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    9 Replies Latest reply on Apr 3, 2008 1:35 PM by ScottJ

    Questions for a sole proprietor....

    design76 Newbie
      Hi all! I'm a graphic design freelancer and I also have a reseller's permit as well. This is probably a very DUMB question (bear with me), but do I count everything that my clients pay me as income? For example--

      I design a mailer....I charge a design fee, charge the print plus a markup, then add on postage and state tax and voila...that's my total.

      Now when I report this and they send me the check for the whole shebang, do I report the whole shebang as income? Even though I had to pay the printer and pay postage and taxes? I pay the taxes to the state quarterly...

      I've been freelancing for 3 years but this is the first year (2007) I've operated with a reseller's permit so I'm just not sure how it all works...

      My second question is what (out of the above example) would be my deductions? The print actual cost only?

        • Re: Questions for a sole proprietor....
          Lighthouse24 Ranger
          Welcome to the community. Yes, your gross receipts (Schedule C) are the total amount they pay you.

          Right now, it sounds like sales tax is being collected twice on the same items (once when something is sold to you, and again when you sell it to the customer). Sales tax should only be collected once, when you sell the item -- you should be able to buy your supplies, materials, etc. tax exempt. In some states, your resellers permit is all you need to do that, and other states, you need to fill out some type retail tax exemption form and place it on file with your suppliers or vendors. Whichever it is, do it, as it will save you (and therefore your customer) money.

          Everything that goes into the deliverable for which you are invoicing the customer is part of your Cost of Goods Sold. Postage could be built into that if you are invoicing them for postage as a separate line item (of course, it's added in on the invoice after you calculate sales tax). If you don't show it on the invoice and don't include as part of the Cost of Goods Sold, however, then it's a deductible Expense.

          Hope this helps. Best wishes.
          1 of 1 people found this helpful
            • Re: Questions for a sole proprietor....
              design76 Newbie
              hmm...I see what you're saying...(about paying tax twice) but I'm supposed to pay that portion of tax to the state you're saying that by reporting it as income I end up paying taxes on it twice because I have to pay federal tax on it? I'm not sure I completely understand...

              But thanks for the answer to what I end up reporting...that's what I thought.
                • Re: Questions for a sole proprietor....
                  design76 Newbie
        , I don't have an accountant. But my husband and I have always done our taxes ourselves and until this year with the reseller's permit we've never had a problem. All my work has been design so it was pretty cut and dry with filing.

                  I literally just heard about SCORE (photographer friend of mine went to a seminar a couple of weeks ago...) I've been reading their website and may check them out.
                  • Re: Questions for a sole proprietor....
                    Lighthouse24 Ranger

                    Design76, sorry for any confusion . . . I understood you to be saying that you were paying sales tax (to the printer, for example) for items that you were then reselling to customers and charging them sales tax on -- and I was saying that sales tax on those items only needs to be collected once (when you sell them). You need not pay sales tax on items you purchase for resale (but you may have known that already).

                    The sales tax you collect from customers on the items you sell to them (i.e., what you pay to your state quarterly) is part of your gross receipts, but it is deducted on Schedule C as a business expense (so you don't end up paying federal income tax on it).

                    I hope I explained that more clearly . . .
                • Re: Questions for a sole proprietor....
                  LUCKIEST Guide
                  76, Welcome to this web site
                  We teach children "There are NO DUMB questions"
                  The more questions you ask, the more you learn and hopefully
                  the better the business does.
                  You have been in business 3 years, Do you have an Accountant??
                  Do you know about SCORE?? SCORE is FREE.
                  • Re: Questions for a sole proprietor....
                    designer Tracker
                    Hi, design76! I am a jewelry designer and have used a graphics designer for my web site for a few years now. From my end of things, I can tell you that when my taxes were done the graphic design services were accumulated for the year and entered as professional services for the totals I was invoiced. It also falls in the same bucket as Webmaster fees, etc.

                    Now, for your additonal expenses, like you mentioned the printer you used and your postage....I think you would want to itemize those individually. You have to factor the cost of doing business and postage expense is a pretty major category that almost everyone uses as a business owner and separates out as an expense which would include stamps, delivery confirmation, messenger items, etc.

                    One final note, there is always a lot of talk about having an accountant. But if you are knowledgeable and up-to-date on tax issues, use TurboTax and are savvy about the law and you may have an informed partner or husband/wife and your business is truly a small accountant would really be a luxury and excessive in some situations. If you free-lance and do a handful of projects a year, you wouldn't need an accountant.....but when your business is truly growing and gets complicated and hairy and you feel like you're losing control then I would say it is a must.
                    • Re: Questions for a sole proprietor....
                      ScottJ Wayfarer
                      Wiw, you said a mouth full. You have a couple of questions that I think need to be dealt with. Regarding your Federal taxes and wha'ts considered income, Not exacly, the cost's our items that you need to pay someone to do, COULD be considered an expense and can help reduce the amount of income that you would actualy have to pay income tax on. For example many people don't relaize that if you the travel you do between your home and your business is not tax deductable, but traveling from your office to a customer or to meet a customer at a restaurant is deductable. If would be more speicifacally to discuss more specifics with you if your interested.
                        • Re: Questions for a sole proprietor....
                          intechspecial Ranger
                          The only dumb question is the one that was never asked.

                          I think alot of people (including me) could learn a little more of the ins and outs of local, state and federal laws on taxes.

                          They need to start a PHD program at accredited universities as well for tax rules and regulations.

                          Quite a mess to sort things out.

                          I simplify. Nothing like a good ole turbo tax to do the thinking for me.
                            • Re: Questions for a sole proprietor....
                              ScottJ Wayfarer

                              In certain Universities there are, however they are typicaly, designed for accountant's of busniess mgt majors who want to take it. I would contact your local community college and ask them if they do offer a tax class, which would cover Schedule C and the dreaded Schedule SE (Self Employment Tax). If they do not ask if they would be open to the idea, and see if you can get a few friends, and friends of friends to join in the interest. My experince is if there's enough interest in the subject then the college would consider offering it as a non-credit course.

                              Regarding Turbo Tax. I'm not sure how much they have improved from earlier verisons, but I would take the results with a grain of caution. I used it and it's nice on the big stuff, however some of the fine details it doesn't do so well, for example, I had a few customers who came in to do their taxes last year using Turbo, and theydid not take the Telephone Exise tax credit which they where elegiable for. I would also be cautious as a small business owner, on your schedule C and also probably be wise to double check the math on Schedule SE by hand or calculator.

                              I think the general public think that taxes is the big bad lion and afraid of them, however if you just take some time and learn them they are not difficult to do for the general public. Yes I would include Sole Proprietor's in that group also.