Sunday, January 23, 2011

Schedule C, page 2 - Information on your Vehicle

**This is a re-post from We Sell on eBay

I'm not a tax accountant. Read the instructions for yourself or consult a tax attorney. That should be the last time I have to say that :)

Schedule C
Schedule C Instructions

All that's left is information about your vehicle. Mileage is a BIG deduction. You'll definitely want to be sure and use it!

Line 43 - When did you place your vehicle in service for business purposes? This will be the date of your first shopping trip in your current vehicle, regardless of the year.

Line 44 - Of the total number of miles you drove your vehicle during 2011, enter the number of miles you used your vehicle for business, commuting, and other. The business line will be all the mileage from your road trips, thrifting stops, post office, trips to Walmart for bubble wrap, etc. ALL business-related driving. And here's a tip for this year: any time you're out running errands, stop into Goodwill. Whether you buy anything or not, you can still deduct the mileage for stopping to look. This way, you will be able to deduct the mileage for getting groceries. You should only deduct the miles from your house to the thrift store though. If the grocery store is 10 miles from your house, but Goodwill is only 7 miles from your house, you should deduct the 14 mile round trip to Goodwill, not the 20 mile round trip to the grocery store. But that's 14 miles you wouldn't have been able to deduct if you hadn't stopped in to shop.

The commuting line is for miles driven from home to work. The other line is for all other miles. You don't need to keep track of them, but you should have a pretty decent estimate of how many miles you drove total throughout the year, which you can use to figure out how many miles weren't business and commuting.

Lines 45-47 are simple yes or no questions. If you don't have a written record of your mileage, I suggest you make one. Hopefully you've kept track of when and where you shopped, so it would be very easy to create a written record. I use a pocket calendar. When I make a trip somewhere, I just jot the mileage down on the correct day. Then I add them up at the end of the year.

That is IT, folks! The very last section of the Schedule C is for "Other Expenses," but unless you have some extenuating circumstances, I'm pretty sure everything has already been covered elsewhere on the form.

Good luck with your tax forms this year. Remember: just take it one step at a time. If you get stuck, read the instructions. If you are still stuck, don't take my word as ultimate inerrant truth. Please PLEASE double check with a tax accountant if you are unsure.

Schedule SE (Self Employment)

**This is a re-post from We Sell on eBay

We're almost done! When I started this series, it didn't occur to me that it was going to be this long. There are a lot of steps, and I'll be honest with you - tax prep software really cuts a lot of steps out. I use H&R Block online software. It really does walk you right through it, but it's good to know where their numbers are coming from.

My usual disclaimer: I'm not a tax accountant. Double check the instructions for yourself or consult your tax attorney.

The Schedule SE calculates the amount of self employment tax you owe. Here are the instructions.

This form is pretty easy. We are basically plugging in numbers from other forms and performing mathematical operations. That's it.

First, we need to decide if we should use the short form or the long form. I can tell you right now, we're going to be using the short form, but look over this chart to see why:

Now, let's look at the schedule itself:

Line 1a - net farm profit or loss from Schedule F. If you've got farm income, you should have filled out a Schedule F. If so, enter the number from Schedule F, line 34 here. (Sorry - you're on your own filling that form out. I know NOTHING about farm taxes.)

Line 1b - This is also related to farms.

Line 2 - net profit or loss from Schedule C. This is us. Look back at your Schedule C. I know we haven't finished it yet, but we've finished it far enough to be able to complete this form. The number on line 31 of the Schedule C will go on line 2 here.

Line 3 - Combine lines 1a, 1b, and 2. That's pretty easy.

Line 4 - Multiply line 3 by 92.35%. This is the amount of our Schedule C income that is actually subject to the self-employment tax. Basic math. The number on line 3 x .9235

Line 5 - Self-employment tax. This is the amount of self-employment tax we owe. If line 4 is less than $106,800, multiply it by 13.3% (.133). If line 4 is more than $106,800, multiply it by 2.9% (.029). Then, add $11,107.20 to the result. Enter your answer here and on your Form 1040 line 56.

The last line of the Schedule SE determines how much of your self employment tax is deductible. It is also basic math. If line 5 is $14,204.40 or less, multiply it by 57.51%. If it is more than $14,204.40, multiply it by 50% and add $1,067 to the result. Enter that number here and on Form 1040, line 27. This amount will come off your income to help determine your adjusted gross income.

That's it! All that's left is finishing up page 2 of the Schedule C, which is your inventory and your vehicle information.

Schedule C, page 2 - Cost of Goods Sold

**This is a re-post from We Sell on eBay

Again, I'm not a tax accountant. Read the instructions for yourself or consult a tax attorney. Yada, yada, yada....

Schedule C
Schedule C instructions

Page 2 of the Schedule C is for your inventory.  I will be honest. I don't do this page correctly. I zero my inventory out at the end of every year, but I am going to walk you through this the way it is supposed to be done.

Line 33 - Method used to value closing inventory. Choose cost. This will be significantly easier than trying to determine what your inventory is currently worth.

Line 34 - Was there any change in determining quantities, costs, or valuations between opening and closing inventory? This will likely be No. If you filled this out last year and chose something other than Cost, and you are choosing Cost this year, then your answer here will be Yes. You'll also need to attach an explanation for why you changed methods.

Line 35 - Inventory at beginning of year. If you just started selling this year, then your answer here will be $0. If you already had inventory at the beginning of the year, you'll need to figure out how much you spent on it. I honestly don't know how we're supposed to figure that number out. This is why I zero out my inventory every year, so I can start each new year with $0.

