[Biztalk] Taxes - First Sch C

Jewelry Discussion
1

Hi,

I was reading a recent post about things to do in January like
inventories. It got me to thinking about the Sch. C and all the
things I don’t know. First, I have a resale license and I pay Sales
Tax to the State - which in my case is CA. I have a part-time job and
then I make jewelry. I do consignment with a couple of local stores
but mostly I sell via word of mouth. I’m not trying to write off
Expenses other than the cost of materials and supplies. I have all my
receipts for what I’ve bought this year so I know my cost of
materials. Inventory has me stumped…especially pieces that are
already made up but not sold yet. Last year I just treated it as a
hobby and wasn’t able to take the cost of materials into
consideration. This year I made about 3 times what I did last year
and am trying to turn it into a small business. I’m especially
confused about inventory…how to cost it… Any help would be
greatly appreciated. I’ve always done my taxes with Turbo tax and am
not big enough to head out to an accountant yet.

Thanks,
Liz

2

If you haven’t already opened a checking account dedicated to your
deposits, expenses and business receipts, you should consider it. You
can pay yourself as well as your vendors, and keep track of everything
in a program like quick books, which will allow you to track expenses
by category, and track cash expenses and print invoices as well.
After a couple of years you will be able to see trends like what sells
well (and where), what times of the year products do best, and when
to plan your vacation… Value your inventory at materials cost plus
any sub-contractor labor (if you use a setter or caster for example),
your own labor doesn’t count.

Rick Hamilton

3

Hi Liz:

I'm especially confused about inventory...how to cost it... Any
help would be greatly appreciated. I've always done my taxes with
Turbo tax and am not big enough to head out to an accountant yet.

My apologies to the list for 2 replies on the same post. Here is a
link on inventory issues for people filing on a sched. C.

I’m sorry I don’t have time to read up on it more, but, if you
navigate the links for publication 334, you can find more info for
small business issues. Here is a link to many articles:

http://www.irs.gov/businesses/small/article/0,,id=99930,00.html

Here is a link to small business tax workshops available by state:

http://www.irs.gov/businesses/small/article/0,,id=99202,00.html

4

Hi Liz:

People tend (myself included) to do a bit more accounting for their
taxes than they need to. Let me start off by saying that I am not an
expert (but anyone who tells you they are an expert should be
suspect) in taxes. I worked in Corporate Accounting for a large
company before I became a stay at home mom.

There isn’t a need (that I know of) to track what you have in
finished goods unless you would like to keep track of it on your own.
Basically, the IRS just wants to know the change in your level of
costed inventory. Essentially, there are 2 components to profit/loss.
The first is money in or out the door. The second is the change in
the level of your inventory. If you have more inventory (I’m talking
components, not finished goods) at the end of the year than you did
at the beginning, than you made a profit. If you have less, than you
have a loss.

You spoke of not needing to take many deductions. Please don’t feel
guilty about taking deductions. Every time you get in the car to go
get supplies, write it down in your travel log. It’s (last time I
checked) 37 cents a mile and it can really add up at the end of the
year. If your are on the line between hobby and real business, keep a
log for your work hours. If, at the end of the year, you don’t have
enough hours to make you a business, than you will be reclassed to a
hobby. Don’t let this scare you. I don’t keep an hourly log, but,
based on the amount of jewelry I sold, I can say I worked “x” number
of hours because each piece takes one hour.

For inventory, here is an example. I make beaded jewelry. I buy
beads and components. This year, I am taking formal inventory. I
count the beads/components I have at each parts’ price. I add it all
up and that is my ending inventory. I count all the components in my
finished jewelry and take each components price and add that all up.
I add that to my ending inventory. The total is my total ending
inventory I hope this helps a little because, in my opinion, it’s all
way too complicated.

Good Luck,
Kim Starbard
Cove Beads.

