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Taxes – woohoo, right? Bookkeeping, double woohoo…lol! I know this is not the favorite topic for the self-employed (or anyone, for that matter), but it’s a fact of life (ugh). So, if you’re an affiliate marketer or any type of online business owner, how do YOU keep your accounting records? I’d like to show you how I do my books to keep up with everything and be ready for taxes – and then hear your ways for doing it.
Bookkeeping and Accounting for Online Business Owners
First off – I am not an accountant or a tax attorney or any other type of expert in those fields. Also, I am talking as a US citizen here as I don’t have a clue about taxes and accounting for other countries (sorry).
In short, this post is geared towards those working online, that live in the United States, and that operate as a sole-proprietor or single LLC (ie, your business tax form is included as part of your personal 1040 form – most likely as a Schedule C addition to your 1040). However, my solutions work really well for all types of “Schedule C” type businesses – it doesn’t have to be an online business.
For those of you that are in a hurry or don’t care to read any further about the “how” and the “why” regarding my bookkeeping system for my internet business, and would rather get straight to the “what”…
I use this and I use this (they work PERFECTLY together and combined, have made a dramatic change in my bookkeeping and tax preparation).
If you’re not in a hurry, great! Let’s keep talking…
Bookkeeping and Taxes for Internet Marketers 101
When you work for yourself and report your earnings/losses for taxes (ie, sole proprietor or single LLC), it goes on that Schedule C form that is included in your personal tax return (ie, no special “other” returns – all is included in your 1040).
Self Employed “Schedule C” businesses are pretty much:
Money Made from That Business
Less Money Spent ON that Business
Equals what you pay taxes on.
Regardless of that money all going through ONE bank account or not – if you earn it, you pay taxes on it. If you spent it to earn that money, you get to deduct that amount from the money earned.
Income – Expenses = Taxable Income
And that taxable income part from the bottom line of your Schedule C is then reported on your 1040.
ALWAYS check with your accountant or tax professional for YOUR situation, ok? This is just a general over-view of how it works.
Got all that? Good – let’s talk about how to keep up with all this.
BookKeeping for MY Online Business
I’ve been working online for right at 5 years now and the bookkeeping/accounting stuff has always been a thorn in my side. Ya see, I’m an Excel type girl – I’ve always done all my record keeping for my online stuff in a good ol’fashioned spread sheet. Believe it or not, using an Excel spreadsheet was a BIG improvement for me. I’m a paper person at heart – I love having things like that in a tangible form that I can touch (yep, I’m weird)
Now, that worked for me for quite some time. I am pretty comfortable with a Schedule C form so I have a good grasp of what I need to be keeping up with so it’s available come tax time.
BUT – it really ONLY worked for ME. *I* know how I do things… *I* know why I did this or did that – but no one else would really “get” it without some explanation from me. This also caused a lot of issues for me come tax time because *I* had to take the time to “decipher” it.
And, above all, the TIME I was wasting doing it this way was ridiculous.
That’s not smart.
Now I’ve never been accused of being the brightest bulb on the tree, but the more and more I reflect back on it, the more I realize that this was so NOT the best way for ME to handle things.
I wanted things better – more organized – better info for me at a glance – less time spent DOING it – and something someone ELSE could easily decipher if need be.
For me, 2012 became the year that “if need be” happened. I’ve brought my hubby in as my CFO and he is now doing my books for me (it’s that ‘time’ thing and he is simply MUCH better at business numbers than I am) so it was time to find a GOOD solution (and my accountant sure appreciated it too…lol).
My accountant recommended some various software I/we could use for record-keeping, but none of them were exactly what I wanted.
Here are some of the things *I* wanted.
1. I wanted it to be web-based.
I didn’t want a software program that was only available from ONE computer. I have a massive desktop computer that I use when I work in office, but I don’t always WORK in my office – and I don’t always work from HOME either. I’m on the go so my bookkeeping needs to be available on the go too. I wanted my books available to me wherever I had internet connection.
That also meant that I could log in from my computer (or whatever device) AND my hubby could log in from HIS – no peeking over each others shoulder or needing to share one computer because that’s where the books are.
Also, I personally wanted a way for my accountant to log in to my account if I needed her too. Why drive all the way to her office when she can just log in and talk to me about things, ya know?
2. MUST integrate with PayPal
Majority of my money flow is through PayPal – and hand-entering all those transactions is a nasty job (and VERY time-intensive). I wanted a bookkeeping program that easily integrated with PayPal so all my transactions imported in easily and quickly (automatically would be ideal).
