# Keeping Records



## TheKiltedWoodworker (Dec 21, 2006)

Last year I established a small business name and signed up for and received the proper city and county licences and Federal Tax ID number.

But when it comes to keeping records of purchases and sales, I'm pretty much at a loss. It isn't such a huge worry right now, because I don't have very much to record by way of sales, but eventually I'd like to be at a point where the woodworking at least pays for itself.

So where do I start? I don't even know what I don't know, if that makes any sense.

I've set up a separate banking account specific to the business.
I've kept all the receipts for any purchases made throughout the year with that account.
I have little printed invoices of my sales for the year (not very many, as I was planning the wedding and spent very little time in the shop).

Where do I go from there? Any direction or advice anyone with experience in this area could offer would be greatly appreciated.


----------



## Chipncut (Aug 18, 2006)

You should check on a program like quicken.
http://quicken.intuit.com/small-business-finance/


----------



## scottb (Jul 21, 2006)

I'm not an accountant, but I've had a small business, freelancing as a graphic designer for years now…

First off, Keep all your receipts pertainging the the business, not just materials (lumber, glue) and your tools - I think there are a couple categories for the Major items, and the smaller ones that could get lost, left behind at a job, etc… But also keep track of any "office supplies" and so on that pertain to the business. Business cards, printer paper, toner, envelopes, advertising and marketing expenses/materials and so on

I pretty much just keep track of my expenses, supplies, office supplies, as well as any phone calls, milage related to the business (which is easy because it typically isn't much) on a legal pad, sorted by category (I should use a spreadsheet, but I just don't seem to keep up with them)

You can claim a portion of your heat and utilites as well, so keep track of your utility bills, and work out what percentage of your home is dedicated to Work space.

You can also claim the computer (or part of it), software, and a portion of your internet fees, plus magazine subscriptions, books, classes and so on.

generally I go to my tax guy (pick a brick and mortar CPA near you, and give them a call) with lists of what I think they'll need and they'll claim whats legit. Milage, cost of car registration, mortage interest, donations to church/charity….

the good thing if you had lots of expenses with little income, the debt can rollover to next year, so your taxable income could conceivably go way down for a few years… (which is a good thing, cash back!) until it becomes self sufficient, or better.

If you had lots of in the previous year, your tax preparer can re-file the previous year for you as well.

It's well worth the money to go see a CPA - I'd ask around at work, or go talk with someone nearby. Avoid the seasonal ones if you can, they're well trained, but it's a part-time gig (not their bread and butter) so you may miss out on a couple deductions.


----------



## Obi (Oct 19, 2006)

I majored in Business Administration with a minor in bookkeeping, you can write of ANY expense used in your business. Gasoline write off, car expense, maintainance, advertsising, banking expenses, insurance, your shop rent, or if you work out of your garage, part of your rent. all your tool costs the year you buy them and you can depreciate your shop equipment so much per year. Bookeepping programs (such as quicken or quickbooks) they are part of your business and save those receipts also. Your computer if you use it for your business which then means your internet is a tax write off also. Save every receipt if you use the items for your business.


----------



## Karson (May 9, 2006)

I've written off expenses for years. I ran a computer business out of my home while working as a programmer. I had sales of around 100K one year. But I never wrote off any expenses associated with depreciating of the house. It will come back to bite you when you sell your home, and you make a profit (you hope) on your sale price.

Like others have said write off everything that you can in the way of expenses for the business. I also wrote off expenses for a farm when I had horses that I was renting stall space. The IRS tried to say I was not in it to make a profit. But I showed them a form that I had gotten from the Federal government giving me a farm registration number. That nipped the IRS in the bud. So by having Federal tax ID, etc it should stop the IRS from saying that its just a paying hobby which means that you can only write off expenses upto the amount that you earn in income. Kind of like gambling expenses. You pay taxes on the profits but you can't write off the expenses. Try to make a profit however small (i think its 2 out of 5 years, or something like that) to keep the IRS at bay.

