Successful entrepreneurs are proficient in all aspects of their ventures, including the numbers. There are many easy-to-use bookkeeping packages on the market. Some of the most popular include Accpac's Simply Accounting, Intuit's QuickBooks Pro and Peachtree's Complete Accounting. When choosing software, consider the track record of the manufacturer and the system, the technical assistance the manufacturer provides, the system's compatibility with your other software, and, of course, compatibility with PayPal, the eBay service that allows you to accept online payments from credit cards or bank accounts. (PayPal Account activity can be downloaded to Quicken and many spreadsheet programs.)
Most software programs include tutorials and help screens that walk you through the programs and give you a handle on the components of an accounting system. These typically include the chart of accounts, general ledger, accounts receivable, inventory, fixed-asset accounting, accounts payable and payroll (if applicable).
As a business with inventory, you will need to use the accrual basis method of accounting (not the cash method). This means income and expenses are recorded as they occur, regardless of whether cash actually changes hands. A sale is entered into the books when the invoice is generated, not when the cash is collected. An expense occurs when materials are ordered.
Most community colleges offer basic accounting and finance courses, as well as training in specific software programs, such as Microsoft Office. Signing up for a course is well worth the cost.
eBay does not track or report taxes for its sellers, so it's your responsibility to make sure you're complying with federal and state tax laws, and tax planning with your accountant to reduce your business's tax burden.
Tax Compliance: In most cases, your taxpayer identification number is your Social Security number. But if you have employees, a corporation or partnership, or a Keogh plan, you need a nine-digit Employer Identification Number. Visit the IRS Web site, for more information.
If you hire employees, work with your accountant to be sure you handle payroll taxes properly. Many entrepreneurs use independent contractors, rather than hire full-time employees. But if the person you consider an independent contractor is determined by the IRS to be an employee, you could owe substantial penalties and back taxes. Visit www.irs.gov for information on making this determination.
Your federal tax-filing obligations and due dates generally are based on your business's legal structure. In addition to your annual tax return, many self-employed individuals make quarterly estimated tax payments. For specifics, consult with your tax professional or visit www.irs.gov.
Sales taxes can be a sticky area for online sellers. Many large retailers now collect sales tax on Internet sales. Whether you need to collect state and local sales tax depends on several factors, including your products, your location and your customers' locations. Talk to your accountant or contact your state's revenue service to be sure you understand your state's rules. If you do charge sales tax, you need a sales tax ID number (also called a reseller's permit). Contact your state's department of revenue for more information.
Tax Planning: Periodically review your tax situation with your accountant and look for deductions that can offset income. Just beware, many deductions have restrictions, so consult your tax professional before claiming one. Some possible deductions:
- Equipment Purchases: check with your tax professional for the amount you can deduct
- Business Expenses: advertising expenses, employee benefit programs, insurance, legal and professional services, telephone and utilities, rent, office supplies, employee wages, membership dues to professional associations, business publication subscriptions
- Auto Expenses: use of your car for business purposes
- Meal and Entertainment Expenses: fifty percent of the cost of qualifying meals and entertainment
- Travel Expenses: "ordinary and necessary" expenses incurred while traveling on business
- Home Office: possible deduction if you use a portion of your home exclusively and regularly for business purposes
- Startup Costs: startup advertising expenses; market or product research can be amortized over 60 months or more and used as deductions
The IRS' Small Business Tax Education Program provides tax education to small-business owners; call (800) 829-1040, and ask for the Taxpayer Education Coordinator. The IRS also offers dozens of free downloadable publications at www.irs.gov. While you're there, visit the Small Business and Self-Employed One-Stop Resource for a variety of tax resources, including their "Online Classroom" page, which offers a series of self-directed workshops.
For more detailed information on these and other aspects of starting a business, visit Entrepreneur.com's "How to Start Your Own Business" guide.
Adapted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, Third Editionby Rieva Lesonsky and the editors of Entrepreneur magazine