In the past few months Outright.com has added a host of features, streamlining your bookkeeping and lessening the hassle that comes with running an indie business and doing your taxes. (This info may only apply to U.S. sellers.)
More often than not, what sellers think of as a hobby, the IRS treats as a business. Every U.S. citizen who sells on Etsy has to file a Schedule C with their income taxes (unless they’ve incorporated as an LLC or corporation — in which case they have a different set of taxes to file). If you’re confused about the business or hobby question, check out this information on Outright. Our services and the following Top 10 Tips are designed for people who make hundreds of dollars, millions, or none at all. It is the type of business, rather than the size, that matters.
While automatically recording your income through PayPal, fewer Etsy sellers are automatically recording expenses put on a credit card. With both PayPal and your credit card set up, Outright.com will do all of your years bookkeeping in minutes, categorizing a great majority of those expenses to form Schedule C and helping to identify deductions. On top of those out of pocket expenses, a new feature on Outright.com records mileage put on the road picking up supplies and shipping orders. A simple mileage calculator now records the deductible expenses, properly reporting them to your Schedule C.
Top 10 Tips to Get Your Finances Organized
1. Stay on top of your sales and expenses. With online banking, few balance a checkbook anymore, but you should never presume the bank is faultless. Ensure that an expense or sale isn’t missing but also check the bank fees and records. We’ve experienced more than a few mistakes on the part of the bank, and you don’t want an expense erroneously appearing twice. Bookkeeping delivers insight to your best customers, accuracy of transactions, and goes well beyond getting you ready for tax season by watching everything.
2. Categorize expenses. This is where things get a bit tricky, but time spent is well worth the effort. Make sure all of your income and expenses have been properly categorized. Categorizing your income (for the most part, all “Sales”) is not nearly as critical as those deductible expenses. The Schedule C categories can be confusing but they make the difference; Mileage under “Car and Truck Expenses” is deductible while “Other Expenses” are not. Outright.com will do most of the categorization automatically for you. When in doubt, ask a professional or hire a bookkeeper.
3. Speaking of mileage. Let’s reiterate that you should be recording all the time spent in the car. Wehave one Etsy seller using Outright.com that wrote off over $2000 in mileage.
4. Pay your estimated taxes. To avoid penalties, be sure you’ve paid enough in estimated taxes for the year. The fourth installment of your quarterly estimated taxes should bring you up to at least 90% of what your final total taxes are for the year. If that’s still too confusing, pay the same amount as you actually owed from last year. Food for thought though: the penalty for not paying your estimated taxes is around 6% of what you owe…
5. Double check your profit and loss. Take a look at your profit and loss statement for the previous year. Do the numbers seem reasonable? Search your pockets for receipts, don’t neglect that credit card that was canceled, and keep in mind that payment to your sister for some consulting.
6. Prepare a budget for next year. Don’t want to bother with the hassle? It’s worth it. The quick way to get it done in minutes is to take that previous profit and loss statement and download it to a spreadsheet. There you can easily add some formulas to evaluate an increase in sales next year by 10% or reduction in costs by 5%.
7. Organize your home office to take the deduction. If you use your part of your home exclusively and regularly as your principal place of business or to meet with clients or customers or store inventory on a regular basis, you should qualify. Use Tax software or an advisor to calculate the deduction; your job this year is to consider your use of space and make sure the deduction doesn’t go overlooked.
8. Even phone calls. Any business-related calls or expense you have in your home is deductible. Highlight each business-related call on your monthly bills. At the end of the year, tally up the cost from the 12 bills and deduct 100%. Office supplies, furniture, and certainly technology like a new computer or printer, all qualify as well. The rules get a little tricky so stick to these tips: Record the expenses so you don’t miss out, and when in doubt, ask a professional.
9. Stay focused on paying customers! The success of your business has far less to do with your bookkeeping and taxes than this single priority. Don’t fret over business plans, licenses, or whether or not you should incorporate — get buyers. Once in the door, delight them! Happy customers are the greatest sales and marketing channels of all time. They do a far better job of selling your talent to new customers than you. Keep them happy and absorb the costs of dealing with those that are disappointed or frustrated, and they will return the cost in dividends.
10. Get out there and talk with other small business owners. One, sharing tips and tricks will make you each smarter and better. Two, it’s a great way to get referrals — especially as you find other stores who offer similar or complimentary crafts to your own. Three, and most importantly, you’re going to need a support network of people who have been in your shoes. Sure, social networking sites are fun, and yes, you should be on Etsy’s community, Facebook, Twitter, and Outright’s community, but it’s also useful to have people you can talk to about your challenges, people who understand where you’re coming from and what you’re going through.
Check out this helpful video on tax tips for US based Etsy Sellers: