Thursday, February 12, 2015

Lessons Learned From Doing My Taxes

It's time for income taxes and I decided to get mine done this week. So I had a hideous three or four days trying to figure out where all the numbers I needed were, since they seem to be scattered everywhere.

My complicating factor is that my income is from several different platforms and credit card processing systems, including Etsy and Paypal. There's a lot of overlap on Paypal since they process credit card payments for my cake business, my Etsy business and my website store. When a sale goes into Paypal it's marked as "sale" in my bookkeeping software until I go in and categorize it. When an expense goes in it doesn't have any category that makes sense until I go in and categorize it.

The first lesson I learned is to categorize things on a daily or at least a weekly basis to keep on top of it.

Actually the first lesson I learned is to use a good bookkeeping program to sort out the mess. I use Godaddy bookkeeping and it allows you to import any accounts you have that you want to include. I use it only for Paypal and Etsy, since I'm paranoid about giving out my bank account and credit card account information. And because those two platforms are where all of my online sales will end up, it's good to have them all in one place.

So the first thing is to get a good bookkeeping system, and the second is to update it regularly.

The third lesson is to know what you're looking for as far as tax information goes. If you don't know what categories you need, you won't put things in the right place and it won't help at all when it's time to do your taxes.

This year I just wrote out every income category I had and every expense category I had, then I went through them each to make sure I had everything right. Once all of those were separated out I had 22 different line-items of income (I'm not kidding ) mostly because of how Etsy divides up their payments. Then there were some contractor-type income items, some advertising income items, some sales of items off of Etsy that went through Paypal anyway, etc. Some categories only had one payment in them, but the issue is that they existed, so I needed to look for them.

What I'll do for next year is have everything have its own category so that I can make sure my paper ledger is set up the same way the categories in Godaddy are set up. It's the clearest way to make sure I've found everything and haven't duplicated anything.

The last lesson is to make sure to look through every category in your software to see if anything is hiding from you. I went into the expenses section of Godaddy and opened each category. To my surprise, I found $1500 worth of fees that Etsy charged to process credit card payments. I hadn't even remembered that part of it since they don't list those fees anywhere, you have to go dig for them. I might not have included that deduction at all, to tell the truth, because I was looking at the monthly reports for Etsy fees and was assuming that that was it. Paypal's fees include those and I just wasn't thinking about Etsy's being separate. So I went into my Etsy account and had to really dig to find it, but there it was, and there's another deduction, and a pretty big one too.

If I hadn't used the software that pulls everything from Etsy into it I might not have found that...So check every category because there were also a few little debits and credits in weird places when I went through mine, and sometimes money hides.

Any tips for tax time? Leave a comment!


Kara Buntin owns A Cake To Remember LLC,  online cake supplies at  www.acaketoremember.com and www.acaketoremember.etsy.com

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