5 
I've always done my taxes with Turbo tax and am not big enough to
head out to an accountant yet.

If you are in business you are big enough for an accountant. They
will cost a lot less than a problem with the IRS will. Just to have
an accountant do your taxes should not be too expensive, shop around
they don’t all charge the same amount. Your job is to design and
make things not crunch numbers and fill out forms, pay someone else
to do it for you unless you really like doing it.

James Binnion
@James_Binnion
James Binnion Metal Arts

360-756-6550

6

James, I respectfully disagree - IF - the business is small. My
small business accountant took the I gave him, plugged it
into a worksheet, and handed me an income tax return to sign. I was
the one who supplied all the records for expenses, I was the one who
counted and valued the inventory, etc.

Later, I bought accounting software, learned to use it, and at the
end of the year I bought a copy of TaxAct and filled in the blanks -
and it was easier than making appointments and scheduling trips to my
accountant at his convenience. In the process, I learned what was
profitable and what I underpriced. I learned what I had too much of,
and what I bought recurringly at too small a discount. I never
learned to charge enough for my time, but…

I even learned to depreciate tools and machinery, since the tax
program did the math.

Before I used a commercial tax program, I made a mistake and the IRS
called. I talked to the defensive agent in a nice way, he responded
with civil, then pleasant responses, and I found out what I had done
wrong. Along the way, I asked about some things I hadn’t deducted
because I wasn’t sure of the rules (leather clothing and gloves, and
computer accessories). The IRS rep allowed the deductions, and I got
a bigger deduction than I filed for originally.

Don’t think the IRS is going to throw you in jail for a hundred
dollar mistake. They want the big fish, and if you realize they
expect you to be antagonistic, but instead, you treat them nicely,
they respond in kind. All in all, I have been audited 4 times - once
because I was stupid and used the wrong tables, once because I didn’t
provide support for my numbers, and twice for entries that rang the
"check this guy out" bell. All those audits were conducted with one
phone call or letter from the IRS and one follow up letter, sometimes
with my check, sometimes waiting for a refund. The IRS was easier to
deal with than some of my better customers!

If you have employees, I would hire a bookkeeping service for
payroll, but I would still want to be involved in the tax preparation

  • that’'s where I get the bigger picture of my business. Of course,
    this isn’t the right advice for everyone - so do what works for you.

I will admit that one year with an accountant taught me some things
about setting up ledgers - but the best advice I got for that came
for free, from the Small Business Administration and the retired
businessmen that volunteer there - and from my wife, when I learned
how to ask her.

Rexarino

7

Cost of goods on taxes is

Beginning inventory
Minus ending inventory
Gives COG

Turbo tax for Business will do a bang up job, I use it.

You could save a bunch of money-do it yourself and have a tax person
charge a small fee to look it over. That’s what I do.

David Geller

JewelerProfit, Inc.
510 Sutters Point
Atlanta, GA. 30328
(404) 255-9565 Voice
(404) 252-9835 Fax
david@JewelerProfit.com

8 
I respectfully disagree - IF - the business is small. My small
business accountant took the I gave him, plugged it into
a worksheet, and handed me an income tax return to sign. I was the
one who supplied all the records for expenses, I was the one who
counted and valued the inventory, etc.

As it should be, If you don’t know and don’t have this info you are
not going to be able to file your taxes yourself or run your
business for that matter. An accountant is not supposed to go through
your shoe box or paper bag of invoices and sort it out at the end of
the year (if you do store things like this get a book keeper to sort
it out once a month or at least once a quarter). They are there to
fill out your taxes, advise you of your available deductions and
cross all the t’s and dot all the i’s. And if the audit does happen
then they are there to stand behind their work and advise you as to
how to deal with the IRS. I started about as small as you can get and
I did my own taxes for years using Intuit software and got a lot of
things wrong. Luckily after I got an accountant he helped me fix it
without too much trouble. It is not that the filling out of the form
is that difficult,it is the specialized knowledge that you don’t need
to learn to take advantage of. You can learn how to hand engrave but
if you don’t need to do it all the time you send the work out to a
specialist, it is the same thing.

