...A huge pain in the butt. And yet, they must be done. Check out this article if you think you don't need to file.
It's one thing to hand all of your paperwork to a CPA and have them do it, but for those of use who are control freaks, or who don't really trust that someone else will know all they need to know about doing our taxes, it's the time of year that we pick up our pens and start figuring out expenses and income.
Right now I'm procrastinating by writing this, since I'm really supposed to be figuring out my Paypal and my Etsy payments, and they tend to overlap and get really confusing.
Instead of working on that, I decided to write a little article about doing my taxes...It might be the same as how you do it and it might be helpful to see what someone else does. And it will help me by letting me do something instead of going into my Paypal account.
First, figuring out my sources of income last year. I divide my income into cake income and non-cake income, meaning ad revenue, Etsy sales, web store sales, tutorial sales, and that kind of thing. My problem is that I use Paypal, Square and Etsy's direct checkout to process payments for non-cake sales. For cake sales I use Paypal, Square and checks/cash.
The biggest sticking point is Paypal, which overlaps a lot of categories of payments and which lists anything that goes in as "sales" unless it's from Etsy. This afternoon I'll be going into my GoDaddy bookkeeping account (which I highly recommend) and categorizing everything that says
sales. Once I get that done I can sort it out by category and make sure I'm not counting income twice or missing anything.
Note to self---categorize everything on a weekly basis next year to avoid having to do it all at the end of the year.
I get 1099 forms from both Paypal and Etsy, and those don't always reconcile easily because they only include payments processed, not refunds paid out. So I have to go and pull those refund numbers myself. If I reimbursed anyone for a postage overage or anything else through either platform I need to take that as an expense. And speaking of which...Expenses.
My expenses are pretty much the same year to year, and follow the categories that Turbotax software uses. I use Turbotax home and business to file my taxes since I'm a pass-through LLC.
Some expenses include: Food costs, non-food costs (anything that goes into a cake or something that I sell but isn't edible, including boards, dowels, supplies, etc.), office supplies, magazines and books relating to the business, taxes, license fees, insurance, office rent, postage, phone, bank fees (including paypal), cost of classes and travel to classes if applicable, advertising, trade dues, refunds, personal property tax deductions, and mileage.
You'll notice that I don't do a home office deduction, or deduct utility costs like electricity for my oven. Since I work from home I use my personal kitchen, and I don't have a dedicated office space in my house. Rumor has it that the home office deduction is something that tends to trigger audits, and I want no part of that. Since I don't have a space that I use EXCLUSIVELY for my business anyway, I don't qualify for it. I deduct my rented office space, not my kitchen.
I also don't bother deducting for electricity since the amount that I use to bake is so small compared to my total electric bill it isn't worth it to figure it out. It's another thing that I wouldn't ever be 100% sure about, and verifying that during an audit would be pretty much impossible, so I don't bother with it. If I don't have a receipt for it I don't deduct it, basically.
Then there are the records of quarterly estimated taxes that need to be kept track of so that you can claim them. You do pay your estimated self-employment taxes, don't you?
Are there any expenses that I haven't listed that you take? Any suggestions that would make the process easier? Leave a comment!
Kara Buntin owns A Cake To Remember LLC, online cake supplies at www.acaketoremember.com and www.acaketoremember.etsy.com