Have a Tax Question? Ask a Tax Expert
Hi and welcome to Just Answer! 1. I understand I will need to have a 1040, schedule C, Schedule SE, and schedule E. Is this correct?Yes - that is correct - you will report your business activities on schedule C, will calculate self-employment taxes on schedule SE and will report your rental income and expenses on schedule E.My question: even though I wired her the money in 2013, is it true that this is still considered a 2012 expense?If you purchase goods in 2012 expenses are reported on 2012 tax return. If goods were purchased in 2013 - these will be 2013 expenses. So you need to be clear WHEN goods were purchased by you. If you purchased goods from your friend - that will be 2013. If your friend purchased goods for you (acting as your agent) - that will be 2012. Also, do I enter the total amount on the invoice that she issued me in my spreadsheet (which I will give to an accountant) rather than the amount in the individual receipts?You need to keep track of your inventory on your books. On the tax return - you enter the total amount.Additionally, since some of the receipts are hand-written, will IRS accept them?You do not send any receipts to the IRS, but keep them as supporting documents. You will only need to provide receipts if the IRS audit you and specifically ask for them.
3. Can I scan in all my receipts and discard the original copies? No - you need to keep original receipts. Will IRS accept scanned receipts for audit?If you have scanned copies for some receipts the IRS might accept - but if you would not have any original documents - the IRS might not accept scanned copies of receipts. Should I issue an invoice to my LLC when I purchased items using my own credit card?No need to issue invoice. The LLC is disregarded entity for income tax purposes - means all income and expenses are reported on your tax return as if there is no LLC - so no need to issue invoiced to yourself.
Can credit card transactions be used as proof of expense?Yes - you may use credit card statement to proof facts of payments. However there is no guarantee the IRS agent will accept it as a supporting documents - all depends on other facts and circumstances. You better to re-establish receipts. I didn't think I would make money with my LLC this year; therefore, I didn't set up the quarterly tax payments. What should I do now?If you have any tax liability - you need to pay it before Apr 15. There is no other choice. But you need to prepare your tax return to calculate your tax liability.When interviewing for a CPA to do my taxes this year, what questions should I ask (e.g. do you do multi-state taxes?)?Based on your information - your tax return should not be complex - and any tax preparation service may handle it. What you might need for your business - a bookkeeper who will keep your documents in order. You might want someone who will do that on weekly or monthly basis depending on volume of documents. That will help you at the tax time.So far - you need to file nonresident tax return for MO (for your rental income) and resident tax return for PA where you are a resident.You may review this IRS article - Ten Tips to Help You Choose a Tax Preparer - http://www.irs.gov/uac/Ten-Tips-to-Help-You-Choose-a-Tax-Preparer
" If your friend purchased goods for you (acting as your agent) - that will be 2012."
That is correct.
Hello, my friend was acting as my agent and purchased the goods in 2012. And I am wiring her money in 2013. But how do I prove that I am not purchasing the goods from my friend in 2013, only reimbursing her for what she has purchased in 2012.
That might be done by providing original receipts.
"You need to keep track of your inventory on your books. On the tax return - you enter the total amount." Does that mean I need to list the cost of each item in my books, or can I list the cost of a lot of items?
"Can I scan in all my receipts and discard the original copies? No - you need to keep original receipts." Now, some receipts fade over time, what should I do?
What about online receipts. Do email receipts count as original?
Yes - email receipts are acceptable.
Now, some receipts fade over time, what should I do?
You need to re-establish your receipts. Otherwise there is a risk that your documents will not be accepted.
"You need to keep track of your inventory on your books. On the tax return - you enter the total amount." Does that mean I need to list the cost of each item in my books, or can I list the cost of a lot of items since the items are purchased in a lot?
You need to keep track of each item in your books. You may list the cost of a lot if the lot is purchased. However if items are sold separately - there should be a way to identify which item is sold.
Also, sometimes when I drop ship, the receipt has the receipt's name in the billing and shipping address. Are these receipts valid?
See this publication about IRS requirements to keep inventory. http://www.irs.gov/publications/p334/ch06.html
Yes - these receipts are valid.
And the receipts do not show my LLC's name at all. Is that okay?
As long as you have a contract with the service provider which acts as your agent - that is OK.
I don't have a contract. For example, I bought a kmart gift card. And I used this kmart gift card to purchase goods on kmart.com and have kmart.com directly ship stuff to my customer. Now, on the email receipt, the billing and shipping addresses show my customer's name. Is this receipt valid?
Yes - that is a valid receipt - but you would need to explain that scheme to the IRS agent in case of questions. Also you need to provide how the customer ordered and paid.
Thank you very much for your help.