Your experience with the IRS was a good one, ask someone who has
been audited what their impression of the IRS is.

It is absolutely important to a small business for you to be doing
what brings in money. Learning accounting software and dealing with
the IRS are not money makers neither is doing your books. If you are
trying to make a living at selling your work the very most important
thing is to be making work and selling it. There are independent
book keepers every where that are looking for work, it is what makes
them money, hire one. At the end of the year you can then hand your
accountant a file that is ready for them to put into your tax form.

Your advise about the Small Business Administration is good and I
bet if you ask them they will tell you the same thing about focusing
on you core money making work. Also many community colleges have
business courses in their continuing education offerings. Take all
you can get.

James Binnion
@James_Binnion
James Binnion Metal Arts

360-756-6550

9

Cost of goods on taxes is
Beginning inventory
Minus ending inventory
Gives COG

David - I always thought it was:

Beginning inventory

  • Plus Purchases (net of returns)
  • Minus ending inventory
    = COGS

otherwise you are not taking into account the items you’ve bought
over the year.

Ivy S. Fasko
Contemporary Handcrafted Jewelry
http://www.ivysfasko.com

10

Hi All,

What would you all say are the best steps to take to properly
setting up a small production business. I feel with my personal glass
jewelry business, maybe I have missed some steps and just sorta do
things as they come rather than having all my ducks in a row (which
makes it easier in the long run).

What types of things need to be set up first before you can approach
an accountant to do your taxes instead of doing them on your own for
instance?

I’m sure many of us would benefit from advice from the seasoned
professionals on the list.

Ciao!
Kim

11 
Later, I bought accounting software, learned to use it, and at the
end of the year I bought a copy of TaxAct and filled in the blanks
- and it was easier than making appointments and scheduling trips
to my accountant at his convenience. In the process, I learned what
was profitable and what I underpriced. I learned what I had too
much of, and what I bought recurringly at too small a discount. I
never learned to charge enough for my time, but...

I also use a tax program on the computer - Turbo Tax, if I remember
correctly from last March. It asks for all the same info an
accountant would ask for, which is good because if I forgot to
calculate something, such as the various kinds of deductions you can
take for a small business, it reminds me. I answer all of the
questions, the computer does the math and prints out my form to sign.
It’s really not too bad. What’s harder (for me) is finding all the
receipts and credit card statements that I put in ‘a safe place’
throughout the year so that I can actually calculate the deductions I
can take - things like having cards printed or buying toner
cartridges.

Since I have no employees, and my jewelry business is part time, the
paperwork involved isn’t that bad - if I’ve done a good job keeping
track of the paper trails throughout the year. I’m sure it’s a lot
more complicated for people who do this full time, or have
employees.

-Leah

12

Hi Everyone:

If you have a business, you should be familiar with how the numbers
work, other wise you have no way of even knowing if you are actually
making a profit and how much it is. You shouldn’t hand your
accountant a shoebox, but you shouldn’t have to know exactly how to
prepare a profit and loss statement either. Mr Binnion is correct in
saying that the most important thing is to make work and sell it,
however, know where your profits are going and if you are wondering
if you are big enough to have a CPA, then you are big enough to have
a CPA. I don’t think it costs anything to have them tell you how
much it will cost you to have a CPA do your return, so it can’t hurt
to check it out, right?

Best Regards,
Kim Starbard

13

Hi Kim:

What types of things need to be set up first before you can
approach an accountant to do your taxes instead of doing them on
your own for instance?

I’m probably not going to call myself a seasoned professional, even
if I live to be 104 and work with jewelry for 70 years or so, but
here goes anyway.

