I've heard/read that this is a great tool... but I'm thinking it looks like a lot of work. Is it really necessary do you think? I'm sure I have $1000 worth of beads sitting around here and I can't imagine entering them all in to this program even if I did know how much each one cost.
I guess this might sound like a stupid question, but do I really have to keep track of inventory for tax purposes? As long as I pay the sales tax on items sold in my state, does inventory matter?
< I just have to post this. I have no idea on how to help with your question. Swoooooooosh! Right over my head. I thought this had to do with a program to design jewelry! lol Anyway... I do hope someone can help you.
Thanks Harry :) and btw, great job on your first necklace! can't wait to see what else you come up with. Amazing how so many of us can look at the same beads and come up with such different ideas for them, isn't it?!
You are very welcome and I thank you so much. It is true that people look at the same thing and see something completely different. It never ceases to amaze me. I can't wait to see what I come up with next. lol
As for inventory, YES you have to keep inventory for tax purposes per the IRS. If you sell retail or manufacture products you have to be able to track raw material on hand, material cost of finished items that are not yet sold, and cost of materials in items sold at the end of the year for your tax return.
I use Peachtree Accounting, which while not intended specifically for jewelry, will produce all the bookwork I need for a business.... I think Jewelry Designer Manager looks good, but it's not worth it to me to do double entry, or to spend the money and not get all the reports I can get from Peachtree. OTOH, JDM would do a better job of keeping track of finished pieces - lets you put a picture in with the record, stuff like that.
Is taking an inventory important? Depends on how you are doing your taxes. If you are just selling a bit, and paying income tax on your personal 1040, and don't want to write anything off, then no. Just add your income onto your 1040 and be done with it. Be aware that if it goes over $400, you must also file schedule SE (self-employment tax) - otherwise known as social security.
If you are truly trying to function as a business, and are wanting to write expenses off, then yes, you must take an inventory. That is because the IRS, for purposes of Schedule C (gains and losses) calculates cost of goods sold as ending inventory minus beginning inventory.
And from one who's BTDT, it's far easier to take an inventory when you have less than $1000 worth of goods, than it will be later... :-)
Thanks Tanya, I guess I'd better get a call in to my accountant. When I asked a friend who has a retail business what the differences for me would be vs. my service biz (websites) she said it was mostly just sales tax. If she said anything about inventory it must have gone in one ear and out the other. Darn, I have some work to do :(
Hmnn... Quicken came on my new compuer and I have MS Money so I'll look and see if they have any sort of inventory tool. I'm not really sure where to start as I have no idea how much most of the beads I have cost - though I did save the receipts so at least I have totals. Yikes. Good thing it's the begining of the year and not the end of it - I've only sold about 10 pieces so far.
But can you keep track of inventory based on what you paid. Mark the raw material with its cost price, and subtract that from your inventory, and do a physical inventory yearly?
I've been told by people that you could have a "hobby" buisness whcih didn't make much money and not declare it. Is that true? I am sure my expenses exceed my incomes, and have not deducted anything.
If lots of supplies are accumulated for a "hobby" and later I decide to make it into a "buisness" do I have to inventory all of the stuff bought (or given to me as gifts or whatever) while it was a hobby? I have reciepts for a lot (but not all) of my stuff, but no way could I identify which went with which beads. And how do you inventory 1/3 of a hank of seed-beads, or pieces of something you bought at a thrift store and took apart?
All good questions too - all my lampwork set up was supposedly a "gift" from my hubby (though how it came out of *my* money and was a gift I'll never figure out) and this did all start as a hobby a year ago. In fact most of the jewelry I made over the past year went out as gifts, and I only really started selling this year after the first of the year. I don't plan on writing off a penny of what I spent last year either... So maybe I can just start with what I have purchased this year instead... will call the accountant and ask her opinion.
Your expenses don't gin until after you get your business license. Previous expenses aren't applicable. Eg, the cost of your first business license can't be counted as an expense because you need to get it before you start up your business, but the next one is deductable.
I got it about a month ago.... Yes, it is a lot of work to inventory items; I'm up to about 3300. I'm also "finding" a lot of beads I didn't remember having, and others that I had multiple storage containers of. I think I'm between 1/3 and 1/2 done.... THEN comes the "finished jewelry"-- I think I'll be adding a couple of "parts" catagories for items made previous to the inventory, rather than inventorying all the "ingredients", then taking them out of inventory to "make" the items. I'm also listing the little collections I've put together/partially planned projects as "kits" with an estimated total value, rather than listing the various parts separately.
For those with lost price tags/receipts, I estimate based on similar beads still tagged (or as in catalogs). I haven't started on my main lampwork stash, though, and that is going to be tough... not only are prices widely varied between artists, or have changed over time, but some are "unlabled" and I no longer know who made them.... Kaytee "Simplexities" on
No, you cannot make money and not declare it. Not with a hobby, not with gambling winnings, not with anything. You make it, Uncle Sam wants to know about it.
