Calculate
So.........you don't pay too much!
>>> If you know what to do, or would like to just figure it out as you go, print the Calculate-Basic sheet and start filling in numbers.
Why we're doing this
Before we talk about the numbers we need, let's review why we have to do all this work. Basically, it's so that you don't pay too many taxes! The IRS taxes you on your Income. When you are a sole proprietor or single-member LLC, the profit from your business is considered your income.
If you were to only report your total payments (gross sales), you'd have to pay taxes on that entire amount...even though you likely had to spend money on running the business. That wouldn't be fair. Thank goodness, we don't have to do that! Instead, we report our profit, and we're taxed on that. In order to report our profit....we required to report several numbers, as a sort of proof. Here's more on that....
The Basic Numbers + Formula
To find our profit, we report the following numbers + formula:
Gross Sales
- Expenses
= Profit
Two of those numbers (gross sales and expenses) are made up from several other numbers, and have to be reported in the right way. The IRS created the form Schedule C for sole proprietors and single-member LLCs. The worksheets I created are simplified versions of the Schedule C.
Gross Sales, may include:
- totals from 1099-MISC, given to you
- totals from 1099-K, given to you
- totals from all other payments, including barter
Expenses, may nclude:
- totals by category of business expenses
- total business miles
- square footage of home office
The Calculate Step
In this step, the idea is to find these numbers. It's possible you have them already if you've been keeping records, or using a program such as QuickBooks.
[Even if you have these totals, it's great that you've collected your receipts and bank statements, because these are part of the evidence that you need to keep for several years—7, I think?—in case you get audited. (Btw, good news, less than 1% of people get audited.)]
If you still need to calculate your totals, and would like some guidance, click here to read more about this. There are several ways to do this! Just a few include: pen and paper, spreadsheets, and software. Find what works best for you, and consider getting a friend to help.