Recently I took care of my taxes for 2012. It’s been a real learning experience for me along the way with state sales tax and federal taxes and so on for my business. It’s been kind of learn as I go sort of thing and I always wished I had seen more tax related posts in the handmade blogging world. So I decided to write my own. What works for me, how I keep organized, and when to do what.
Tracking Profit and Expenses
Profit tracking-I recently learned about outright.com. They offer a free service that tracks a lot of information from wherever you sell, for me it’s through etsy and paypal. I use this service to keep track of my profit. They also have an expense tool but I choose to keep track of that on my own.
Expense tracking-This can get a little bit more tricky. I used to keep a very detailed excel spreadsheet of all my expenses and then code them. While writing this post I realized I forgot a few expenses on my taxes and used outright pretty heavily to get it right. I think I’ve been convinced to switch over.
Whatever method you choose to use you’ll want to make sure you can easily add up the categories of expenses. Some of mine include: advertising, commission/fees, shipping, office, inventory, events, travel, food/entertainment. I like to break it down as much as I can. Just make sure you add in everything you use for your business. You can always take it off later if it can’t be deducted but it’s a pain having to search around if you do need it.
State taxes
Every state is a little different. I’ve experience 3 different state tax systems and they each got more complicated than the last. The last being Washington, where I am now. Before you do anything you want to make sure you have the proper business license and a license that allows you to collect state tax. I needed to different once but in some states like Texas you only need one.
Once all that is taken care of make sure you sites (etsy/paypal) are set up to collect sales tax for your state. I keep track of each in-state sale I make so it’s simpler when it comes time to pay. I’m on a quarterly payment schedule so after each quarter I add up total sales for that quarter and then I add up total in-state sales. I only pay tax on the in-state sales on make so for me it ends up to be a small amount. Those are basically the 2 numbers you’ll need but it varies depending on where you are.
Tax Time
Revenue
I add up all the sales I made through both paypal and etsy. I received a 1099 from both places so this made it easier to add up and give to the tax man. I also included a small amount of cash/check payments I received.
Add Up Expenses
This is where you’re spreadsheet or outright come in handy. Add up each amount in each category so when you’re filling out your taxes everything is ready to go.
Processing
I’m sure a lot of handmade business owners do their own taxes but I don’t want to have to spend a large amount of time figuring everything out so I hired a tax professional to do mine. It was well worth the money for me. You’ll have to decide what’s best for you. It was also nice to have someone to ask questions to about the future of my business (should I form an LLC?/is this an expense?/and so on). I would always recommend getting it taken care of early so you can relax and get back to business as usual.
Estimated Taxes
Once you are making over a certain amount you have to start making estimated tax payments. That just basically means you’re paying the taxes you will probably owe at the end of the year. When tax time comes again you find out if you overpaid or underpaid. In my case I underpaid since I did much better in year 2 than 1. My tax man set it all up for me and the forms say when to mail it and how much. I make 4 estimated payments a year based on the tax quarterly calender.
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I think that about covers it. It’s a pretty rough outline but I hope it’s somewhat helpful even if to just get you thinking about how you keep track of your information. Let me know if you have any questions in the comments. I’ll do my best to answer them.
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