Author Topic: Accounting issue for a really small handyman business  (Read 3385 times)

memorytoast

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Accounting issue for a really small handyman business
« on: July 24, 2017, 03:56:28 PM »
My husband started a handyman business about a year ago. For personal reasons, he's been keeping it pretty small.

Before he started the business I used to do all the budgeting/book-keeping for both of us. We kept it simple by mostly purchasing everything on credit card, which I could check online (don't worry we always paid in full before it was due) and he'd let me know if he bought anything with cash. We'd informally discuss spending and allocation and this system worked really well until he started his business. Then it got complicated. He'd buy a bunch of things at Home Depot and other hardware stores, but I didn't know if they were business purchases or home improvement purchases, (he likes to tinker and fix things up around the house). Additionally complicating things is that some business purchases he expects the customer to reimburse him for and some he doesn't. To address this I asked him if he would mind joining me for a weekly scheduled discussion of what was what. He agreed, but practically it doesn't happen every week (more like every other week or twice a month).

Even with the meetings, the fact that everything is on the same recepit and all mixed togather makes the accounting difficult, especially since when all the items are on the same receipt the sales tax gets lumped together on all of them. To get precise numbers we have to do a lot of dicussing and fair amount of math. It's not completely untenable, but I figure there's got to be a better way!

The reason I want to keep track of all of it seperately is that I don't mind if his business isn't making a lot of money, but I think we should have an accurate picture of how much it is making.

Anyway, a possible partial solution I came up with for this is that he should get a second credit card to put on things for the business for which he will not be reimbursed. Then, anytime he's purchasing stuff a customer will reimburse him for or something for home he should just group them on the conveyor belt so that customer stuff comes first and his stuff comes second. That way he can just draw a line on the receipt (he always carries a pen) and the math will be a little less complicated. It's only a partial solution because I'd still have to do the math for the sales tax, but I can't think of anything better.

Any thoughts?

If you think my partial solution is okay any suggestions of which credit card to apply for as his "business" credit card? (We currently use chase freedom unlimited for our personal spending and both have excellent credit.)

robartsd

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Re: Accounting issue for a really small handyman business
« Reply #1 on: July 24, 2017, 04:40:02 PM »
Some stores do not always print the reciept in the order items are scanned. My suggestion is that the business items should all go on the business card whether or not he expects the customer to pay for the item inself, or he intends to include the item in his service fee. If he also tracks all money collected from the customer (materials in addition to service fees), the problem is solved.

Optimiser

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Re: Accounting issue for a really small handyman business
« Reply #2 on: July 24, 2017, 05:19:57 PM »
He should definitely have separate accounts for business and personal expenses. If he is buying things business and personal on the same Home Depot trip, make sure they get rung up separately. It is a little more work on his part,  it makes the accounting so much cleaner. It will also make your life much easier if you ever get audited.

memorytoast

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Re: Accounting issue for a really small handyman business
« Reply #3 on: July 24, 2017, 06:33:20 PM »
Some stores do not always print the reciept in the order items are scanned. My suggestion is that the business items should all go on the business card whether or not he expects the customer to pay for the item inself, or he intends to include the item in his service fee. If he also tracks all money collected from the customer (materials in addition to service fees), the problem is solved.

He does track it all, but he does it by pen and paper and then I transfer the expenses and income to our budget spread sheet. Maybe it's just that my spreadsheet model is flawed since I set it up while he was a student making only a tiny amount from side hustles and his busines purchases were so infrequent that I could very easily sort them? Or maybe I'm not explaining the issue clearly...

trollwithamustache

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Re: Accounting issue for a really small handyman business
« Reply #4 on: July 24, 2017, 06:53:29 PM »
the business needs everything separate, so one credit card for business and one for personal. The Business also needs its own bank account that payments go into and business expenses (on the CC) are paid from.  That way everything is separate and its easy to justify stuff to an auditor. The cash is also separate for when you have to pay estimated taxes.