3. Birds Eye at My Bottom Line
A big problem for me with my Excel spreadsheet system was that I never really knew where things stood at that exact moment. Simple questions like, “How are things going this month?” took math and deciphering my system. My new system needed to enable me to see instantly, at a glance, how things were going at any given moment.
4. Schedule C Integration
Ideally, I wanted to find a program that took my income and expenses and went ahead and kept updating my Schedule C so *I* could literally see how things were going. Naturally, it wouldn’t be THE Schedule C that I filed, but it would be a “mock up” so I could visually get an idea of how things were going (and so could me accountant).
5. Estimated Taxes
It would also be pretty nifty if I could also have a way to see what kinds of estimated taxes I might need to pay (this varies for everyone so please talk to your accountant about your specific situation)
6. Must Integrate with Other Accounts
Who knows, I might want to integrate a bank account or a credit card. I wanted that flexibility and I wanted it to be “push button” – not a transaction by transaction thing.
7. Must Offer Push Button Reports
I like line graphs and pie charts as much as the next person. And yes, it’s way more cool when it’s YOUR money you’re looking at…lol! I wanted a way to push a button and know things like – “How much have I spent on domain names this year/month/week?” or “How much have I made from xyz affiliate program this year/week/month?” – things like that.
8. Must Allow For OTHER Transactions
Yes, integrating with PayPal and automatically pulling those transactions each day was a must for me – but I didn’t want to be LIMITED to that. If all I needed way PayPal info about my earnings and expenses – well, I’d just log into PayPal, right?
But what about when someone mails me a check? Or a direct deposit into another account? What if I pay for something with cash?
I wanted to be able to manually enter transactions that have to do with the bottom line of my business. Remember, it’s not necessary for all transactions to go through ONE checking account, but all transactions MUST be accounted for. I wanted ONE place to easily account for EVERYTHING money-related for my business dealings.
9. Receipts
Speaking of paying for something with cash or some other way OTHER than PayPal… I wanted an easy way to keep up with those receipts too.
10. Must be Mind-Numbing EASY to Learn and Use
Above all, once I found all the 9 requirements above, I knew without a shadow of a doubt, that it had to to easy to learn – and super easy to use. Let’s be honest, if it’s too hard to learn and set up – and/or too hard to use on daily basis, we won’t use it, right? Maybe it’s just me, but I know that *I* won’t use it if it’s a pain in the butt…lol!
There you have it – my “Wish List” of things I absolutely wanted in my new business accounting program. Naturally, I wanted my info to be safe and secure – and have the ability to download and upload things (but to me, those parts are a given). Above all, I knew that if I was going to change my wicked ways with my Excel system, my new system was going to need to be PERFECT for me – or else I ain’t doing it…lol!
So I set off on my mission trolling the internet looking for my perfect solution.
The Online Business Accounting Software I Found – and Now Use
I trolled a lot of forums listening on conversations others have had about the very thing I was looking for – What accounting software or program to use.
The eBay forums were the most helpful as those that sell on eBay really also needed a solution like I did being that the majority of their business transactions happened via PayPal. Turns out eBay sellers and Etsy sellers kept mentioning one accounting program.
And get this – IT’S FREE
I kid you not – it’s FREE for as long as you want to use it. The most it will cost is $9.95 a month IF you upgrade to their Plus option (which seems to add more to the estimated taxes part).
Not only is it FREE, it also had every, single option I required. Yep, all ten of those things on my “Wish List” have been found in this free small business accounting program.
It integrates with PayPal VERY easily…one click and all your transactions are right there (and it will go get them FOR you automatically)
It integrates with all kinds of other accounts, too. You can add your bank account(s), credit card(s), Amazon sellers can add their accounts too. Just amazing at how many different accounts you can integrate.
All the reporting and “mock” Schedule C stuff is right there… My bottom line at any given second is right there as soon as I log in… My estimated taxes are right there… Pretty little pie charts available as soon as you log in too. Heck, it’ll even keep up with your mileage too!
I am SUPER impressed with Outright – it truly is the perfect solution for me.
I even did a basic set up and then had my accountant log in to get her thoughts (there is a special way to give Bookkeeper Access) – she really liked it too. We both agreed it was a good solution for me. (oh and a quick tip she gave me – set up a category called “Ask Accountant”. That way, when a transaction comes through and you aren’t totally sure what to do with it, just tag it as “Ask Accountant”. That way, any questions I have can be pulled up with a click and corrected as she tells me to.)
Oh, and wait – here’s something else cool regarding receipts.