If you treat it as a hobby, and just declare your income on your personal 1040 (which is a perfectly legitimate thing to do), you cannot deduct expenses.
If you treat it as a business, and file a schedule C (profits and losses) you can deduct expenses. However, you need to be careful about this - Uncle Sam doesn't look kindly on people who do this just to write off the costs of their playtoys. :-) There are all kinds of opinions out there on this, and you would be far better off talking to an accountant if you are really trying to function as a business.
It's not worth trying to break the rules. Not morally, not legally, not financially. But, that's just IMHO. :-)
Does anyone know if this program can be set to use pounds sterling? Looks like a handy toy. Although I'm sure my Microsoft Access file works just as well as that does.
I will declare my incomes from last year on my taxes as additional income and not deduct anything. I did keep track of the sales. (I guess I will have to pay a little extra on the taxes, but it shouldn't be much... my "buisness" probably would look suspicious by what you are saying, since my expenses are way more then my sales, but I haven't exactly used all of my materials up either. It sounds like things will get really complicated if and when I do decide to declare a buisness??)
I never took in sales tax. I made very little money at craft fairs, but should I have done that even with a "hobby" buisness?
I assume I do not need to take in sales tax if I sell items at comission at a gallery?
You say the inventory = cost of goods sold as ending inventory minus beginning inventory.
Does this mean you can write off the cost of materials bought even BEFORE the year in question?
How do you inventory the cost of the completed work you have? Do you write off the value you want to sell them at, or the value of the materials? What if some of the materials were aquired before you decided to become a buisness?
What about tools, props for displays, etc? Can you write those off, even though they will never be sold as part of a completed product?
Understand that expenses are not your materials... those go into your cost of goods sold, you only 'deduct' them when you actually use them. (See previous discussion on schedule C.) Expenses would be - equipment, books, training, packaging, display items, postage, etc. And major equipment (say if you got into lampworking and bought a torch and kiln and such) would have to be amortized over a number of years, not written off all at once. And of course, don't forget that you can't write off more than you make. :-)
Sales tax is another issue unto itself. :-) If you sold at a craft fair, you should have collected sales tax. But, in order to do that legally (and give it to the state) you would have had to have had a state sales tax id. I've never done a craft show, so I don't know what the rules are on requiring a tax id to even sell at one - the shows I've been to here (Kansas) require that you post your tax id at your booth, and collect the sales tax.
Selling on commission to a gallery is more complicated, and I wouldn't want to steer you wrong. If you are actually selling the item to the gallery, than I would think that would be considered wholesaling it to them - and they would be responsible for the sales tax (but you would want a copy of their sales tax id to prove that you were wholesaling it.) If you are only getting paid when they sell the item, you will want to check with them to see if they are collecting and paying the sales tax - I would think they would be, but that is beyond my realm of experience, so I can't say for sure. Somehow, somewhere, the state is going to want their taxes. :-) (And Kansas now wants it no matter who you sell it to, out of state, or in-state, and based on where the customer lives, not where you live. We will no longer be able to buy tax-free from Amazon in April, since they have a warehouse in Kansas.)
Heavens, Marisa, perhaps we'd better take this offline. :-) Mind you, this is just *my* understanding after going through the IRS documents - I am not a tax attorney, or CPA, and would hate for you to rely on me and get in trouble. :-)
You'll have to choose an accounting method - cash or accrual. Cash is counting your chickens when you have them, so to speak - when the money is turned over to you. Accrual (which is what most businesses do) is counting the sale when the sale is made, not necessarily when you receive the money. Or pay the money out, as the case may be.
You don't really 'write off' the cost of the materials you've used - basically, if you make a bracelet, and it costs you $5.00 to make in materials, and you sell it for $25.00, your cost of goods sold is $5.00, and your taxable income on it is $20.00. Do this 50 times over the course of the year, and you have taxable income of $1000.00, on sales of $1250.00. If over the course of the same year, you've bought baggies, and stamps, and polishing cloth, and business cards, and pliers, and what-not, to the tune of $500, you can write-off the expense of the $500 against your taxable income of $1000, and only pay taxes on the $500.
If you are just doing your taxes on your own 1040, no schedule C, I would just keep track just like that. I made this, it cost me that, so I pay taxes on this amount. (Except then you can't write off the pliers and what all). BUT, if you are doing a schedule C, you will need to see what you have in stock at the end of the year (raw materials, or beads in this case, plus anything you have made but haven't sold) - that's your ending inventory. Should have done the same at the beginning of the year (or the end of last year.) That's how the IRS wants your CGS calculated, not on a piece-by-piece as sold basis.
There are also all kinds of books out there on this, and lots of websites. Your ultimate tax resource of course is the IRS... I would start by looking here:
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They have all kinds of information on what you will need to file. Your own state will have a similar set of information; usually under the Department of Revenue (for sales tax.) If you need more info, just email me (remove the obvious from the email address.)
Karin (kind of makes you wonder why anyone would ever want to get into this, doesn't it?? :-)
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