Line 36 - Purchases less cost of items withdrawn for personal use. This is where you'll add in your inventory receipts. The cost of items withdrawn for personal use does NOT mean you include all the totals of your receipts, even if there are personal items on there. What this means is, you previously accounted for the $5 you spent on a pair of shoes intended for resale, but then you decided to keep them. You would subtract that $5 out, only if you already included it in your inventory purchase total.

Line 37 - Cost of labor. I honestly don't know what this is, and there is nothing in the instructions about it. I would have thought it would be if you paid someone to help you list, but I would think that would go on the Schedule C under Wages and Commissions paid. If you paid someone and didn't report it under Wages and Commissions Paid, then you should probably ask a tax accountant what line 37 is for.

Line 38 - Materials and Supplies. We already included our supplies on the first part of the Schedule C.

Line 39 - Other costs. If you had any other expenses related to your inventory that you didn't already account for somewhere else, enter them here. I can't think of any examples, because there has been a place to account for everything that I have thought of.

Line 40 - Add lines 35 through 39.

Line 41 - Inventory at the end of the year. You should go through your remaining inventory and total up what you spent on everything and enter it here. (Again, I put a zero here, showing that I sold everything that I bought during the year.)

Line 42 - Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4.

I just realized I did things a little bit out of order. You do need to finish Schedule C before you can do the Schedule SE. All the information is here - it's just out of order :)

All that's left is vehicle expenses, which we'll get to tomorrow.

Depreciation of Your Home

**This is a re-post from We Sell on eBay

I am going to be honest here. I feel like I'm quite out of my league with this section, so please please PLEASE, double check the instructions for yourself or check with a tax accountant.

We're finishing up the Form 8829 (Business Use of Your Home). It should be quick - there are only a few lines left.

Line 36 - Enter the smaller of your home's adjusted basis or its fair market value. I'm not sure where you could find that information other than an appraisal. Fortunately, our county just required appraisals sometime during the last year or so, so I happen to have my number handy. I hope yours is as easy to find as mine.

Line 37 Value of land included in line 36. That's pretty self-explanatory.

Line 38 - Basis of building. Subtract line 37 from 36. Also self-explanatory.

Line 39 - Business basis of building. Multiply line 38 by line 7. This gives you the value of the portion of the home that you use for ebay.

Line 40 - Depreciation percentage. If you used your home for business during all 12 months of the year, then your percentage is 2.461%. If you started using it later in the year, then you'll need to consult the chart in the Form 8829 instructions. (There are more numbers in this chart. This is just a small section of it.)

Line 41 - Depreciation allowable. Multiply line 39 by line 40. Enter result here and on line 29. If you improved your home or added on, you'll need to read the instructions for this section. Otherwise, just do the multiplication and enter the result on both line 41 and line 29.

Line 42 and Line 43 are basic math problems.

That finishes up the Form 8829 for Business Use of Your Home. You'll need to transfer the number from line 35 of this form onto line 30 of your Schedule C.

The rest of Schedule C, Page 1 (above) is pretty self-explanatory too. I will get to Page 2 of the Schedule C, as well as the Schedule SE, later this week.

Home Office Expense

**This is a re-post from We Sell on eBay

I needed the weekend off :)

Part One
Part Two
Schedule C Tax Form
Schedule C Instructions

And remember: I'm not a tax accountant. Always double-check my comments by reading the instructions for yourself or by consulting your tax accountant.

Today we'll go over the Form 8829 for your home office expenses. Here are the instructions for that. I will be honest. This is the first year I have used this, so I will be learning right along with you. We will just read one line at a time and research it. It looks pretty self-explanatory.

Line 1 - Area used regularly and exclusively for business. They are looking for square footage here. You will measure your eBay room and put the square footage on Line 1. The instructions say this:
Your home office will qualify as your principal place of business if you meet the following requirements.
  • You use it exclusively and regularly for administrative or management activities of your trade or business.
  • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
You can also deduct expenses that apply to space within your home used on a regular basis to store inventory or product samples from your trade or business of selling products at retail or wholesale. Your home must be the only fixed location of your trade or business.
Line 2 - Total Area of Your Home. Again, enter the square footage of your entire home on this line. We will use this to figure what percentage of your home is made up by your eBay space.

Line 3 - Divide Line 1 by Line 2. Enter the result as a percentage. My home is 2200 square feet. My eBay room is 146 square feet. 146 divided by 2200 = .067, or 6.7%. That number will go on Line 3.

Line 4 - Multiply Days Used for Daycare During Year by Hours Used Per Day. We are eBay sellers, not babysitters. This will be 0.

Line 5 - Total hours available for use during the year. We're ignoring this as well.

Line 6 - Divide Line 4 by Line 5. Since Line 4 was 0, Line 6 will be 0. Lines 4-6 are for people who run a daycare in their home.

Line 7 - Business Percentage. Daycare providers do something different. All others enter the number from Line 3. Enter the number from Line 3 :)  This number is the percentage of your home that is used for business.

Line 8 - Enter the amount from Schedule C, line 29 .... Basically, we need to do just that. If you made money outside of your home office, then you'll need to read the instructions to see how to determine the number that goes here. Also, it looks like any profit or loss from selling your home would need special consideration too. If that applies to you, read the instructions, but I think most of us can just enter the amount from Line 29 of our Schedule C.

Line 9 - Casualty Losses. Looks like this is another special situation - theft or fire damage to your inventory or office space, I think?

Line 10 - Deductible mortgage interest. Deduct the portion of your mortgage interest that is deductible on a Schedule A. You will definitely want to read the instructions for this. This number may be limited, depending on your Adjusted Gross Income. Something very important that I'd like to point out here ... if we end up itemizing this year (filling out a Schedule A instead of taking the standard deduction), I'll need to remember to only deduct 93.3% of our mortgage interest on my Schedule A, since I'll have already deducted 6.7% of it on the Business Use of Your Home form.

