Let's say that it is time to prepare your annual tax returns. We will see the steps we have to go through to output the numbers needed for your tax return software:
- From the menu select Reports | Tax Schedule Report/TXF Export.
- In the Options dialog's Display tab, uncheck Do not print Action:Memo data and Do not print transaction detail. Now the report will look as shown in the following screenshot:
- Click the Export toolbar button and in the Choose export format dialog select TXF as shown in the following screenshot.
- Click OK. You will get the Save TXF to File dialog. Give the file a suitable name such as MACS2010.txf and click Export.
- If your accountant asks for transaction details for any account, you can create an account register report for that report alone. With the Sales account open, select from the menu Reports | Account Report. The report will open as shown in the following screenshot:
- You can either print this or export it and save it as an HTML report and send it to your accountant.
Of all the new tricks that small business people need to learn, taxes can be the most difficult. This is partly because the IRS wants you to pay your taxes as you earn rather than waiting for you to file your annual returns. As we said earlier, if you are an employee, your employer handles this part conveniently for you. If you're a small business owner or are self-employed, you must estimate income and self-employment taxes due on your earnings every quarter and make a payment to the IRS. If you postpone this payment until your annual income tax return is due, the IRS will charge penalties and interest if the amount owed is large enough.
Note
Though estimated taxes are loosely referred to as quarterly, these are due on very specific dates. To avoid penalties, please check with your accountant or tax consultant.
Under some circumstances, you can use your previous year's history of income and earnings to help estimate the current year's tax burden. In others, you have to estimate the current period income.
Tip
Keep track of estimated taxes paid
After you start paying estimated taxes, be sure to keep a record of the dates you paid them and how much you paid for each period. If you don't keep accurate records, you may miss one or more of the payments you made. If you pay estimated taxes, be sure to claim credit for them when you file your income tax return. The use of a good bookkeeping system such as GnuCash can make this easier.
While most of the items in Schedule C can be directly mapped from one or more of the GnuCash accounts, some of the line items require special attention.
When you sell a physical product, the cost of the raw materials, components, and labor that are required to make that product are to be grouped under this heading. IRS has specific guidelines on how to value your opening and closing inventory of raw material and components used in making your product. Also, you need to keep separate accounts for wages paid for production workers to be included in here.
If you use your personal car or truck for business use, IRS gives you two different ways to show car and truck expenses. You can choose to account for each and every expense associated with maintaining the car or truck. In this case, you will maintain various accounts for the expenses such as gas, parking, repairs, insurance, and so on. You will map these to the Schedule C as you saw in the tutorial earlier. You will also need to divvy up this cost between personal use and business use in a way that can be backed up with usage records. Alternatively, IRS has standard mileage rates you can opt for. In this case, you will simply have to maintain logs of how many miles you drove your personal car or truck for business use and apply the standard IRS rates. This has to be done in a separate log maintained outside of GnuCash.
Depreciation is another item that is not a simple mapping from a GnuCash account to Schedule C. You need to fill out the appropriate form for computing the allowable depreciation expense that you can charge.
This is an item that you won't be tracking in GnuCash at all. You need to fill out the appropriate form for computing the allowable expense that you can charge to your business.
As we mentioned in the payroll section earlier, you need to pay self employment tax in the US. This self employment tax is nothing but the FICA tax that we saw earlier in the payroll section. Now you are paying the employee contribution as well as the company contribution and so it has got doubled. There are specific rules for calculating these. Therefore, you should take the advice of a tax professional for computing them.
In addition to the Income Tax and Self Employment tax, there may be other taxes applicable for specific types of businesses. One example is heavy highway vehicle use tax. If you use certain highway trucks or buses in your business, you may have to pay a federal highway motor vehicle use tax. There may be other such federal, state, county, and local taxes as well. Consult your tax professional about what those are and how to set up GnuCash Expenses accounts, for example, to keep track of specific expenses.
Next comes the task of getting these numbers from GnuCash to your income tax preparation software, such as Intuit TurboTax in the US. You can use the .txf file saved from GnuCash and import it into your tax prep software and save time entering data into the tax prep software for your income tax return.
On the other hand, if your tax filing software doesn't support TXF import, or you find it convenient to transfer the numbers manually, you can follow that route as well.
- Where will you find the menu item to export income tax data?
a. File | Export | TXF Export
b. Edit | Tax Report Options | TXF Export
c. Reports | Tax Schedule Report/TXF Export, then click on the toolbar button Export.