I also made toys for a few years and the money that I made went into buying my tools, and lumber. Be careful on inventory though because you are suppose to pay taxes on the inventory of raw materials at the end of the year. Try to keep in mind as to what is an expense of raw material and what is a capital inventory. I always tried to have zero inventory at the end of each year, because you need to carry that amount over to the next year; zero is easier to remember than what was the cost of 1000 bd ft of Oak lumber, stored in the back of the workshop.


----------



## Obi (Oct 19, 2006)

Depreciation Expence is like on your vehicles and tools.


----------



## TheKiltedWoodworker (Dec 21, 2006)

I've had lots of people tell me I can write off my PC and write off my garage space, etc. etc.

But after talking to my accountant, she said its almost a bigger pain than its worth, for the kind of money I'm talking about. In order to properly write off a portion of my PC purchase, I need to have a very specific log of when I use the PC for personal use and when I use it for business. As far as the garage goes, she said if I were to claim that space as business write-off, then I need to file special forms to make sure it is compensated in my personal filings so that I don't write off the same square footage twice.

I think she would have easily been able to take care of my needs… Unfortunately, she moved to Tennessee. I'm left with her recommended brick and mortar replacement, but… well, anyone who has ever lost an accountant might know how I feel.

I was really looking more for ideas on the best way to physically keep the books (software suggestions, methodologies, that sort of thing, as opposed to information on what I can write off.

I certainly don't want to over-pay any taxes, but I don't mind paying my fair share, so I'm not out to try and slip every penny I can away from The Man.


----------



## scottb (Jul 21, 2006)

ah… record keeping advice - don't use my method!... I think something like quicken or quickbooks should take care of you. I've looked around for templates for Excel with no luck - not about to design my own. Desining forms just ain't fun.

Understand what you mean about losing you Acct…. was in the same boat 4-5 years back.


----------



## decoustudio (May 4, 2006)

Great question:
My advice? Find a cheap "night-job" accountant and let them sort out the tax rules. Keep your receipts and sales, collect your sales taxes and file them with your state, and you will have it all. I give my accountant a spreadsheet summary of all of the expenses and the income, and he does the rest, filing all of the taxes for me by e-file. I just sign the form, he does the rest, and it costs me about $200 a year. He even includes my personal income tax forms as well for that price, both state and federal. Much easier than I had worried it would be, and I waste no time reading tax forms, just doing woodworking. If you get what I mean.

In fact, with all of the deductions available to a small business, I wonder why all people don't have some sort of hobby-business they are running. Cell phones, office space, computer equipment, printer cartridges, show fees, magazine subscriptions, books, tools, hardware, on and on it goes. It sure makes sense for a woodworker if they don't sell much. I lost money for 3 years while I had a day-job, as I was spending all of my woodworking sales and more on new tools and such. For tools over $300, you will be depreciating them, and let the acccountant figure out how to file the forms.

I was so scared of the accounting that it paralyzed me from going into business for myself for quite a while. I have found now that with the accountant doing the hard work, it isn't much of an issue for me.

How to find an accountant? Ask your woodworking pro you volunteer with if he can give you the name of the person he uses. Or, you could ask other small business people you know, they all have accountants I would guess.


----------



## Chipncut (Aug 18, 2006)

My son is in a business of his own. I asked him how he handles his book work. He has an accountant handle it for him. The time he wasted on his books took him away from his money making opportunities. He said they also know what they're doing, so they save him money in the end.


----------



## scottb (Jul 21, 2006)

I second what Mark said about everyone having a small business of some type. I've always got money back every year since I've had a small business…. and more since becoming a homeowner.

I'm surprised that your spending so little for someone to handle (what seems to be) so much. I've been paying half that just to have my taxes files. I'd gladly drop another 100 to give them my shoebox full of papers, or a list of all the "in and outs" and let me know whats up.


----------



## TheKiltedWoodworker (Dec 21, 2006)

I just ran into another issue, though. I got a notice of Personal Property Registry for my small business. They wanted me to list anything at all, including the smallest of tools, that I'd purchased specifically for my business. So if I buy a tool and write it off, it looks like I need to register it with the county here.

