Getting Started With Income and Expense Tracking

Getting Started With Income and Expense Tracking:
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Laura Messerschmitt works for Etsy’s bookkeeping partner, Outright, a free online bookkeeping tool that imports your data in one place so that you can see how your Etsy business is doing. The following information applies only to US sellers, and Outright is providing this post for informational use only. For specific advice, talk to an expert in your area.
As a business owner — and if you have an Etsy store, you’re a business owner whether you’ve yet identified yourself as one or not — it’s so important to keep account of your business income and expenses.
Why? Good question. There are a number of reasons why you absolutely must keep good books. First of all, if you don’t account for how much money is coming in and where it’s going, you won’t be in business for long. Secondly, but perhaps more importantly, the government will slap you with penalties and fines if you don’t keep track of your income and expenses, and file taxes based on the amounts. But don’t worry — a bit of preparation now will ensure that you’re complying with state and national laws.

Income Tracking

Income tracking is fairly basic: You track any income that comes into your business from sales. In rare cases, you might have additional income, such as royalties or income from selling assets, but for the most part, this number will be a total of all sales you made during the year.
Note: This total will include your shipping income — for example, the money you collect from buyers in order to ship their orders. If you’re scratching your head because that income doesn’t stay in your pocket, you’re right. The cost that you incur for shipping an item to a customer is also a tax deduction, so keep reading!

Expense Tracking

Expense tracking is where your small business accounting life can become trickier. You want to track all the money you spent building up and maintaining your business, because expenses reduce your business profits and, thus, lower the taxes you owe. But, it can be difficult to have the time to record all of your expenses and fit them into IRS-approved categories you find on your year-end tax form, the Schedule C.
That’s where an application like Outright can help. Outright links directly with your Etsy, PayPal, bank accounts, and other business-related financial accounts, pulls in your income and expenses directly, and auto-categorizes most expenses. This really takes the hassle out of bookkeeping, especially when tax time is looming and your business expenses consist of a box of receipts and an online banking login. (Honestly, who remembers six months later why you paid $30 to “CCS Corp”?)
Also keep in mind that the IRS isn’t just going to take your word that you spent $1,500 on office supplies. You need to collect and maintain receipts for any business expenses you may have.
Pro Expense Tracking Tip: Take a picture of your home office and share it with your accountant. She’ll be able to answer any questions you have about expenses and categories, and she may even find deductions you didn’t know you could take.

Common Expenses

So what can you deduct from your taxes? A brief rundown of common expenses includes:
·      Postage and shipping expenses

·      Cost of goods sold

·      Home office deduction

·      Mileage and vehicle expenses

·      Advertising and marketing

·      Etsy, PayPal, and other bank fees

·      Accounting and tax-related fees
Don’t forget small expenses — they all count toward reducing your taxes! In particular, many Etsy sellers forget to deduct shipping expenses and mileage.
For more information about each of these deductions, check out this post detailing common tax deductions for Etsy sellers.

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