By Contributing article by Ashely Pahl aka Ashley Pahl

The Ten Step Tax Filing Plan for Indie Business Owners:

The new year is here and tax season is upon us. This can generate a lot of anxiety for people, especially for some creative types who shy away from numbers, and in some cases, even organization.

For those small, creative business owners who did not file their receipts, categorize their purchases, keep track of their expenses, or even sum up their profits, then the following 10 steps may be the organizational plan needed to get ready for the Tax Man. The plan is meant to take up to 10 days, or 10 weeks if it is an extremely busy time of year. However long it takes to correctly file your taxes, April 15th won’t be such a looming deadline when following these 10 steps:

1. Dig out all of those saved receipts, bank statements and credit card statements. Questioning what can be counted as a business expense, and what cannot? Basically, a business expense is anything that is necessary to carry out a business, but cannot be mixed with personal use. This can include materials, advertising, office equipment, travel expenses, etc. Certain items that serve both a personal and business purpose, such as a laptop, may be deducted, but it requires proof and very specific record keeping. If you cannot prove the percentage for which you use an item for business purposes, it may be best not to try to expense them. Remember: any item that you wish to expense must have proof of business usage and a record of purchase. A tax guide for small businesses can be found here: http://www.irs.gov/publications/p334/index.html

2. Familiarize yourself with the 1040 Schedule C, which you will need to file your 2009 taxes if you are a sole proprietor. You can find the official form here: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
The form itself already has the general list that you should be categorizing your expenses as. Use this as a guideline when categorizing your expenses, and the whole process will seem a lot less daunting. It may be helpful to have physical copies of your receipts and statements, and then label them accordingly.

3. Once you have all of your expenses categorized and labeled, add them up in a lined note pad, or alternatively, you could use a simple spreadsheet such as Microsoft Excel or Google Docs. A simple template can be found here: http://spreadsheets.google.com/pub?key=rWhxbBtSd82A-6pwKL6E6Gg&output=html

4. Go through each month and add up your sales. If you sell exclusively at online sites, go through your sold sections. Etsy makes it easy to do this, as they provide the data to be downloaded at the bottom of your sold items section under Your Etsy. The data can be downloaded as a CSV file here: http://www.etsy.com/sold_orders.php?page=1&order=&export=csv If you sold at craft fairs, hopefully you kept excellent records and created receipts.

5. Input totals. After you have located the data for all of your sold items and added up the sales, input this total into the correct page on your excel sheet or record book. This is your gross profit. Subtract your business expense total from the gross profit. This is your net profit.

6. Find your forms. Go online or go to your local library, for example, and obtain the necessary tax forms you need. Sole Proprietors will fill out the 1040 or 1040 EZ form and the Schedule C. LLCs with only one member will do the same. Partnerships will fill out the 1065.

7. Fill out your forms, and go over them at least once to check for mistakes. Have someone check your work if possible – there’s nothing worse than thinking you will be getting money back when in reality, you end up owing money!

8. Mail in your forms, or file online at http://www.irs.gov/efile/

9. Take precautions in case you are audited. Keep a filing system for your receipts and statements for up to 5 years, so that you can prove your expenses to the IRS. Creating a labeling system in an accordion box or binder will help greatly.

10. Get organized for 2010. So that you don’t feel overwhelmed or unorganized when you get ready to file 2010’s taxes, create a spreadsheet to fill out monthly, buy another accordion box or binder and label it with the same categories you just created for 2009. Keep up with expenses as they come. Keep an on-going tab of all of your sales. Be prepared, and filing taxes for 2010 next year will be a piece of cake!

For questions, the IRS has a very informative website for small business owners at http://www.irs.gov/businesses/small/index.html

Coaster image courtesy of Etcetera Media

Tags: expenses, filing, online craft business, receipts, steps, taxes

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