I talked to the county about it, and they said if I purchased tools for personal use as well as business use, then I didn't have to list any of them, but then I shouldn't be writing them off as a business expense…

Stupid government…


----------



## scottb (Jul 21, 2006)

Perhaps you either need to move, or talk to someone outside of this bunch. I did have a co-worker who moonlighted seasonally for H&R Block advise me (my first year of working for myself on the side) that since my expenses and profit were practically the same, that I shouldn't worry about it. But the next year, I went to an accountant and she had me re-file, and I got an extra grand back over the previous years return. so despite the fact that it seems like a lot of work for what you hope becomes a break-even venture (worst case) it's probably still worth looking into.

How can they honestly expect you to pick up a certain hammer of screwdriver over another one for a quick little home repair that is supposed to be relegated to fine furniture work only? "No honey don't grab that green drill, use the yellow one… .OH NO, we're in trouble now…." If only the gov't spent this much time and energy on real issues of health, welfare, life and death, and would let us alone to attempt to make an honest living! It would (could) be so much easier!


----------



## bbrooks (Jan 3, 2007)

As it is now tax season, I am remembering all those problems of keeping the records up to date even with a computer program. Sigh, reminder to self - keep the books up to date more often than end of the year.


----------



## cabinetman (Jan 21, 2007)

My suggestion is to find a CPA that has experience in your particular situation. As for materials and inventory, there is a definite carryover from one reporting year to the next. Your year ending inventory should match your starting inventory. Out of a specified quantity of wood, for example, it should be noted how much of it was used for which particular job, and how much was left and how much went to scrap. Attributable inventory is figured on the profit and loss of the business, and what wasn't used becomes an asset, if it is paid for.

In my particular situation in buying large amounts of materials, and having a tax exempt #, had to keep records of that material as to what went into taxable jobs and jobs that were tax exempt. This sounds confusing, but it really isn't. It's just a matter of keeping up with the paper work, and in the long run, with good record keeping, you'll know your status at any time. I'm referring to inventory, jobs, accounts payable, and receivables.


----------



## PeterJ (Mar 8, 2007)

I was an Accountant before I retired and the best advice is to see an Accountant who can set up the necessary systems that are necessary for your area. Once this is set up, an appropriate computer system will allow you to enter transactionas as they occur, and your accountant can then do the necessary returns at the end of the year from that data.

I can't comment on other specifics as our tax laws are different and possibly easier as we don't have to deal with county, state etc only the Australian Tax office.


----------



## BassBully (Mar 8, 2007)

Ethan,

Your accountant is right, it might be more trouble than it's worth to write-off utilities and the space you use for your work. The reason is because the IRS is very concerned with the idea that the space has to be a dedicated work area. Thus, it's a little gray if you use say your garage for parking but also for woodworking.

As far as bookkeeping goes, if you have time, Quicken would be the way to go. Otherwise, like the others stated, pay a book keeper to do it. I do a lot of software consulting on the side of my daily job and Quicken is quick and easy to use. Especially at the end of the year because you can easily query for your year-end expenses and profits.


----------



## bbrooks (Jan 3, 2007)

Yes, I started keeping track of things on Quick Books, and it does help. But, you need to keep up with it to learn the product, as well as keep your records in order. I just let that go during the last quarter of the year, so I am playing catch up.

Right now, the bookkeeper is probably not right because of the costs. When business picks up, that may change.


----------



## TheKiltedWoodworker (Dec 21, 2006)

Thanks for all of the advice, everyone! I think I'll probably go the Quicken route for a while, until I think I have need of something more advanced.


----------



## jockmike2 (Oct 10, 2006)

On HGTVPRO they have an excellent spread sheet you can down load with all that info on it, even keeping track of hrs., business helpers, pay etc. from soup to nuts and its free check it out. then take it to your accountant and let him figure it all out, but you have to keep it current its a daily schedule. Jockmike


----------



## bbrooks (Jan 3, 2007)

Luckily, Quickbooks is not toooo expensive when you order it through Amazon. I bought Quiickbooks 2006 Professional late last year, just before the new version arrived. It was less than $180 at the time, so I thought it was a good bargain. I am just beginning to use it, but find it helpful so far. I just need to spend more time with it to take advantage of all the extras it has.

Let us know how it goes Ethan.


----------

