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These questions matter, especially at tax time. Unless you're trying to keep your business under the table and operate on a cash only basis (Which I highly discourage), you'll need to keep records. Keep in mind that Paypal will report their records if you're audited.
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The first question is hobby or business? It's an important distinction. If you are planning on calling your Etsy shop a hobby, read up on the restrictions. Let's assume for the sake of this discussion that you're a business.
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Are you keeping track of your expenses? Are you keeping records? Here's a few of things I keep track of:
A. Receipts from thrift stores, estate sales, etc.
B. Mileage to estates, thrift stores, etc.
C. Excel Spreadsheets of what it is, what it cost, where I got it, what it sold for, and any shipping losses.
D. Excel Spreadsheets of all my consignment sales.
E. Costs of business insurance.
That's all I worry about. I could get into deducting costs associated with my home office, but I've heard those kind of gray area deductions can trigger further investigations.
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Some ways in which I practice sound business management:
I keep a separate bank account for my business. It's a business account, not a personal one.
I keep records about each consignment client and keep them up to date on their sales for their own tax records.
I keep detailed inventory lists to stay organized, to know who owns what and in order to find things quickly once they've sold.
I keep track of all my in state customers for sales tax. Check with your state and see what your requirements are.
I keep track of the rules surrounding Self Employment tax & Social Security and pay accordingly.
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While I'd prefer to just focus on finding the next cool item, I've found that taking a little time each day to maintain records saves me a lot of wailing and gnashing later on. Now while this is what I do, please know I'm not a tax expert, I don't claim to be and I'm just sharing my personal experience.
10 comments:
Great advice! I've been doing everything on your checklist for years. Although I hate the bookkeeping and paperwork (I'd much rather be out at a great estate sale!), these tasks are necessary in running a smooth and legitimate small business.
Ah, the side of business that may not be fun but essential to keep everything running smoothly. You have offered some sound advice and especially with tax time right around the corner.
Recordkeeping...the necessary evil of running a business. Once you have a pattern and process established it is easier. And, I find adding things to my spreadsheet does give me a sense of accomplishment when I see my profit number actually meaning...profit. A helpful summary ..thanks for posting
I use excel for everything as well . I also use 1 debit card and paypal for all expenses, shipping supplies, shipping etc. So that when I have to print things I only have to look one place. I use to pay cash for alot of items and now if they will take a check or debit do it that way.. unless it's small garage sale etc. otherwise I was forgetting things ..
Things we forget too - internet hosting, pricing guide subscriptions, image hosting, studio photography equipment, at least I forget them if I don't keep track of them.
Great article and timely as well.. I have to finish my state taxes.. lol. Federal done.. dread our state ones.
*whiny voice* buuuut, I just want to find cool stuuuuuff.
seriously though, this is good reminders and tips
I never knew how to use Excel before and now I use it everyday! Thanks for sharing your "to-do" list. I may now add a couple things to mine.
And I love the silver purse!
I love the Excel! (Of course, my day job relies on Excel, so it is my friend.)
Don't be afraid of the home office deduction - all you have to do is figure out how many square feet of your home is devoted to your business, then figure out what percentage it is of your entire square footage. That is the percentage you can then deduct from all of your house bills. It is a HUGE deduction for me, as nearly half of my home is set aside for the business.
Great reminder. Don't forget cost of SUPPLIES!! Ink, paper or labels, business cards, shipping supplies, storage bins....etc. It adds up, and is all deductible! :~)
Fabulous advice for us Newbies, getting ready to do my taxes tomorrow. Sigh...
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