Line 11 - Real estate taxes. This is the same process as mortgage interest. You'll find your real estate taxes paid on the same form as your mortgage interest paid (1098). Remember to split the percentage correctly.

Line 12-15 are basic arithmetic problems.

This looks like a big chunk, but a lot of it is simple arithmetic. For lines 16 through 20, column A is for direct expenses, column B is for indirect. Column A is for things like painting or repairs in your eBay room - expenses that were directly used for your eBay space. Column B is for things that benefit your whole home, but a portion of it benefits your eBay space. There are exceptions to this. The example in the instructions is a good one:

Line 16 - Excess mortgage interest. If your mortgage interest deduction was limited because of your adjusted gross income, then you can enter the rest of it here.

Line 17, 19, and 20 - Insurance, Repairs and Maintenance, and Utilities. Enter the full amount of the insurance, repairs, maintenance, and utilities that you paid for your home through the year.

Line 18 - Rent. If you rent your home, then you'll put your full rent paid on this line. If your housing is provided free of charge and is tax exempt, you may not deduct any rent.

Line 21 - Other expenses. If you have any other home office expenses that aren't included in lines 9 through 20, then put them here. I can't think of anything that might go in here, and the instructions don't give any examples.

Line 22 - Add lines 16 through 21. This is the total expenses paid on your whole home.

Line 23 - Multiply line 22 (column B) by the amount on line 7. This is the percentage of your whole home expenses that just your eBay space used.

Line 24 - Carryover of operating expenses from 2010 Form 8829. If you filled this form out last year, then find it and copy line 42 from last year's Form 8829 onto this year's Form 8829 Line 24.

Line 25 - Add line 22 (column A), line 23 and line 24. Simple arithmetic.

Line 26 - Allowable operating expenses. Enter the smaller of line 15 or line 25.

Line 27 - Limit on excess casualty losses. Subtract line 26 from line 15.

Line 28 - Excess casualty losses. If you had casualty losses (from theft or fire, for example), you would have figured that number on line 9. If they were limited, then you can take the amount that was over what you wrote on line 9 and multiply it by the percentage on line 7. That number goes here on line 28.

(Who was it that said this all looked easy and self-explanatory??)

Line 29 - Depreciation of your home from line 41 below. We'll be doing that section in my next blog post.

Line 30 - Carryover of excess casualty losses from 2010. If you had home business expenses last year and had casualty losses last year that you weren't able to deduct, you can enter that carryover amount here. Check your 2010 Form 8829. Copy the number from line 43 onto this year's Form 8829 Line 30.

Line 31-35 are all arithmetic. Yay! I love it when we get to that part, because it's easy and I don't have to think. :)

Ok. That is a LOT for today. I'll have to study the depreciation section before blogging about it. That may be a day or two, but that's ok. I don't want to get burned out, and I don't want you to give up on me. I may do a light post or two between now and then. This is supposed to be a fun place, not a heavy one full of hard work. :)

Movin' Right Along on the Schedule C ...

**This is a re-post from We Sell on eBay

Part One
Schedule C Tax Form
Schedule C Instructions

Quick disclaimer: Remember, I'm not a tax accountant. I worked in a tax office for a couple years, but that's been awhile. A lot has changed. Always double-check my comments by reading the instructions for yourself or by consulting your tax accountant.

Now, on to the expense section of your Schedule C:

This is just the left column of the Expenses section. You can pull these numbers straight from your Dome book.
  • Line 8 - Advertising. This is for your business cards, pens with contact information, and other advertising. This was Category 3 in your Dome book.
  • Line 9 - Car and Truck Expenses. The easiest way to figure this is to use the standard mileage deduction. It's a LOT easier than keeping track of tires, oil changes, and other maintenance. And it's usually a better deduction anyway. The standard mileage amount went up in the middle of the year, so you'll need to split your mileage into January through June, and July through December. For the first half of the year, the mileage rate was 51 cents per mile, so take the miles you drove during those months and multiply them by .51. Jot that number down somewhere. The second half of the year, that rate increased to 55.5 cents per mile. So take the miles you drove the second half of the year and multiply them by .555. Add that number to the other number and jot your new total down. If you had any tolls, go ahead and add them in here. Write the grand total on Line 9.
  • Line 10 - Commissions and Fees. If you sold items for anyone else and paid them commissions that you didn't treat as inventory purchases, that will go here. This was Dome Category 31. eBay and Paypal fees also go here.
  • Line 11 - Contract Labor. If you paid someone to help you with your business, that goes here. If you paid someone more than $600 over the year, you'll need to fill out a form 1099-MISC for them. (Be sure to see the instrutions if this applies to you)
  • Line 12 - Depletion. I don't think this applies to any of us, but double check the instructions just in case.
  • Line 13 - Depreciation and Section 179 expense deduction. This line is for printers, cameras, and other large purchases that have a useful life of more than one year. You have the option of either spreading the deduction out over several years or just deducting it all at once. I bought a thermal label printer this year (best investment EVER, by the way!), so I will put that on this line. I will just deduct it all at once as a Section 179 expense. If you do that, you'll need to fill out a Form 4562. I'll cover that form in detail next week. Line 13 doesn't have its own Dome category, but I made Dome category 35 my own custom Section 179 category. If you've made large purchases over the year, you should have a category in your Dome book for it somewhere.
  • Line 14 - Employee benefit programs. I'm going to go out on a limb and assume that no one here has employees that they pay wages and benefits. If you do, read the instructions for this line.
  • Line 15 - Insurance (other than health). If you have insurance on your business, then your premiums go here. This is NOT for shipping insurance.
  • Line 16 - Interest (Mortgage and Other): From what I can tell in the instructions, this is not for interest paid on your home mortgage.  This would be if you pay interest on property OTHER than your main home, and you use that property for your business.
  • Line 17 - Legal and professional services. Tax prep and legal consulting fees would go here.
Still with me? I love doing taxes, but there's just no good way to explain them without it being dryyyyyyy.....

