Craft Business Expenses: How to Keep the Tax Man Happy

As a craft business owner, you already know that taxes can be complicated and time-consuming. But what if there was an easier way to keep the tax man happy? With proper self-discipline and organization, tracking your business expenses is key to staying compliant with the IRS. This article will provide some great tips on how to stay on top of your craft business expenses and keep the tax man happy.

There are many expenses involved in running your own professional handmade business - we guide you through some of the most common ones so you can be sure that you’ll keep your business above board and the tax man happy.

Why should a craft business worry about tax expenses?

If you’re starting a handmade business, it’s important to understand that you need to keep track of your expenses in order for them to be deductible when it’s time to file taxes. This is particularly true if your business has many expenses related to running the company. Not only will this help you save money on taxes, but it can also help you better understand your current financial situation and make more informed decisions in the future.

What is a tax expense?

An “expense” is basically anything you spend in order to create a product that you sell. It is very worthwhile to track all of your expenses, not only for doing your accounts at tax time but also because it shows you your true profit margins on the things that you produce and sell.

Firstly, a tip is to keep receipts for everything you purchase - offline and online.

For online purchases, either print a backup copy and file it with your paper receipts or create a special folder in your email program so you can quickly access these records if and when you need to.

What expenses should a craft business track?

The most important expense to track is materials. The cost of supplies, tools and equipment used by your handmade business must be tracked in order to deduct them from taxes. This can include anything from yarn, fabric and thread to needles, dyes and looms. Other expenses that should be tracked include the cost of marketing materials such as flyers or posters, any costs related to advertising or promotions, web hosting charges for any online stores you may have set up, and travel expenses if you attend craft shows or conventions. It’s also important to track any costs associated with business insurance, such as liability insurance.

Let’s now take a look at some of the most common types of expenses that craft businesses should keep track of.

Advertising Costs

This can include more than you think - not only the obvious like magazine and newspaper advertising, but also Google Adwords, ad spots on blogs, your website itself, online listing fees (such as on eBay or Etsy) Business cards, leaflets and brochures are also included in this category.

Supply Purchases

For a craft business, this will be one of your most important expenses. It’s important to track exactly how much you spend on your raw materials as this can help you to set how much to charge for your finished goods. Dedicated craft business inventory software such as Craftybase is a great option for automatically tracking these expenses - it is designed specifically for businesses that produce handmade products.

Equipment

This includes any machinery or equipment you use in order to create your products. Good examples are Sewing machines, Paint Brushes and knitting needles.

Fees and charges

Any fees or charges you have paid in order to sell your product - includes Show Fees, Consignment fees, Market Stall fees, banking account fees, PayPal transaction charges, online shopfront charges (Etsy, eBay)

Office Expenses

This is an expense involved in running the office side of your business: pens, stationery, printer ink, letterhead, hang tags, postage, and shipping.

Travel

Costs involved in getting you to and from shows, supply stores, business supply places like printers/accountants, and potential client visits. This not only includes fuel but can include meals and tolls.

Subscriptions

Regular incremental payments for services involved in the running of your business. This can include trade magazine subscriptions and online software subscriptions.

Insurance

Any liability/indemnity/casualty premiums you pay directly related to the running of your business.

Business use of home

As many professional craftspeople work from home, this can be another important expense to track. Depending on the country you live in, you may be able to claim a percentage of the costs of running your home if you use a designated room for business purposes, so keep records of heating, lighting, electricity, phone, and internet usage.

Legal and Professional Services

The cost of drawing up accounts or contracts performed by other parties.

Repairs/Maintenance

Another important one for businesses that rely on their equipment - you can normally claim any one-off repairs or regular maintenance of your equipment, so make sure you keep receipts for this work.

Taxes/licenses

Business setup fees and any other costs involved in keeping your company legally registered. This can include business licenses, occupancy permits, and property taxes.

In addition to this list, many other expenses can also be tracked depending on your business structure and if you currently hire extra people to help you run your company. It’s a great idea to contact your tax authority to get a definitive list of all expenses you can claim for at tax time.

5 Tips to Get your Tax Expense Tracking on Track

Follow these steps to ensure that you are staying compliant with the IRS:

1. Track all expenses. It is important to track all of your business expenses, no matter how small they may seem. This includes purchases such as materials, supplies, transportation costs, marketing fees, and any other costs associated with running your business.

2. Keep detailed records. Keeping detailed records of all of your expenses is essential for tax compliance. You should have a record of each purchase made and the amount spent on it. This includes the date, what was purchased, where it was purchased, and how much it cost. Make sure to keep all of your receipts and invoices in a secure location.

3. Separate personal from business expenses. It is important to make sure that you are keeping track of your personal expenses separately from your business expenses. This will help ensure that you are not overpaying on taxes or taking deductions for items that should not be deducted.

4. Deduct business expenses properly. Once you have tracked all of your business expenses, make sure to deduct them properly on your tax return. This includes any deductions that are allowed by the IRS, such as home office expenses or transportation costs. Keep in mind that there may be limits on how much you can deduct for certain items, so it is important to do your research.

5. Monitor expenses regularly. Staying on top of your business expenses is an ongoing process. Make sure that you are monitoring them regularly and making any necessary adjustments in order to stay compliant with the IRS

What records should craft businesses keep?

Keeping accurate financial records is key to staying organized and making sure your handmade business remains above board when it comes to taxes. The Internal Revenue Service (IRS) requires all businesses to maintain at least three years of complete financial records, and you should make sure to keep track of all receipts related to business expenses. Additionally, it’s important to keep copies of invoices and other documents so that you have an accurate record of any income your business earned. You should also make sure to keep a logbook of all travel expenses, as well as any mileage traveled for business purposes.

By making sure you keep track of all your craft business expenses, you can be sure that the tax man will stay happy and your handmade business will remain above board. Taking a few extra steps to properly document everything can help ensure financial success in the long run!

The Benefits of Using Craftybase for Your Craft Business

Craftybase is an easy-to-use expense and inventory tracking platform specifically designed for craft businesses. With Craftybase, you can track all of your expenses in one place and create detailed financial reports. You can also use the platform to set up tax categories for different types of expenses and easily generate useful graphical summaries that illustrate how much money is being spent in each category.

Using Craftybase to track your expenses offers several benefits over other methods, such as keeping paper records or using spreadsheets. For one thing, it’s much easier and quicker to use than traditional methods. With Craftybase, you can quickly create detailed financial reports with the click of a button and easily categorize different types of expenses. Plus, it’s secure and private, so you can trust that your financial information is safe.

Additionally, Craftybase makes it easier to stay on top of your tax obligations. By automating much of the expense tracking process, you can be sure that all of your records are up-to-date and accurate.

Finally, Craftybase is an affordable option for craft businesses of all sizes. There are plans available for virtually any budget. Try Craftybase for free today.