Income & Expense Questions

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jfls41

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I posted this message in the accounting.com forum but thought I would give it a try here as well seeing there is so many knowledgable people with managment skills.

I am trying to determine the best way to do my bookkeeping when I invoice a customer. I have an electrical business with no inventory. I have two items on my invoices which are Labor and Materials. I setup the Materials item so that it will add a credit back to my Job Materials which comes under Cost of Goods Sold. Let me explain this further in case anyone needs more clarification what I am asking. In my software program, my Labor linked to Schedule C "Services Income" which I have left alone. The Materials was linked to Income but I changed it to an expense as a subcategory of "Job Materials" which shows up under "Cost of Goods Sold". It shows up as a credit back to Job Materials when I run reports. I decided to charge the exact amount of the materials I purchase from the supply house without a markup. In my profit and loss statement it shows just the Services Income under Net Sales and the Materials is hidden under the Job Materials which comes under Cost of Goods Sold as a credit back to Job Materials. The COGS is deducted from the Net Sales which gives me the Gross Profit. So can anyone tell me if the way I have set this up is permissable or should I change the Materials back to an Income item which would be added into the Net Sales or not a refund or credit to my Cost of Goods Sold as I have it now? Any help would be greatly appreciated.
 
Re: Income & Expense Questions

First off, what does your accountant say??

There are many ways that your business could be setup, sole proprietor, 's' corp, 'c' corp, etc.

Gross Profit and Gross Receipts are not the same thing.

Gross Receipts is what you are taxed on, not your Gross Profit. Gross Receipts is All money collected.

I could be mis-understanding your set-up, but it appears that you could potentially lose money at tax time.

Say you do a job for $2000 and your materials are $800. It takes 1 man 16 hours billed at $75.00/Hr.

It appears that you will show the job as $1200.
Now say you didn't get paid for the job. (you got stiffed).
At tax time, it appears that you will not be able to show the $800 material loss. And you can't deduct your own time lost.

I would show the materials as an income item. I would also have a mark-up on those materials.
 
Re: Income & Expense Questions

I beg to differ, you are taxed on your net profits.
Gross receipts minus cost of goods is your gross profit, minus all other business expenses equals net profit.
The book keeper will be in Monday and will give a more detailed explanation.
Always check with your accountant
 
Re: Income & Expense Questions

Originally posted by willyj:
I beg to differ, you are taxed on your net profits.
Gross receipts minus cost of goods is your gross profit, minus all other business expenses equals net profit.
The book keeper will be in Monday and will give a more detailed explanation.
Always check with your accountant
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Not in any of the states I conduct business in.

As a matter of fact, I am taxed on the gross receipts of the state, and am also taxed on gross receipts of numerous cities that I work in.
That's right double taxed!
I argue with my account over it every year but it does no good.
 
Re: Income & Expense Questions

Luke Warmwater,
I've never heard of such a tax. I know that some cities and county tax wages but never heard of taxing gross sales.
Which brings me to my question. What percentage is it taxed at and how do you adjust your pricing if the tax is not consistent throughout the area or is the tax charge yearly?
This is definitely a new business lesson for me and makes me want to stay from your area.
 
Re: Income & Expense Questions

Originally posted by jfls41:
[QB

I setup the Materials item so that it will add a credit back to my Job Materials which comes under Cost of Goods Sold. Let me explain this further in case anyone needs more clarification what I am asking. In my software program, my Labor linked to Schedule C "Services Income" which I have left alone. The Materials was linked to Income but I changed it to an expense as a subcategory of "Job Materials" which shows up under "Cost of Goods Sold". It shows up as a credit back to Job Materials when I run reports. [/QB]
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This is a very strange way to do your books. I don't understand why you would want to do this.

Also, you should not let your materials pass through w/no markup. Even if you only make 5%, you should mark up your materials. You may have to warranty something that the supply house won't, you will have some items just kind of get lost. You should make make money on materials. Low end is 10% and I've seen people mark up materials 30%.

[ March 17, 2005, 07:57 PM: Message edited by: hardworkingstiff ]
 
Re: Income & Expense Questions

Originally posted by willyj:
Luke Warmwater,
I've never heard of such a tax. I know that some cities and county tax wages but never heard of taxing gross sales.
Which brings me to my question. What percentage is it taxed at and how do you adjust your pricing if the tax is not consistent throughout the area or is the tax charge yearly?
This is definitely a new business lesson for me and makes me want to stay from your area.
Click to expand...
I don't know the rate but I'll find out soon and let you know.
I know that it's annual.
 
Re: Income & Expense Questions

Are we talking sales tax or income tax. Youdo not pay income tax on gross receipts otherwise no grocer, gasoline outlet or other marginal markup business could survive in your state.

sounds like you are confusing sales and income taxes, or get a new book keeper.

you might be paying this amount, but no one else is.

paul
 
Re: Income & Expense Questions

The city I live in requires me to pay .0015 on my gross receipts. What they call a "Business Priviledge Tax". What I haven't done yet is figure out how I do my quarterly tax payments to the IRS as I am a sole proprietor. Can someone (that knows) tell me how to compute this and what do I pay on? I could study it out on the IRS website but haven't had a chance yet.
 
Re: Income & Expense Questions

Hardworkingstiff, I changed my accounting software back, upon the advice of some accountants at www.accounting.com they said I had "rewired" the software and I should change it back...
 
Re: Income & Expense Questions

Jfls41,
You are playing with taxes and that is a very dangerous thing to do. As our book keeper says when she has question about taxes she calls the accountant.
A good accountant is worth their weight in gold. You can get all sorts of info from a web site but to be safe and to stay within state and federal guide lines check with someone that does it for a living.
 
Re: Income & Expense Questions

quarterlies were good guesstimation as actual taxes owed could wow all over the place. pay heavy the first quarter as that is what the irs actually wants, cash input early, and modify as year goes on. If it looks tight, play it tighter.

my 2 cents, paul
 
Re: Income & Expense Questions

Originally posted by jfls41:

What I haven't done yet is figure out how I do my quarterly tax payments to the IRS as I am a sole proprietor. Can someone (that knows) tell me how to compute this and what do I pay on? I could study it out on the IRS website but haven't had a chance yet.
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It has been suggested that you bite the bullet and see a CPA, that is very good advice.

I believe you said you are a sole proprietor. So you are supposed to pay 25% of your year end tax burden each quarter (of course, who knows how much money you will make?). I believe if you pay what your last years tax liability was, you get no penality for underpayment. I also believe if the difference between what you pay and what you owe is less than 10% of your tax burden then there is no penalty. Don't forget that you need to pay the 15.3% SS and Medicare taxes as well as the federal income tax (and don't forget the state taxes).

Remember, the due dates are 4/15, 6/15, 9/15, 1/15.

I run a P&L close to the due dates and figure out what my tax liability is and send that in.

Good luck. (see if you can't scrape up enough money to see a CPA, don't just look in the phone book, talk to people and go with someone that comes highly recommended).
 
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