Let's look at the right side of the Expenses section now.

  • Line 18 - Office Expense. This will be a combined total of any office supplies (pens, papers, ink, labels), shipping supplies (boxes, bubble wrap, packing peanuts, tape), and postage (shipping you paid, as well as shipping insurance and delivery confirmation). Those all come from Dome categories 5, 18, and 19.
  • Line 19 - Pension and profit-sharing plans. This doesn't apply unless you contributed to pensions for employees. If you contributed to a pension on your own behalf as a self-employed person, that will go on your 1040, NOT on your Schedule C.
  • Line 20 - Rent or lease. This is not for your property or home rent. This is for if you rented equipment for your business. A steam-cleaner for furniture, or something like that... Read the instructions to see what all qualifies.
  • Line 21 - Repairs and maintenance. If you needed to have work done on your computer or printer, or on anything that you sold, that will go here. This is Dome category 21.
  • Line 22 - Supplies. I'm having a hard time determining what goes in this category. I think most of our supplies went under Office Expense (like paper and tape). This category seems to be for more major supplies, but I can't think of anything offhand. Maybe a shelving system?
  • Line 23 - Taxes and licenses. This will be any fees that you paid to acquire your sales tax license or any other licenses required by your location. Also include any sales tax that you paid to your state on behalf of your buyers. Dome categories 22 and 16.
  • Line 24 - Travel, meals, and entertainment. You'll need to split this up. The first line will be for lodging. If it was an overnight business trip (a weekend thrifting road trip, for example), you may deduct lodging for yourself. Not for your spouse or your children, but you may deduct your own lodging. Be sure to read the instructions to make sure your lodging expense IS a qualified deduction. The second line is for meals and entertainment expenses occurred while away from home on business. If you're on a thrifting road trip and you grab a burger out, you can deduct that here. BUT ... and this is news to me ... you can only deduct 50% of the total. So if you ate a $4 burger, you can deduct $2 on this line.
  • Line 25 - Utilities. Read the instructions on this one too. If you have a second line on your home phone that is specifically for your business (or a distinct ring tone), then you can deduct the business portion. If you just use your regular home phone line for a couple business calls, you can't deduct your phone service. If you have an itemized phone bill, I think you can probably deduct the cost of individual long-distance charges for those specific calls.
  • Line 26 - Wages. If you have paid employees, be sure to read the instructions for this line. I'm skipping it because it doesn't apply to most of us.
  • Line 27 - Other expenses. You will pull this number from another section that is further down on the schedule C. Don't worry about it just yet.
That's enough for today. We'll discuss the expenses for business use of your home, as well as Other Expenses, in a future post. But for now, you need to get these expenses all totalled up and entered on the right line.

This really isn't as scary as people make it out to be. If you get overwhelmed, just take it one line at a time. Read all about that line in the instructions. And if you're still overwhelmed or confused, you need to call a tax accountant. But 90% of this is just common sense, easy enough if you stop to think about it and read.

We'll finish up in a day or so - if you've made it this far, I'm pretty sure you can handle the wrap up!

Putting It All Together On Your Schedule C

**This is a re-post from We Sell on eBay

Before we even get started, print this. And bookmark this. The first link is this year's Schedule C. This post will be a lot easier to follow if you have that in front of you. The second link is the instructions for filling out the Schedule C. It's 11 pages, so you can print it if you'd like, but I personally wouldn't bother wasting the paper. But then again, I've done this lots of times before... Up to you ...

Also - I am NOT a tax accountant. Don't take my word for it. That's why I linked you to the instructions, so you can see for yourself where I'm getting my information. Be sure to read the instructions and interpret them for yourself.

Now, we're just going to start at the top and work our way down. Grab a pencil and let's get to it!

This is the top of your Schedule C. I'd like to think that the majority of this is self-explanatory.
  • Line A (Principal business or profession, including product or service (see instructions)):  Give the general field or activity and the type of product or service. I will put "Online Retail Sales" or something like that.
  • Line B (Enter code from instructions): You'll find these codes on pages 9-11 of the instructions. On page 11, find the section called "Retail Trade." In the second column from the left, toward the bottom, you'll see "Nonstore retailers."  We are code number 454112 (Electronic Auctions - if you do auctions) or 454111 (Electronic Shopping - if you do fixed price store listings).
  • Line C (Business Name): I think you can handle this one. This will be your store name. If you don't have an actual store name, then just leave this line blank.
  • Line D (Employer ID number): Because we don't have employees, we shouldn't need this. If you put anything in your Commissions or Wages Paid section, it will probably require you to have an EIN in order to file electronically. You'll have to Google how to do that. I did it last year, and it wasn't complicated, but I don't remember now how I found that.
  • Line E (Business Address): ummm.....
  • Line F (Accounting Method): 99.9% of the time, this will be cash. That just means that you count your income and expenses when they happen.
  • Line G (Did you materially participate in the operation of this business during 2011?): I suspect that's a yes for all of us. That just means that we did the work.
  • Line H (If you started or acquired this business during 2011, check here): Again, self-explanatory. See? You don't need me! :) 
  • Line I (Did you make any payments during 2011 that would require you to file a form 1099?): Form 1099 is the form you would fill out if you paid someone else. You may want to double check this with your tax accountant, but I don't think you have to fill one of these out unless you paid any one person more than $600 during the year. But don't quote me on that, because I can't actually find that written down anywhere.
  • Line J (If "Yes," did you or will you file all required Form 1099s?): This is an amusing question. Like you're going to say no to that. If you find that you have to file a Form 1099 for someone, then you'll check Yes here. If you don't have to file a Form 1099, then leave this line blank.
So far, so good, right?  Let's move on to the next section:

The next section is all income-related. Expenses come later.