Ok, let’s say I go to the post office to mail something business-related. I pay cash. They give me a receipt. Knowing me, that receipt goes to the deep pits of my purse never to be seen again.
But then I met this awesome program – and no more lost or missing receipts for me ever again.
In short, it is an online receipt filing system (if that makes sense). They give you a free app for your iPhone or smartphone. When I get a receipt, I simply take out my phone and take a picture of the receipt with the app on my phone. They then verify the receipt for accuracy (with a real human) and then file a digital copy of my receipt AND sends it over to my accounting program automatically so it’s in my books – just about INSTANTLY!
Way wonderfully awesomely fantastic!
It’s only a few weeks into 2012 and ALREADY I feel SO much more organized and SO much more on top of things – AND I have a system in place that my wonderful hubby can use to keep me on track 24/7 – always able to know anything I need to know regarding my online business, my earnings, my taxes, and my bottom line.
I have to admit that when I sat down and thought about exactly want I wanted from my accounting program, I pretty much thought I was really reaching for the stars (ie, no way in heck I was gonna find something that fit my needs PERFECTLY).
You know that feeling you get when you find EXACTLY what you want AND it’s FREE? Holy Wow! Nothing like it!
I strongly encourage (my version of “insist”…lol!) that you take some time and go try OutRight out and see how awesome it is.
You can find it here.
If you’ve ever wondered how to keep up with money and taxes and expenses from your online business – this is a GREAT solution.
They have a great over-view video on their site that explains it all – watch the video here, but you really need to try it for yourself to get a good feel for it (hey, it’s free – why not, right?)
Also, if you find you have questions or need some help – they have amazing support and a great knowledge-base. I had a few questions while setting it up for my needs and they were Johnny On The Spot to answer. Very impressed.
Summing Up
I think the “toughest” thing for my accountant and I to work out with each other was this – my Online Business has MANY, MANY income streams. I’m not like a typical brick and mortar business in many ways. Take for example, a restaurant – they do ONE thing to earn income – run a restaurant. Or like a self-employed plumber – he/she does ONE thing…provides plumbing services.
My bottom line comes from MANY things online – affiliate marketing, optimization services, my own products, etc etc etc. And very few expenses I have are only for ONE specific part of my business. For example, when I shared my article marketing strategy, there are tools I use BUT I don’t ONLY use that strategy for only my affiliate stuff… I use those tools for other things that generate income too.
So that makes me a little… well, a little “weird” in an accountants world so we pretty much settled on this…
If I earn it online – it’s my income
It I spend it in order to make money online – it’s my expense
And I needed to find a really good way to keep up with all streams of income and all expenses so I could both know my bottom line at any time AND be ready tax-wise at any given moment.
While all that might sound silly to y’all – I needed that clarification in my head. Sometimes I would talk myself in circles about all this tax stuff with things like, “Should I do a Schedule C for each TYPE of income I earn online?”
(I’m telling ya – just spend one day in my brain and you will want to beat your head against a wall….lol!!!)
Once we talked it out I realized that I was over-complicating things. All I needed was one reliable place to keep track of it all – and that’s what this small business accounting program it conjunction with this receipt tracking program do for me.
Now I’m not talking legal things here – I’m talking purely tax and book keeping stuff for my situation. Thing is, I know there are lots of “Me’s” out there that might be talking their selves in circles too.
My advice – get a great free program to keep your books all in once place like the free online accounting program I use, then use this to keep up with your receipts AND have them recorded in your accounting program, and get a good accountant to help you keep up with tax liability and file your tax forms.
Our time should be spent on doing things that bring money in. There is only so much time in a day and only so much ONE person can do. When we spend lots of time on our books or other maintenance parts of our business, we lose time we COULD be out there doing things that actually improve our bottom line.
Ok – so tell me – what has been YOUR solution for doing your books?
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I started using Outright about half a year ago, and I agree that it’s far and away the best and easiest solution I’ve found for keeping track of my income and expenses.
The estimated taxes due is super helpful. One quick thing about it, though … The income tax percentage will gradually increase as you make more money and move up in tax brackets, so that’s just something that you have to be ready for.
Or for me, I’ve calculated how much I anticipate to pay in taxes over the year and I try to put aside that percentage from each check/payment I receive. So for a while, I might be putting aside more than Outright says I need to, but over time as my income tax percentage rises it will catch up with what I’ve put aside.
Anyway, super helpful. Less than $10 a month (and you can add that as an expense!) and it’s dead simple to use. It’s also up to date on things like mileage, so if you travel for business purposes you can just give it the round trip mileage and it knows the 2012 mileage rate (.555 per mile).
