Hi this is my first year doing cakes legally thank you ca!!! But, my question is as a home baker what paper work do i need for right offs. Id really like to do my own taxes (trying to save money). how do all you legal home bakers in other states do it??? thanks 

When tax time hits you will be putting your income on a 1040 form.  (That's what I will be doing)

Keep track of all of your orders and what you have taken in

Keep all receipts for what you have spent on your business.  You will also be able to do something with mileage/gas if you have delivered cakes.  

That's pretty much all you need.

The IRS expects all income and expenses to be reported on Schedule C. If you're not familiar with it, start reading about what you need to do. Applies only to U.S.

AIf you have been tracking your income and expenses in an accounting program like QuickBooks, the business portion of your tax return should be really easy, assuming your transactions are posted into the correct accounts. Our business tax return would usually take 15 minutes or so to complete, tax software can walk you through common deductions and the amount of each deduction would already be populated from the accounting program.

If all you have is a pile of receipts and invoices, you may save money in the long run by working with an accountant. If you decide to go it alone, the first step is to put together a chart of accounts that works for your business (in a spreadsheet program if you don't have QuickBooks), then assign all receipts to the proper expense account and all invoices to the proper income account. Once you have this information you will be in a better position to calculate your taxable income after various deductions are applied. If you aren't sure whether or not a certain deduction is allowed or your don't have documentation for an expense, don't take the deduction.

Jason, we know you're brilliant and successful so impressing us is no longer necessary. I understand your deep-seated desire to show off your massive intellect, but sometimes it's just not appropriate.

If you really want to help, DisneyDreamer needs plain English and a list of things she can do.

Depends how you set up your business...Limited Liability? Never a bad idea to check with an accountant, they will help you with deductions. They are especially helpful finding them for you! I'm a LLC, so I can just combined my personal and business.

AI use turbotax home and business since I'm a pass through LLC. It's really easy and it walks you through everything deduction-wise.

What i'd suggest is for you to get the software and look to see what the different categories of deductions are. I use a paper ledger to enter all of my weekly receipts, using the categories that the tax software uses. Then at the end of the year I just enter the totals. I had quickbooks at one point but I didn't like the way it worked for some reason, I don't remember why. If it works for you that makes it easy to import information, but I didn't like it.

For next year either use quickbooks if you like it, or just a spreadsheet system with the different categories, then enter all of your income and expenses every week or two.

Go to the IRS.gov website and look at/print a copy of the Schedule C form.  This will give you a good idea of the expense categories the IRS wants to businesses to use. This will help you set up a simple chart of accounts, like Jason recommended, to track your expenses throughout the year. 

I would also encourage you to seek out a bookkeeper, NOT an accountant, to help get your receipts organized for tax time if you are not comfortable using software like Quickbooks yourself.  A bookkeeper is often just as skilled at setting up your chart of accounts and educating you about the deductibility of expenses as an accountant for far less money.  Accountants, by and large, do not like to deal with the mundane task of bookkeeping and will charge you dearly for their inconvenience.

As an analogy, it's like going to your doctor's office.  The physician doesn't take your height/weight/blood presssure/blood sample (even though he/she is capable). The physician would rather use his/her expertise to diagnose your symptoms.  An accountant would much rather spend time looking at your financial reports and advising you how to save money on taxes, whether or not to incorporate, plan for an expansion/budget, etc., than key 300 receipts for perishables, nonperishables and small equipment purchases.

Look for a certified and/or licensed bookkeeper (not simply someone who has taken a couple of accounting classes) and you can rest assured that your receipts will be handled appropriately.  A bookkeeper typically charges $25 - $60/hr.  A CPA typically charges $75 - $150/hr or more.  Take the savings and reinvest in your business.

AI'll add that when my mother died I went to a tax preparer to do her taxes, and they basically sat there and entered figures into a computer program. i was pretty irritated to pay $250 for something I could have done with turbotax. Plus, you can buy a $35 audit protection thingy with turbotax in case you are audited.

I love the irony of where this discussion has ended up - people advocating for widely varying levels of accounting advice, ranging from being a DIY'er/using a bookkeeper/using an accountant.  Sounds similar to the discussion of cake providers: make it yourself/use a home baker/use a professional.

Any of these options are fine, as long as you are comfortable with the outcome. :)

Liz

I agree with both of you costumeczar and liz at sugar.  Many tax preparers provide a service that is no better that what some individuals can do for themselves and charge much higher fee that do it yourself software.

Tax prep software (and to a certain extent bookkeeping software) is written these days to offer the lay person a lot of assistance and knowledge to do it themselves. There can be a benefit of seeking out professional assistance on top of that, either because your situation is unique and the quick & dirty instructions in the software don't cover it or you just want the peace of mind of using someone with a deeper level of training/understanding of the issues.

As far as keeping your own books, the different levels of advice are appropriate and accurate and should correlate to the size of your business and your competency/comfort level with accounting practices.  If you are only doing 1-2 cakes a month or less, there is absolutely no reason to hire a accountant or a bookkeeper, other than to spend a small amount of time developing an expense tracking system for you to use going forward.  If you're grossing say $10-$20,000/year or more, a bookkeeper can help you maximize your tax savings at a minimal cost to you. A bookkeeper has deeper knowledge that the little bullets of training you'll see in DIY software and will save you time and headaches over doing it yourself once you reach a certain size.  A CPA/accountant may be the best choice when you are looking to go brick & mortar vs. home based, adding a second location, pursuing a business loan, etc.

Can you tell I'm a bookkeeper?  Haha!