Ocelot

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Re: Accounting issue for a really small handyman business
« Reply #5 on: July 24, 2017, 08:45:32 PM »
+1 for ringing things up as separate transactions. This way every receipt has a sole purpose and that single simple step makes accounting far easier. We have separate plastic folders for personal, rental properties and my side gigs, and you just drop the receipt in the right folder at the end of the day for instant easy collating.
We also have a separate bank account for our rental income/expenses but not for my side stuff, although if it got any bigger I would consider it. Anything that saves hassle at tax time is worth it and extra accounts are so easy to open.

Sibley

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Re: Accounting issue for a really small handyman business
« Reply #6 on: July 25, 2017, 08:51:49 AM »
Separate credit cards, separate ring ups, and possibly separate checking accounts. Yeah, it's a little more work upfront, but it'll save a ton of work at the back end. Especially around tax time.

Rubic

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Re: Accounting issue for a really small handyman business
« Reply #7 on: July 25, 2017, 08:57:16 AM »
the business needs everything separate, so one credit card for business and one for personal.

+1

This is the easiest way to keep the purchases separate at the
point of sale, and less work later on the back end.

memorytoast

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Re: Accounting issue for a really small handyman business
« Reply #8 on: July 25, 2017, 09:28:06 AM »
Okay, gotchya, one credit card for business and one for personal. Possibly seperate checking accounts.

But does any one have a recommendation as to what credit card he should get as his business one?

Rubic

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Re: Accounting issue for a really small handyman business
« Reply #9 on: July 25, 2017, 10:44:15 AM »
But does any one have a recommendation as to what credit card he should get as his business one?

If for cash back, the Citi DoubleCash is good, but there are plenty of
other options.

Otherwise, if your personal card is used for points/miles, you probably
want the same card (just business version) so you'll accumulate the
same kind of points for either purchase.

robartsd

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Re: Accounting issue for a really small handyman business
« Reply #10 on: July 25, 2017, 10:59:22 AM »
Okay, gotchya, one credit card for business and one for personal. Possibly seperate checking accounts.

But does any one have a recommendation as to what credit card he should get as his business one?
The credit card used for the business does not have to be a "business" credit card as defined by the issuer - just a separate account to make accounting easier. Any credit card with good rewards and no annual fee would do. I also like Citi DoubleCash card for how easy it is to get 2% cash back on everything.

You might shop for a credit card that has the best rewards for the business specific spending patterns. You could also look for a nice sign-on bonus instead. I'm pretty sure that you can use the rewards from the "business" credit card personally without tax implications (though if you did choose an annual fee credit card there might be issues if the business pays the annual fee; otherwise there's a potential tax loophole here). If you want to use the same credit card product that you use for your personal spending, I'm sure you each can get one issued personally even if the issuer would not issue the same product more than once to an individual. Then you can use yours for personal spending (with him as an authorized user on your account) and his for business spending (you could be an authorized user in case you ever need to make business purchases for him).

J_Stache

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Re: Accounting issue for a really small handyman business
« Reply #11 on: July 25, 2017, 11:08:02 AM »
Additionally complicating things is that some business purchases he expects the customer to reimburse him for and some he doesn't.
From a business standpoint this shouldn't matter.    Customer should be paying a flat fee for the job or hourly+materials+material markup.  You can separate out materials and labor for your own tracking, but the IRS doesn't care whether the customer paid you $700 for the job or if they paid you $600 for the job and reimbursed you for the $100 faucet.

iris lily

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Re: Accounting issue for a really small handyman business
« Reply #12 on: July 25, 2017, 12:00:34 PM »
Additionally complicating things is that some business purchases he expects the customer to reimburse him for and some he doesn't.
From a business standpoint this shouldn't matter.    Customer should be paying a flat fee for the job or hourly+materials+material markup.  You can separate out materials and labor for your own tracking, but the IRS doesn't care whether the customer paid you $700 for the job or if they paid you $600 for the job and reimbursed you for the $100 faucet.
But dont you have to track business expenses to subtract rhem?
Maybe I am not dollowing this.

OP, my husband had exactly the business yours has--small, one man operatin of handman. And lightncnstructin. He ws constantly busy for ten uears, even during the recession. He never advertised, his busmess was always word of mouth.