Thanks for your feedback, Chris – it is pretty awesome, isn’t it?
Yep, I did forget about the tax bracket thing – but it’s a good “birds eye” of what’s going on JUST with your business. I file joint/married so things change by the time the numbers actually go to your 1040.
Again, I am NOT a tax lawyer or accountant, but say for example: on a married joint 1040, HE works for an employer, gets a W-2, has taxes taken out all year, and SHE works for herself online, 1099, Schedule C… the taxes HE pays in via every pay check through out the year COULD offset any estimated taxes. COULD – all depends on the situation.
Thanks for stopping by!
Jennifer
I also started using Outright recently. It’s a great platform to keep record of my earnings and everyday expenditure. Anyways I appreciate you dear for writing a segment about internet marketers. Keep it up. 🙂
This is one of the important aspects that all should focus on, it’s quite difficult to know which is which but it’s a good thing that you’ve laid out some ideas. Thanks!
So true Feye, it’s hard to manage them all and know them all, I’m running a home business and seeking pro help with regards to legals aspects like taxes is something I found very helpful. As a newbie it’s a big help but with this article, it could be a fruitful resource.
I also subscribe to Outright but admit I haven’t peeked in there for awhile (I don’t make much profit yet LOL). My question is this (maybe someone knows) – do you HAVE to pay quarterly taxes? I also file joint and suspect the numbers they tell me in Outright wouldn’t apply anyway. I’ve just been rolling it all together in April and paying what I need to then. I still have an 8-5 JOB so I have W-2 where I have extra money being pulled out anyway to cover taxes.
Standard not-an-accountant disclaimer, of course … 🙂
It is my understanding that if you owe more than $1,000 in taxes at the end of the tax year, you can receive a penalty for not filing quarterly estimates.
Being new to IM, or at least claiming expenses, I am really confused about where to claim some of the expenses. I’ve mostly done my own taxes (business too). Most accountants don’t seem to “get” the IM thing. How are other IM’s claiming things such as: plr, plugins, templates, ebooks and courses? What category do they fall under? Do they need to be depreciated over more than one year?
Thanks.
{Insert standard “I’m Not an Accountant” disclaimer here}
Things you buy to operate your business (not including paper,ink, pens and other office supplies) could be categorized as “Supplies” – and perhaps not “Cost of Goods Sold” (which is something not really related to what we do). I don’t see depreciation regarding the things you mentioned.
[Inserts “Not an accountant” disclaimer also!]
Depreciation usually only applies to things which can be potentially resold at some point if you had to wind up the business, like computers and certain other things like office equipment, saleable stock, vehicles and so on. You usually agree with your accountant (and, ultimately, your tax authority) what may be depreciated and at what rate … a common standard is 20% per annum, meaning that your computer, your office furniture and so on are ‘written off’ (= have no value) after 5 years.
Ebooks and courses might come under the heading of “Training” (we all have to pay for training to make us better at what we do!); plugins and templates are “Software” which help us to increase productivity.
PLR articles are, on the whole, resalable, but are not like physical ‘stock’ (which, once sold, has to be replaced). It’s difficult to know where they might fit into a traditional accounting system but, since they really have very little value once they are published once, they are probably a one-off purchase which, like expendables, should be written off immediately. If you do sell them (multiple times), of course, then that is extra profit.
HTH!
You would usually include ‘Depreciation’ as an ‘expense’ in your yearly returns or annual balance sheet and it would be a separate item from ‘Supplies’.
This couldn’t have come at a better time for me. I’ve been using spreadsheets too. Outright looks awesome. You rule.
Bill
Hi Jen,
Thank you soooooooo much for this post. I have signed up to both and I’m def looking forward to making filing my faxes a lot easier.
Congratulations on a superb presentation. I sometimes wonder how you find time to compile these detailed posts on your site. I guess it’s as they say “if you need something done ask a busy person” or something along those lines.
A few years ago I studied international tax systems as part of a university project and it sure made me glad to be living in little old New Zealand rather than a few other parts of the world.
The Benjamin Franklin quote springs to mind here or as another writer put it *if I had a dollar for every time I heard someone say, “the only guarantees in life are death and taxes,” I guarantee that I would be a very wealthy man* so hopefully your readers have some other less taxing guarantees in their lives.
Now if only they had an Australian version… my biggest bugbear is translating all those PayPal transactions in USD to AUD for book keeping and tax reporting. There must be a simpler method…
This is a really awesome and much-needed article and the two software packages also do exactly what you say (and required of them). It’s a shame that the accounting package only deals with the American IRS system, though much of it is applicable to and usable by people from other countries.