  • Line 1a: This is for Visa, MasterCard, etc payments (merchant cards), as well as Paypal and Google checkout (third party payments). As you can see, this doesn't come into effect this year. It says "For 2011, enter 0".  So enter 0. That was easy.
  • Line 1b: This will be all the rest of your income. If you get a 1099 from Paypal, enter the income from that form on this line. If you don't get one, then you can go by your Dome book. This line will include purchase price PLUS shipping - all business-related payments you received throughout 2011.
  • Line 1c: Online sellers won't be receiving W-2s, so this line will be a 0.
  • Line 1d: Add up lines 1 through 3. (should be pretty easy, since lines 1 and 3 are 0's)
  • Line 2: Enter any refunds that you issued.
  • Line 3: Subtract line 2 from line 1d.
  • Line 4: Cost of goods sold. There are 2 different ways of doing this. Officially, we should only be deducting the inventory costs of the items that we actually sold throughout the year. This requires carryover of all of our unsold items into the new year. I prefer to "zero out" my inventory on paper, so I just put all of my merchandise costs on this line. So it's the cost of ALL my goods, not just the ones that sold. You should talk to your tax accountant to see how he/she thinks you should handle this.
  • Line 5: Gross profit. Subtract line 4 from line 3.
  • Line 6: Other income, including federal and state gasoline or fuel tax credit or refund. This line is unfamiliar to me, so it must be relatively new. Reading the instructions for this line, it looks like most of us won't be using this line. Read the instructions just in case you have anything that qualifies for this category. I think if you received any insurance reimbursements, those payments should probably go on this line.
  • Line 7: Add lines 5 and 6.
That section was easy. It was just simple arithmetic. Let's take a breather before moving on to our expenses...

Reconciling Our Monthly Paperwork

**This is a re-post from We Sell on eBay

Warning: Long, Dry Post Ahead!

Now it's time to make sure our paperwork matches the reports we've printed. Some people skip this step, and I suppose that's not a big deal since ultimately we're going to make our paperwork match the reports. But I like to have the double check step, just to make sure I haven't missed anything. This step is just like balancing your checkbook. You're just going to go through each of the reports that you printed yesterday and double check them to your Dome book. I like to check them off as I've matched them up.

Then at the top of each report, I put the total for that particular report. Be careful on these. For your Fees and Payments Received reports, if you deleted any transactions that were personal or duplicate, then the total that is printed at the bottom of the report is going to be WRONG. You'll need to manually add the numbers in those reports numbers if you deleted anything.

As you finish double-checking and adding up a report, you can go ahead and write that in the correct space on your Dome monthly page.

On the right side of this page is where you'll write all of today's numbers.

Category 1 is Merchandise purchases. You'll find this total by adding up all of your receipts (and double checking it to the left page in your Dome book). Go ahead and write that total under "Total This Month".

Category 2 is Accounting. I don't use this, because I do all my own paperwork and taxes, but if you pay someone to do that, then write that here.

Category 3 is Advertising. This would be where you write any business cards, pens, or other promotional materials. If you include a free pen (with your website on it, for example) in your packages, then you can put that here.

Category 4 is Auto Expense. I believe this is for leased vehicles. This is not for gas and mileage when out shopping.

Category 5 is Cartons, Etc. This is for any shipping materials, tissue paper, packing peanuts, .... you get the idea.

Category 6 is Contributions. If you make any donations in the name of your business, they go here. I just lump my tithing in on our joint Schedule A, but you could put that here if you'd like.

Category 7 is Delivery Expenses. I don't even know what that is, but I know this is not where we put our shipping costs. (real helpful, huh?)

Category 8 is Electricity. If you have a space in your home that is 100% dedicated to your business, then you can deduct a portion of your home expenses. You'd need to figure up the total square footage of your home, then figure up the square footage of your dedicated eBay space. Then divide the eBay square footage by the total square footage to find the percentage. Then you can deduct that percentage of all your home expenses (heat, electricity, mortgage, etc). I'm going to just figure that up at the end of the year, but next year I will probably figure it each time we pay a home bill.

Category 9 is Entertainment. I believe this is for if you take a client out for a business dinner, and other things like that. I don't use it.

Category 10 is Freight & Express. This is for inventory that you purchase. I don't separate it out. I just include it in the cost of my inventory purchased.

Category 11 is Heat. See Category 8 above.

Category 12 is Insurance. I'm not sure what this is for, but it's not for shipping insurance.

Category 13 is for Interest. If you buy inventory with a credit card or Kabbage, then you can deduct the interest for those purchases here.

Category 14 is Laundry. I've never thought of this, but I suppose we could deduct the laundry soap for any clothing we purchase for resale that needs washed. You would have to keep a bottle of laundry soap separate for JUST resale clothing, and you would have to do the entire load of JUST resale clothing. That seems complicated to me. I'd rather just toss my 2 or 3 pieces into the washer with the rest of my family's laundry, but if you sell mostly clothing, this is definitely a category to keep in mind.

Category 15 is Legal Expense. Hopefully none of us gets sued...

Category 16 is Licenses. If you had to pay for a State Sales Tax number, or for a Tax Exempt number, those expenses could go here.

Category 17 is Miscellaneous Expenses. I've only used that once this year. I bought an eBay book for $5.95 that I put here. Most of our expenses will have a specific category, so the miscellaneous one will be used rarely.

