Someone from another thread recommends not itemizing materials on clients invoices, and just lumping it together with labor. Then at tax time just claiming everything as "costs of doing business", rather than "costs of goods sold". Do you agree with this?
Your statement is perverse. How you bill your customers in no way dictates how you report your income and expenses to G. You may charge your customers a fixed price with no obligation to break out expenses but, when you file your taxes the IRS has specific rules on how you break out your expenses.
You will probably not be audited but, if you are and you have not complied with their requirements, the heavy burden of defending your actions is on you.
Incorporate or form an LLC. Download the tax forms ahead of time (now would be good) then fill out the entire set for your business pro forma (estimate of what you expect). The exercise will help you understand what records need to be kept in order to properly file your taxes.
Many pay to much tax because they fail to properly identify and document countless legitimate but small expenses throughout the year. Read the tax code, keep up with changes, the time spent will probably be the most profitable time you spend working all year.
I have everything broken down into categories. Office supplies, materials, tools and equipment, labor, etc. Seems like the right way to do it. That's how TurboTax does it, which is what I use. I would talk to an accountant because that sounds funky.
thorn is right, what your friend is inartfully trying to touch on is inventory expense (direct expense) vs. general expense (indirect expense). Since there is very little inventory in most landscaping business (especially mow and go) you will not have a lot of materials that you buy and cannot expense in the same year that they were bought. Your biggest accounting problems will be handeling wages, sales taxes, and equipment correctly. - the fact that you are asking this question tells me you should get an accountant - no offense.:jester:
Think about your business expenses this way (the correct way). Start by separating those costs that apply only to individual jobs and those costs that are necessary but shared by all jobs.
Individual jobs would include things like:
Labor (including direct labor burden)
Shared (Overhead) expenses would include things like:
Office and storage facilities costs
Some, probably most, of the things in those Overhead expenses would be expensed annually but some must be capitalized and depreciated. For example, you buy a new truck for $30K. That would be capitalized and depreciated over 5 years. Each year for 5 years you would deduct $6K as an expense related to the costs of the truck. In addition, the operating costs of the truck would be expensed annually.
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