I guess
I could,ask him how he kept,records. He retired two years ago.

robartsd

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Re: Accounting issue for a really small handyman business
« Reply #13 on: July 25, 2017, 12:35:39 PM »
But dont you have to track business expenses to subtract rhem?
An item purchased by the business is a business expense. A customer reimbursing the business for an item purchased by the business is a business reciept. There is no reason to separate items purchased by the business that are billed directly to the customer from items purchased by the business that are included in the service fee billed to the customer. It sounds to me like this business is not in the practice of marking up materials purchased for customer jobs - the costs are simply passed on.

affordablehousing

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Re: Accounting issue for a really small handyman business
« Reply #14 on: July 25, 2017, 01:10:07 PM »
Home Depot already figured this out. Today(!) make your husband go to home depot, and Lowes if he shops there too and open a pro account (free) and have him enter his phone number at checkout and then list the job name. HD sends you your receipt via email, and you can look at receipts based on job name. This does require separate transactions at the store, but at least the record keeping is taken care of for you.

notmyhand

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Re: Accounting issue for a really small handyman business
« Reply #15 on: July 25, 2017, 01:37:28 PM »
But dont you have to track business expenses to subtract rhem?
An item purchased by the business is a business expense. A customer reimbursing the business for an item purchased by the business is a business reciept. There is no reason to separate items purchased by the business that are billed directly to the customer from items purchased by the business that are included in the service fee billed to the customer. It sounds to me like this business is not in the practice of marking up materials purchased for customer jobs - the costs are simply passed on.

Correct.  All gross receipts, whether or not it is reimbursement, needs to be shown on Schedule C (assuming you are in the US).  Any materials, reimbursed or not, gets put down as materials.  Client pays 1000 - gross receipts is 1000, even if 500 of that is reimbursement.

memorytoast

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Re: Accounting issue for a really small handyman business
« Reply #16 on: August 07, 2017, 08:59:31 AM »
Thanks for all the useful suggestions! I went off the forum for a couple weeks, so I didn't see them until now.
If he doesn't want to follow the idea below then I hopefully will look into the Citi DoubleCash card.

Home Depot already figured this out. Today(!) make your husband go to home depot, and Lowes if he shops there too and open a pro account (free) and have him enter his phone number at checkout and then list the job name. HD sends you your receipt via email, and you can look at receipts based on job name. This does require separate transactions at the store, but at least the record keeping is taken care of for you.
Thanks for this, I'll ask him if he's willing to look into it!

But dont you have to track business expenses to subtract rhem?
An item purchased by the business is a business expense. A customer reimbursing the business for an item purchased by the business is a business reciept. There is no reason to separate items purchased by the business that are billed directly to the customer from items purchased by the business that are included in the service fee billed to the customer. It sounds to me like this business is not in the practice of marking up materials purchased for customer jobs - the costs are simply passed on.

Correct.  All gross receipts, whether or not it is reimbursement, needs to be shown on Schedule C (assuming you are in the US).  Any materials, reimbursed or not, gets put down as materials.  Client pays 1000 - gross receipts is 1000, even if 500 of that is reimbursement.

Wow, that's important to know! Does that means that if my husband is doing people the favor of picking up the materials he's making less money because he still has to pay taxes on it or because it's deducted in the materials it all weighs out? 

robartsd

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Re: Accounting issue for a really small handyman business
« Reply #17 on: August 07, 2017, 12:14:28 PM »
Wow, that's important to know! Does that means that if my husband is doing people the favor of picking up the materials he's making less money because he still has to pay taxes on it or because it's deducted in the materials it all weighs out?
The costs of the materials (billed to the customer or not) would be deducted as business expenses and thus not subject to income tax. There is a possibility that both the sale to your husband and his sale to the customer would be subject to sales tax; but I think that if he is simply passing on the costs including sales tax that the transaction with his customer is not subject to additional sales tax (consult a local expert if needed - I'm pretty sure additional sales tax would be required if he adds any markup to the materials).