Category 18 is Office Expenses. This is for office supplies like pens, envelopes, your Dome book, notepads, calendars (for logging mileage), etc...

Category 19 is Postage. This is for all of your shipping paid, as well as your shipping insurance. This is a big one! This will do some serious damage to your taxable income, so you'll want to make sure you've got all of these numbers.

Category 20 is Rent. If you rent your home or apartment and you have a dedicated eBay space, then put the correct percentage of your rent here.

Category 21 is Repairs. I guess this would be for repairs to a dedicated eBay computer, or if you had to pay to have inventory repaired before you listed it. I've never used this category.

Category 22 is Tax - Sales. Pretty self-explanatory. You don't want to have to pay income tax on someone else's sales tax. When someone pays you sales tax, and then you pay that to the state, write that here.

Category 23 is Tax - Soc. Sec/Med. This is for if you have employees and deduct these taxes from their pay.

Category 24 is Tax - State U.I. Same as above.

Category 25 is Tax - Other. Same as above.

Category 26 is Selling Expenses. This is for gifts that you've given to customers in order to keep their business. This category has always seemed strange to me. It's basically the bribe category, don't you think? I never use it.

Category 27 is Supplies. This is cleaning supplies. If you buy Magic Erasers or Lysol or paper towels for cleaning dirty toys, or shoe polish for shoes or whatever, that goes here.

Category 28 is Telephone. This is a touchy subject for tax preparers. You really shouldn't deduct your entire cell phone bill, unless you use it exclusively for eBay. When I upgraded from regular service to a data plan, I was planning on deducting the difference, because I was upgrading primarily so I could look things up when I'm out shopping. But I find that I use it an awful lot for Facebook and other non-business things, so I won't be deducting any of my phone costs. Use very careful judgment in this category. Cell phone deductions often trigger red flags to the IRS.

Category 29 is Trade Dues, Etc. Dues to organized groups, and magazine subscriptions go here. I never use this category.

Category 30 is Traveling Expenses. Here is where you'll put your food and toll expenses from road trips.

Category 31 is Wages & Commissions. If you sell for other people, you would put the amount that you paid them in this category. Alternatively, when you sell something for someone else, you could write their receipt up as if you were buying the item from them for that price. If you go that route, you would put that number in Category 1 instead of this one.

Category 32 is Water. I don't think we really need this one, since our businesses don't generally use water.

Categories 33, 34 and 35 are for whatever we want them to be.

I have made Category 33 my eBay/Paypal fees category. I lump them together.

My Category 34 is Subscriptions. That's where I put my Seller Sourcebook charges, as well as my charges (for domain names that redirect to my store).

My Category 35 is for Section 179 expenses. When we buy large items like printers or computers, we're supposed to depreciate them over several years. That means were aren't really supposed to deduct the full amount in one year. We're supposed to spread it out. However, we can call them Section 179 expenses and just deduct it all at once if we want. I have my Thermal Label Printer in this category.

If you had to issue any refunds during the month, be sure to note those somewhere. I put them in line 57, even though that's totally 100% the wrong spot. I just write it there as a reminder.

I know that was a lot of information, but it's important. Thanks for sticking with me. One more quick paragraph before I'll let you go for today. Once you've got all these numbers written in, it's a matter of just quickly adding everything up to get your bottom line for the month. Add up all of the left side of this page (Total Receipts From Business or Profession). Add up all of the right side of this page (Expenditures - the categories we just talked about). Subtract your Total Expenditures from your Total Sales Receipts (Total Amount column). That number gives you your net profit for the month.

Other posts in this series:

Printing Reports From Paypal

**This is a re-post from We Sell on eBay

So far, we've discussed what you should be writing down every day. Now, I'm going to show you what to do with all that information at the end of the month.  This is where the right side of page 2 in our Dome book comes in.

We're going to total up everything from the Expenditures page and write it in the write spot on this page. But first, let's print some reports from Paypal to make it easier.

Here is what you'll need to print, and where to find them (bookmark Paypal's Transaction Finder - it's about to become your best friend):

Payments Received. In the Transaction Finder, leave the Search Keyword(s) field blank. Choose your date range (the first of the month through the last of the month). Choose "Payments Received" from the drop-down menu. Click on Search. This will take a few minutes to generate.
Once the report has been generated, you'll want to download it to your computer. On the right, next to the Printer icon, chose Excel from the dropdown menu, and then choose Download. (Obviously if you don't have Excel, you'll have to do a PDF. I prefer Excel, because I often have to modify these reports. More on that in a bit...) It will ask you if you want to Open or Save the document. I don't bother saving, because I usually make my modifications and print immediately. If you don't have time to do that, then go ahead and save.

Once you've got your Excel document open, you'll want to delete the blank columns and shrink the other columns so that it's only one page wide. Now, there's two more very important things to double check before you print. You'll want to go through this document and delete any personal transactions (Aunt Jane sent you $50 for your birthday - you don't have to pay taxes on that). You'll also want to double check for duplicate transactions. See this example?

Leonardo bought 5 items from me on November 1. The total of ALL 5 transactions was $20.81. But because it was 5 separate items paid in one transaction, for some ridiculous reason Paypal shows that as 5 transactions of $20.81. I need to delete 4 of those, because they are DUPLICATES. This is very important. Unless you want to pay 5 times the income tax that you need to. So go through your Payments Received document and delete personal transactions and duplicate transactions. Once you've done that, go ahead and print that spreadsheet. 

eBay Fees. This one's an easy one. I pay my eBay fees weekly, and every week, I save my Paypal receipt that comes to my email. I just print out those emails. But if you only pay once a month, you should be able to find this number in your eBay account (probably by printing the month's invoice?)

