Monday, March 26, 2007

A Taxing Time Was Had By All

Once upon a time, the King's men would ride up to your house, take anything of value, and voila... your taxes where done. Oh, for the good old days, eh? :0)

Anyone who knows me has heard me moan about taxes. I actually don't mind doing them, and I even don't mind paying them, but oh, the time out of my life? That I mind. Some years it has taken me 3 weeks to do my taxes (for my business and home). That's a lot of time out of my life that I could be doing something else. Fortunately, I'm becoming more of an expert at taxes, and more importantly, a better record-keeper. Keeping everything organized really, really helps.

One problem though, for many of us, is understanding those darn tax forms. My business can be rather complicated, so each year I always find something new to figure out, and each year I find that I'm on my own. Oh, I've asked other Cartoonists, but mentioning taxes to a Cartoonist is like uttering a very bad word! Apparently, many don't worry about their taxes, and so don't want anyone asking about them. Others have their Brothers-in-law do them, so they honeslty don't know anything.

First of all, why is it always a Brother-in-law, and second, why don't people do their own taxes? I can't imagine being dishonest, and not doing them, or not doing them right. I simply don't have time for an audit, so I go over everything 3 times, and keep carfeul receipts. As for the others, I can't imagine paying somebody to do my taxes if I didn't understand them enough. That's like handing somebody a blank check!

Anyways, I didn't come here to lecture. You do what you want. I , however, want to point out the benefits of understanding Schedule C for you Sole proprietors and Self-employeds out there.

Admit it.... some of you have thought about doing your own taxes, looked at the forms, looked at the time, and said, "ah, forget about it." Some of you then pretend that you have no income, and others just add all their earnings to income and don't worry about all those deductions that they could be getting. Oh, foolish mortals! The first batch are heading for an audit, and the second are just handing money over to the IRS!

If you're a serious professional, and have never even looked at a Schedule C, then you're going to be giddy as a schoolgirl when you realize that all of your art supplies, office supplies, educational materials, and so much more are deductible! Sure, paper clips are cheap, but all of those little expenses add up. My business expenses were well over a thousand bucks this year, and that is a very conservative estimate. By not filing a Schedule C, you're telling the world that your career is actually just a hobby, and you're losing out on all those deductions that you could be taking.


The flip side of taxes? On the back of Schedule C is a little box called Cost of Goods Sold(COGS). That box says that you can only deduct the actual cost that you pay for goods, and ONLY when you sell those goods. For me, and other Self-publishers, that means that we might pay 6 dollars a piece for 100 books, so our COGS is $600. If we sell 10 books this year, then we can only deduct $60 for our COGS.

And that means that we have $540 of inventory sitting around!

These numbers are fictional, of course, but you get the idea. If you pay for books, or t-shirts, or anything that you want to sell, then you better get off your butt and do something to sell those things.

So here is today's lesson for the Self-employed. Why should we a) Pay our taxes, b) be honest about it, and c) do them ourselves? Simple. By doing so you get a very clear look at your
business, and all of it's strengths and weaknesses. You might see areas for future deductions, or
find that you're being wasteful in some areas, or, like me, you might find that focusing on your
freelance career has left you with a very large inventory of books to sell!

If you have $0 in advertising, and $1000 of inventory, it's not difficult to see where you might
need to focus. And that goes for the rest of the tax forms, as well. By doing your taxes right this year, you could go from small time to big time in the next year.

Even if you pay somebody else to do your taxes, it really wouldn't hurt to understand the forms, and in doing so, understand you business.

Cheers, JOHN :0)


Helpful links:

http://news.nase.org/nase_about/schedulec/TOC.asp

http://www.junewalkeronline.com/

Both of these links have their strengths and weaknesses, but together you get a pretty good idea of how to run your business, keep records, and do those taxes.

2 comments:

Kishore said...

John....

Glad to know there is someone else in the family who takes a long time to do their taxes. :-) Most people I know seem to finish it off in a day or two - the moment they get their W2s at the end of January. But then, most of them don't have to worry about their own business either.

As you have mentioned, the key is keeping good records. I used to do my taxes the long way before, but now, I find it a lot less stressful using programs like TaxAct and TurboTax. Even though the actual task of completing the tax forms is pretty long (it took me exactly 5 hours on the computer this year), these programs take out the stress of figuring out which tax forms to use and not to use. They allow you to be pretty creative with your deductions too. :-)

Nice links by the way.
take care,

John said...

Whoa, now, Kishore,

Let's not talk about 'creative deductions', eh? I'm trying to stay out of trouble, here, okay? :0)

Actually, it's been a while since I've tried any tax software. Once upon a time they were only good for very standard taxes, and my businesss stuff didn't fit in.

However, seeing the huge pile of paperwork still on my desk leads me to perhaps rethink the question.

Thanks, JOHN :0)