Outright is back with straightforward tips for the small business owner. Outright is a free online bookkeeping tool that imports all of your data in one place. (Note: This info may only apply to US sellers, and Outright is providing the post for informational use only. For specific advice, talk to an expert in your area.)
Have you glanced at a calendar lately? Flowers are blooming, spring is here, and March roared in like a lion and out like a lamb. The change of month and weather can only mean one thing – tax time is on the horizon (taxes must be postmarked by midnight on April 17) and we’re here to help you get ready!
For the purposes of this article, we are going to assume that you are a sole-proprietor, as the vast majority of Etsy sellers are. This means that you’ll be filing what’s called a “Schedule C.” The Schedule C is just an extra page that you attach to your Individual 1040 tax return. That form will want to know your profits from your Etsy business — the income you made minus the expenses and deductions you had. Here is how you can pull that together:
- Pull Your PayPal and Etsy Data Together. Whether you keep tabs of your business details on a spreadsheet, work with an accountant, or use an accounting tool like Outright that syncs with your Etsy shop to automatically gather and categorize your PayPal and Etsy sales and expenses, now is the time to pull together your records. If using Outright, import your data, and then categorize transactions that came in as “not sure” — this data will then populate your Schedule C worksheet.
- Collect Your Expenses. Not all your expenses come in the form of Etsy and PayPal fees. Ensure that you’re remembering to include all other expenses (like office supplies!) so you can accurately determine how much you owe. Outright allows you to import expenses that came in from credit cards and banks as well. All of your shipping-related fees should be included in your expenses as well. This includes postage and any packaging materials (even down to the tape on your boxes).
- Find as Many Deductions as You Are Eligible for. You may be eligible for some additional deductions. A common one for Etsy sellers is the Home Office Deduction. Also, if you drove anywhere for business (to the post office, for example) you can deduct $.55½ per mile or actual vehicle expenses. The IRS is pretty picky on this, so you do need to have some form of record-keeping for this (hint: use an app like Mile Bug to start tracking your mileage for next year). If you haven’t been keeping records, this can be difficult. But if you’ve been keeping a calendar that shows your trips, you can probably figure out some portion of your mileage to take a deduction on. With all of these, be sure to check local tax laws to ensure they apply to you.
- Apply for a Tax Extension. A tax extension, which delays your tax filing until October 15, is pretty easy to do. Just fill out this form and send it in. Beware though — you have to pay your taxes on time, even with the extension. So, you still need to try to figure out about how much you owe and send it in. You can wait until October to finalize it.
- Get Prepared for Next Year’s Taxes. Nobody likes record-keeping, but once you get into the groove, you’ll be prepared to tackle next year. With any method, make sure you keep receipts readily available. Keep detailed records yourself, or keep an accounting tool, like Outright, to guarantee your records will be kept up-to-date for tax time next year.
- Tip: Divide your receipts quarterly or bi-annually to review with your accountant and make things much easier on yourself next year!