Paypal Fees. You can get this from the Transaction Finder. Leave the search field blank, choose the date range, and choose "Fees" from the drop-down menu. Go ahead and Search, then download as an Excel document just like you did for Payments Received. At first glance, this report is going to look exactly the same, but this report shows any fee reversals (from refunds). You'll need to double check this report for duplicates and personal transactions. Also make sure you delete any empty columns and shrink the other columns down to fit on one page across, then go ahead and print.

Shipping Paid. In your Transaction Finder, there are 2 different reports you'll need, depending on how you print your shipping labels. If you ONLY print through eBay, then enter "eBay" in the search field, choose your date range, and choose "All" in the drop down menu. If you ONLY print through Paypal, then leave the search field blank, choose your date range, and choose "Shipping" from the dropdown menu. If you do a mixture of both, as I do for various reasons, you'll need to do both of those reports. Once these reports have been generated, download the Excel version, just like you've done for the other reports so far. These shouldn't need double checked for duplicates, but they may need double checked for personal transactions - if you shipped something to a friend, or if you shipped books for Paperback Swap, for example.

Insurance Paid. This one will depend on who you insure your packages through. I use the Shipsaver application through eBay, so all of my insurance payments go to InkFrog. To find that report, I type "inkfrog" into the search bar, choose my date range, and choose "All" in the drop down menu. Same as above - download as Excel, make sure it fits on one page across, and print.

Refunds Given. Another easy one. In the Transaction Finder, leave the search field blank, choose your date range, and choose "Refunds Sent" from the dropdown menu. You know the drill. Create the report, download as an Excel, print.

Inventory Purchases. You won't find this in Paypal. This is just on the list to remind you to gather up all of your receipts from the month, which you SHOULD have already entered into your Dome book. You just want to have them so you can double check your entries and then add them to your monthly bundle of papers.

Supplies. When you order supplies (boxes or bubble wrap on eBay for example), save the order confirmation email that you get. I have a "Print for December" folder in my email (which I obviously change with each new month). All my eBay related expense emails go in that folder until the end of the month. If I print them as I go through the month, I'll lose them. So as you're printing your other reports, you'll want to go into that folder and print any of those emails. If you don't have them, hopefully you've written them in your Expenditures section in Dome, so you'll be able to easily find them in your Paypal history. Just print that page instead.

Road Trips. Gather up your food/toll receipts. I have an EZ-Pass, so I go into my EZ-Pass account and print a statement from the month, highlighting the relevant toll charges.

Commissions. If you sell for anyone else, you'll need a record of how you've paid them. I send my sister-in-law her payments through Paypal, so I just print the Paypal receipts from each time I pay her. Other people that I just sell for here and there, I have a receipt book. I save the carbon copy for myself and give them the original. Gather all of these receipts now.

Miscellaneous. If you had any expenses that I didn't already mention, print those receipts. This might be a 3rd party listing service subscription, or a book you bought about selling on eBay, or a book about a specific topic (glasswares, Pez dispensers, whatever other research topics...).

Ok, I have given you a TON of homework in this post. I know I promised that my way of doing paperwork will be quick and painless. Honestly, this step is the hard part. It takes me about an hour to get all my reports printed for the month. But it's better to spend an hour a month printing reports than to be scrambling around in March trying to find a YEAR's worth of reports. So now you've done the hard part. You've gathered all your reports and receipts. Staple each type of report together (all your Payments Received pages, all your Shipping Paid pages) into its own package and tuck them in the back of your Dome book. Tomorrow I'll teach you how to use these reports to reconcile your books for the month.

Other posts in this series:

A Sample Dome Day

**This is a re-post from We Sell on eBay

Yesterday, I mentioned my beloved Dome book. It looks overwhelming at first, but today I'm going to walk you through a day's work in it, step by step. It's so much easier than it looks, I promise!

We'll start with the easiest page - the Detail of Monthly Expenditures Sheet. Here is mine:

The left side of the page is to record your inventory purchases. I try to do this as soon as I get home from thrifting, but more often than not, I'm digging out 4 or 5 receipts from the bottom of my purse and entering a bunch at once. For the new year, I'm going to try really hard to get into the habit of doing this immediately. Waiting is how receipts get lost. Lost receipts are lost deductions.

So in the far left column, you'll write the date. You have a new one of these pages for every month, so you don't even need to write the month. If you shopped on the third, just write a 3 in this column. The next column is to record who you paid. That would just be "Goodwill" or "Yard Sales" or if you bought something from a specific person, write their name here. The next column is for check number. I don't usually pay for things with checks. I just write "PP" for Paypal, a checkmark for checking account, or a $ for cash. This has helped me a few times, but not often. If I don't have a receipt, I can tell at a glance how I paid. If it was a check, I can print the check from my online bank account. If it was Paypal, I can print my transaction details page from them. If it was cash, well, I'm out of luck. The last column is for the amount. That should be pretty self explanatory.

Now let's look at the right side of this page. This is for other expenditures that are NOT inventory. This would be for shipping or insurance that you purchased, boxes, labels, tolls and meals from road trips (not gas, unless you are planning on taking exact expenses for travel, which I don't recommend), eBay fees, sales tax paid to your state, etc... It's the same layout as the left side of the page. Date, who you paid, check number, and amount. But there is one extra column for account number. You'll be getting this number from the page that we're about to discuss. After a week or so of entering data, you won't even need to look up these account numbers anymore. You'll have them memorized.

Now let's look at the other page you'll be using daily.

This one looks more complex, but it's really not. Just take it one line at a time. The left column will be for your daily income received. You're going to take these numbers straight from your Paypal account. These numbers will not match your eBay sales for the day. You're only going to write the money down on the date that the item was actually paid for. The numbers that I have along the far left (outside of the chart) are how many payments I received. I don't know why I write that down. It's useless information, and I probably won't bother keeping track of that next year.

