[rondocap]

Hey guys, I have a simple question that I am sure you know the answer to.

I am a contractor, specializing in masonry/pavers.

I pay taxes using turbotax, and in the past all of the materials for a job I would just put under supplies.

Here's what I mean: Let's say I give a price to the customer for labor and materials inclusive and it's $1,000.

He gives me a check for $1000, and let's say I have to buy pavers or cement, sand, etc - and I give the mason supply yard a check for $500 from the same account the $1000 went into, leaving me with $500 for labor.

So basically, I am only making a profit on $500 labor and the $500 went for paying the actual cost of materials that I would then install at the customers house.

Since I had $1000 in revenue enter my account, how do I properly show that $500 of it went to pay for materials that had no gain for me, and only $500 is my profit?

Do I:

A.) Continue listing this under supplies, i.e the same place you'd put pens, paper costs, etc. Only issue here is that since materials are half of what I am getting paid or a large portion, it can add up.

B.) Use the inventory/Cost of goods purchased options? This seems to reduce the gross profits by the actual costs of materials. Note that I am not keeping any actual inventory, I buy from a mason supply yard and immediately install it.

Which way is better and the right way to do it to avoid issues?

 

[JBM]

I would not use turbo tax to do your taxes.

Get quickbook and find a cpa to show you how to set it up.

 

[muskoka guy]

One thing I have learned after 27 years in business is a good accountant saves you far more than they cost you. I tried to do them myself for quite a few years. When I finally got an accountant, she immediately pointed out all the money I had lost by not claiming things I could have. Professional accountants have many years of university and require constant upgrades to keep up with the ever changing tax laws. Stick to what you know and leave the accounting to the accountants. You might think you cant afford one, but I say you cant afford not to. Keep in mind not all accountants are created equal. Ask around and find out who other local trades use and if they are happy. To answer your question, job materials are separate from office supplies. Income is what is left after you deduct all your expenses and payroll. good luck

 

[rondocap]

Why don't you guys like turbo tax?

 

[JBM]

Because it causes problems. Like you have here. My taxes are i dunno $500 bucks, well worth it for piece of mind.

 

[shanekw1]

I've never used Turbo Tax, but is it not possible to simply set up an expense account called 'materials'?

If not, get a better program.

 

[rondocap]

Yes, it does have a learning curve if your taxes are a bit more complicated. I do enjoy doing them myself though, and this year I may pay a CPA to go over what I've done so I can learn.

As for my question, do you ever put materials under the inventory/cost of goods sold section? Or can someone point me to the specific place they should be?

 

[Metro M & L]

I use hrblock online. Yes materials go in cogs. Its entirely possible to begin and end the year with zero inventory. Just it all up or ship it to the land fill.

 

[overanalyze]

In the big picture, even an acct. doesn't care about profit on one job. The simplest equation is all revenue minus all expenses equals profit. Your labor is an expense not part of the profit. You should be paying yourself a salary and then payroll taxes on that salary...which are also an expense. Save yourself a ton of grief and get an acct.

 

[rondocap]

In the big picture, even an acct. doesn't care about profit on one job. The simplest equation is all revenue minus all expenses equals profit. Your labor is an expense not part of the profit. You should be paying yourself a salary and then payroll taxes on that salary...which are also an expense. Save yourself a ton of grief and get an acct.

I am a sole proprietorship, so it's pass thru to me and I don't need a salary unless I'm a corp, I believe. (I maintain separate business and personal accounts)


One thing I wasn't sure about listing materials under cost of goods sold was that it just asks you for one total, and no itemized material lists as you would do under supplies.

But I assume that's ok, right?

 

[Metro M & L]

As long as you have the receipts in case you get audited yes.

 

[Osito]

Cost of Sales

 

[muskoka guy]

When you deal with a PROFESSIONAL accountant, the more they know about you and your business, the more they can save you. My accountant knows when to ask me questions, because sometimes a certain circumstance might be a deduction or it may not. Turbo tax doesn't know you or your business. In Canada the tax laws change every six months, and my accountant goes several times a year for several days each to upgrade and keep her licence. There is no way for your average person to keep on top of the ever changing tax laws. One other reason for having an accountant is dealing with the govt. When a revenue person looks at your file and sees joe blow has filled out his own taxes, you are instantly scrutinized. When they see that a pro has done it, they would seldom ever bother because they know it is done right. If you get audited they could possible disallow some of your deductions or penalize you for something you did wrong. As I stated, you will save money with an accountant. The bigger your business becomes, the more important they become to you. Wait to you get a bill from the govt saying you owe x number of dollars even though you know they are wrong. Good luck dealing with them. Unless you are a tax professional they treat you like you know nothing and they are god. You are always wrong in there eyes. Trust me I learned the hard way. good luck.