Tuesday, January 17, 2012

Doing Taxes for my Teeny, Tiny Handcrafted Business

Choo Choo

I'm totally cheating by recycling a post I wrote for my now-defunct 1000 Markets blog.  I have a vision of consolidating all my blog posts here, so I'll slowly add in the ones from my short-lived work blog as well.  Some I'll just import into the date I wrote them, and others I'll actually update/repost as "new to you".  :)  So if your feed reader gives you deja vu, that's why.  Sorry for the confusion!

When you're an official business in the great state of Washington, business taxes are due on Jan 31, if you're small.  If you make more money, you need to pay monthly or quarterly.  I don't envy those people!

And of course, every year I wait until the last minute to do this truly unpleasant task and swear I'll start earlier next time.  Here it is, Jan 17 and I haven't even started yet.  And Mama Weekend Away is coming up, and lord knows I DO NOT want to do taxes then.

The first time I did this 3 years ago, I sat down with the forms and realized the process was totally incomprehensible.  That made me angry. I have a Master's Degree in Molecular Biology, so I like to think I'm reasonably intelligent.  And I couldn't parse that stupid form.  I can't even imagine what folks do when English is not their main language.  Sigh.

So I broke down and set up an appointment with a CPA so he could walk me through the form.  I still wanted to complete it myself, but he helped me understand what the state was asking for.  And he also gave me the cheerful news that I have to keep better track of my cost of goods and inventory info for my federal taxes - oh joy.

With his help, I realized that the state tax form for retailers is actually pretty simple.  That, and my reports from Paypal and Amazon Payments helped me fill everything out in about an hour.  Which isn't too bad.  Totally worth the $50 I paid him.

After doing it for a few years, I have an Excel spreadsheet that handles most of the calculations. There's a ton of manual work to download the data from PayPal, add in receipts manually, and pull out non-business related transactions. Setting up a separate PayPal account for my personal stuff is something I've been meaning to do every year, but it's such a hassle that I just suck it up and deal with the manual work at tax time instead.

The outcome of the January tax party is that I figure out how much I owe the state in sales tax. Fortunately most of my Etsy customers are out of state, so it ends up being a pretty small check I have to write.  And over the years, I've gotten better at collecting the tax, thanks to Etsy and Paypal doing the work for me.  So the difference in what I've collected and what I owe out of pocket gets smaller each year.

The other cool result is finding out how much I spent on tools and supplies (!), what my total sales were, and how much profit I made.  I've been lucky to be (minimally) profitable every year.  2011 will be the first year I'm not, and that was by design, both for our tax situation *and*  just because I was so busy I didn't take many custom orders on Etsy all year.

This is by far my least favorite thing about turning my hobbies into a real business.  But I think it forces me to use parts of my brain I don't normally use, and gives me more confidence each time.  TJ normally does all the tax and finance-related stuff in our house because he likes it better.  I don't like doing my business taxes, but it's good for me.

What about you, my fabulous readers?  Are you the one that does taxes in your house?  Do you have a business to account for as well?


  1. No business taxes for me (maybe in the future), but I'm the tax person in our household. The most challenging was the year we bought our house--I was still doing paper forms back then, and had to account for selling mutual funds (they covered the down payment), a real estate purchase, and the remains of a Roth IRA conversion. It was kind of crazy. These days I use Turbotax online. The most difficult thing is tracking down the bits of information I need. Which reminds me, I need to get statements from the daycares on just how much we spent there last year... (The most painful was the year G was an infant & B was still in full-time care. It got better when B started school. After this summer, our cost will go down significantly again. Woohoo!)

  2. ooh, two kids in daycare, esp w/ infant daycare. yikes!

    We've used Turbotax online for years - love it! But yeah, there's so much legwork to track everything down beforehand. TJ also reminded me that we need to do everything earlier this year since we'll be on vacation in April.

  3. We use an accountant. And we have no business taxes to pay. I just hate dealing with it and it is fairly cheap not to have to!

  4. @Cloud - hooray for accountant. Do you find that it's a pain to get all the stuff together, or do you have a system? We fear that paying someone else to do it would result in almost as much work anyway.

  5. DH does our taxes. (Both because they drive me nuts and because he needs to get in tune with our finances at least once a year.) Occasionally we have business taxes from consulting, but not this year I think.

  6. Last year we hired an accountant because my husband works in California the majority of the time, so we pay California State Taxes. I wasn't feeling competent enough in filing both Nevada and California taxes. However, this year it is my goal to better understand the process and do it myself.

  7. OK, just starred this post to save for this time next year. Glad to know Paypal can be helpful and not the pain in the ass I imagined.

  8. I'm actually supposed to be doing my1099's for my business right now!! Instead I'm on Facebook!! Ugh it's torture!!

  9. @Brandy - go you!!

    @Shalini - Paypal has been pretty good to me in the 4 years I've been seriously using it. I try to make most of my business transactions through it, because then I don't need to keep separate track - I just download the transactions at the end of the year.

    @mm0398 - I know - Facebook is so distracting, especially when the task at hand is NOT something you want to do...


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