I have added an extra column to my book. My state requires that I separate shipping out from the purchase for sales tax purposes. We don't have to pay sales tax on shipping in Pennsylvania, so I need to keep that amount separate. So my book has four columns in this section: Taxable PA Sales (my own column), All Sales, Shipping, and Total Amount. Down the left, you'll see there's a line for each day of the month.

So each morning, while you're waiting for your coffee to cool, log in to your Paypal account and do a basic search (top center of the screen) for the previous day's date. Once those transactions come up, add up any shipping you paid the previous day and write that on the first page we talked about (in the right column). Find any other expenses you had the previous day and write them in the right column too. Next, you'll need your income numbers, which are on the same screen. If you don't need to separate out your shipping for sales tax purposes, then just add up all your payments received and write them on the second page we discussed. If you have to separate shipping out, then you'll need to actually go into each transaction. I write click on "Details" for each transaction and open it in a new tab. That way there's no annoying back and forth. Open each transaction in a new tab. Then go through and add up the item prices and write them down in the All Sales column. You'll also need to add up the shipping charges and write them down in the Shipping column. If any of them were taxable, then write just the taxable sales amounts in the Taxable PA Sales column (using your own state, obviously).

Let's look at an example from my book.

On December 7th, you can see that I received 5 payments. I had one taxable PA sale. It was $9.75 plus shipping, so I separated out the $9.75 into the Taxable PA Sales column. The next column will be ALL my sales (including that PA sale). All 5 transactions (purchase price only) totalled $78.25. The total shipping for all 5 transactions was $28.24. I received 59 cents sales tax, so I jotted that down real small so I would remember to add that amount in. Then I added up the Total Sales, Total Shipping, and tax received and got a total of $107.08.

If I have any out of the ordinary transactions, I jot them down in the Memo block at the bottom left of this page. This is where I write any refunds that I have to issue, or any shipping refunds I received for labels that I had to void.

I know this sounds like a lot, but once you get the hang of it (after about a week or two of regular entering), you'll be able to do a whole day's entries in 5 minutes or so.

So to recap, each morning, you should be writing down this information from the previous day:
  • all shipping/insurance paid
  • any other expenses paid
  • all payments received (separating out the shipping if your state requires it)
  • any oddball stuff (shipping refunded to you, refunds you issued, etc...)
For now, you aren't going to do anything at all with the right side of this page (the expenditures). You won't have to do anything with that section until the end of the month. We'll be discussing that in a couple days. I've given you enough for one day :)

Getting Ready for Tax Time, Part 1

**This is a re-post from We Sell on eBay

Don't be afraid. It's not scary and overwhelming if you do it a little bit at a time. Of course, if you haven't kept up with your paperwork for 2011, it's a little late to do it a little bit at a time for this year, but hopefully this series will help you be better prepared for 2012!

I so often read posts where people say, "Oh, I only made such-and-such on eBay" or "I just sell part-time" or "I'm just a hobby seller" so they think they don't have to report their income to the IRS. Well, guess what. Income is income. You DO have to report it, whether you made $1,000 or $100,000. The only difference is, Paypal won't be reporting your income to the IRS if you had less than $20,000 (all incoming funds, not just the actual sales amount - this includes shipping!) AND 200 transactions. You still have to report it.

So you want to get that number as low as you possibly can, by saving receipts and taking every deduction you can think of. But we'll get to that in a later post. Today's post is about keeping a daily record. If you do this every day, or even every 2 or 3 days, it only takes a couple minutes, and at the end of the year, you will be totally prepared for tax time!

To start with, I highly recommend a pencil and paper approach. I know that sounds archaic, but who do you trust with your money numbers? A computer program (with proven glitches), or your own records? I personally prefer my own records. So I use a Dome Record-Keeping Book. I used a monthly book for 2011, and that's what I've linked to, but I'll be using a weekly book for 2012. I really have a LOT of transactions over a month, and reconciling my books every month was taking a long time. I'm going to try the weekly book this year, because I'm hoping reconciling my books weekly instead of monthly will be quicker.

The Dome book is great! It's got everything you need right there. There are sections for all your deductions (shipping supplies, inventory purchases, shipping costs, fees, etc...) and there is a section for all your payments received. It's broken down monthly, so at the end of each month, I print my reports and double check the numbers. After any given month in the year, I know exactly what my net income has been for the year. It's a nice way to keep tabs on your business and not be totally shocked and unprepared at the end of the year.

I try to do this daily, but more often than not, I end up doing it every couple of days. (I do have a life outside of eBay, you know...) Each morning, I go into my Paypal account and write every transaction in my book. Some of them I combine, like all the shipping I paid. I write that total down under expenses. I add up all my payments received (I separate out the shipping for state sales tax purposes) and I wrote those numbers under income. I also enter any receipts into my expense section as soon as possible after I get home. I have a 13-section divided portfolio that I drop those into immediately, so they don't get lost. A lost receipt is a lost deduction :(

I keep a small calendar in my purse, so every time I go to Goodwill (or yard saling, or wherever), I can quickly jot down my mileage on the correct day in my calendar. Mileage can add up to a HUGE deduction at the end of the year! My miles will be a really big lifesaver this year.

This post feels like it's all over the place, but it's just an introductory post. A brief overview. I'll elaborate more over the next few days. But for starters, get yourself a Dome book, study the pages, familiarize yourself with the setup. Over the next few days, I'll teach you more specifically how to use it.

Upcoming Posts in This Series:
  • A Sample Day in My Dome Book
  • Printing Reports from Paypal
  • Monthly Reconciliation
  • Allowable Deductions
  • Putting It All Together on Your Schedule C