So much can be found online about earning a living by freelancing – whether it’s through an omline business or not – and yet there is so little said about how one should actually manage one’s earnings (supposing there to be any) in order to keep square with the tax authorities that one begins to wonder whether there really _are_ any people making money this way.
I’m certain that this post of yours will wake a lot of people up to the fact that they OUGHT to be doing something about their tax returns and will give them, at least, a starting point!
I believe that, in the US, earnings of less than $600 a year don’t require you to fill in a form (though that doesn’t mean they’re not taxable). The same applies – and to an approximately equivalent level – in many other countries as well. We may all start out small and be overjoyed if we are beginning to see even $10 coming in regularly every month but we should all (of course) hope for better and, long before we reach even $50 a month, need to know that the tax authorities will, sooner or later, become very interested!
I’d also like to point out that all of us, really, have to be ‘tax lawyers’ and ‘accountants’ inasmuch as it affects us. We all (including the tax lawyers and accountants) have to try to understand what the IRS actually requires of us. The professionals are simply there to help us (that’s what we pay them for) and they, also, have a right to make disclaimers.
Would your accountant, Jennifer, like to give her comment in this thread, I wonder? Her disclaimer would have to be, of course, that she only knows about US law and that she would, in any case, only be giving her personal opinion!
Very good post Potpie girl a lot of internet marketers are clueless on how to do their taxes at least correctly that is. Thanks for clarifying things for everyone.
Plus you added some pretty cool resources to make the job a little less stressful.
Jennifer,
This was a very timely topic. I’ve just now really started to focus on building my online business. It seems very few really want to talk about this subject because of ‘liability’ concerns. Starting out, however, it is helpful to find what established marketers are using as tools of the trade. I have signed up for Outright already and can see how beneficial it will be. Thanks for sharing.
Jeremy
Thanks Jennifer,
I Finaly got a chance to read your entire post and am anxious to check out the programs you
have described. I wonder though?? Did you diced to create this post because of my question
on the WA forum or was the timing just coinsidense.
Jennifer,
For my direct sales business (offline) I always used Quicken. My entire life was tracked that way. I started getting frustrated with it as I had to upgrade and keep converting my files. (I have several that I’d like to access but the old software doesn’t work on the new Windows systems so I feel like I’ve lost a lot of my business data even though I still have the files.
I’m gonna give this software a shot. It looks like it can do most of the stuff I’d been using Quicken for. And with it being online maybe I won’t lose stuff in the upgrade translations!
Thanks for the info!!
Hey PPG – awesome post, and very timely. 2012/11 was a nightmare for me. So disorganised. Its a mess! Never again.
My question is – does this work in the UK? Or is it set up for US only?
D
Hi Jennifer,
Thanks for sharing this info!
I have a question for you, if you don’t mind…
I hope to have to file self employment taxes this coming year, and I always wondered about how you pay social security taxes/self-employment taxes. If your revenue is from ads and affiliate programs, is the ssn tax and self employment tax still owed? I assume it is, but I’ve never seen it mentioned by any online marketer.
I downloaded the free version of OutRight and have been going through my expenses for 2011 before I start working on my taxes. Thanks for the suggestion. I really like that it has a Schedule C worksheet that I can print out so I can see exactly where everything goes on the actual tax forms. The estimated taxes would be more helpful if it allowed you to enter in your expected tax bracket after you consider other income (like a spouse’s wages). Right now it’s telling me my estimated taxes for Q1 of 2012 are about 23% of my net profit, which I assuming includes SE tax. But my actual taxes will be around 43% of my net profit after I figure our tax bracket with my spouse’s income, plus the SE tax. I guess I’ll just have to continue to figure this up my own. But otherwise, the rest of it is great.
I have been working on taxes all day and just happened to pop on the web and happen on to this site. I’ve been doing IM for a few years but just this year started making a little money. I’m confused about one thing, though. For instance, I’ve purchased several WSOs….what category would those fall under in expenses? Additionally, what about PLR packages that I bought to re-write and post on my site?
I’m assuming the WSOs would be educational expense and the PLR would be cost of goods sold? That’s just my 0.02….am I on the right track?
So glad I found this site today!
hi Jennifer!
wondering if you could pass on to dave bocock that I’d like to talk to him about the keyword college material he had up – tried power3 first, but got a “forbidden” message.
hope you are having fun, and just delete this when you read it 🙂 it’s not exactly on topic