I can’t speak for all accountants, but, normally, they will ask you
for back-up (proof) of the first few accounts on your balance sheet.
it is not necessary for you to know how to prepare a balance sheet,
though. The first account is always cash, so you need to provide all
of your bank statements. The next account would be accounts
receivable so, although your accountant probably won’t need to see
all of them, you will need to have invoices to back those up. The
next would be inventory. You need all receipts for inventory you
purchased thru the year. FYI amounts spent for tools and small
inventory items below a certain dollar amount can be expensed in the
year purchased. Not everything has to go to the inventory account.
Please check with your accountant to see what you can write off.

You also want to be able to account for payroll. You’ll want to
provide any quarterly sales tax, payroll tax and whatever tax that
you prepared.

It’s really not as bad as it sounds, but please become familiar with
as much as you can. I have a degree in accounting and, because of
this, I consider myself to have a certain advantage over those who
don’t. They make those darn tax returns so hard to read and thank
goodness I can do that!

If you are small, invest in a quickbooks or similar program. if you
have doubts about what to get, ask a CPA. I can’t stress how
important it is to have a qualified person advise you on your tax
status. This is money you earned, don’t give it away in missed
deductions and errors.

If I missed anything, please feel free to chime in.

Best of luck,
Kim Starbard
Cove Beads

14

Hi everyone:

I’m so sorry, but the link I submitted for the Schedule C
instructions the second time also didn’t work. For those who want to,
please try this

Once there, scroll to the form 1040 schedule c instructions and click
on it. That should bring it up.

My apologies for being a knucklehead with these new-fangled
computers.

Best Regards,
Kim Starbard

15

Rexarino, sorry for the late response, what software did you buy ? I
have peachtree and still trying to work it out. I resorted to just
using Execl to track and I am sure I am missing out on a lot of
items.

Thanks !
Tina

16

Question- can you scan your invoices and sales tickets to use later ?
I have a problem with the “safe place” method also, I always end up
finding something for the year prior that I already filed ! Drived me
nuts.

Will the IRS accept scanned documents as originals ?

Thanks !

17 
what software did you buy? I have peachtree and still trying to
work it out. I resorted to just using Execl to track and I am sure
I am missing out on a lot of items.

Tina, I use QuickBooks, which I was able to understand with a bit of
help from a person who had taken accounting in High School. I found
it much more intuitive than Peachtree, which has an enormous learning
curve. Once I understood setting up accounts, the rest was a piece of
cake. And, most accountants can directly use the data from the
program - either exported or in report format. As the program
provides integrated functions (when I create an invoice, I have
automatically entered data in the appropriate accounts) I find my
sorting time is substantially reduced, and I don’t loose as many
receipts.

For taxes, I annually purchase a copy of TaxAct from
http://www.taxact.com They offer free Federal tax forms and free
E-filing, I believe. I always purchase the downloadable product,
because I keep the entire program and the records and supplemental
forms for years. I have the utmost faith in them, but have no
connection other than as a customer.

If you find all the terminology and forms intimidating, this is
where an accountant or CPA or a knowledgeable bookkeeper or the Small
Business Administration can help. If you’ve been working with the
program for a few weeks, and have some history of attempting to keep
track of expenses and income, then an outside teacher can be a real
help. Don’t commit to a long agreement, just ask for a one time
consultation to set up your accounts and answer questions. If the
person is easy to understand and work with, they can become a
valuable resource. If they only want to sell you a long term contract
for extensive services, look for a friendlier mentor. It is not
unreasonable for them to charge you a substantial rate for the
consultation - you’ll receive a lifetime of benefit from the right
teacher. BUT, if you have a bad feeling in the first five minutes,
leave. You want someone who will listen to you and respond to your
questions.

I see that you also asked about scanned documents. I doubt that a
scan would suffice if it were challenged, but I use scans and screen
prints to record much of my transactions for my own records. I name
the picture with relevant info, date, (year/month/day), category,
invoice #, item, etc. By using the date first, the entries can be
sorted on screen - I think in a time based manner. Some might find a
different correlation more appropriate for them.

Well, that should generate another round of responses,

Rexarino