33 Bookkeeping Necessities for the Craft Business

By Susan West - 02/07/01

Ever wonder just what you need to know when setting up your financial records or when tax time comes? Take a look at our easy checklist to get organized!

When you decide to start your craft business in earnest it is very important to handle your finances properly, in a professional manner. Here is a list of important things to do and to keep track of.

First and foremost, open a separate account for your business. There are many low cost or no cost business bank accounts available. It is better to take the time to set up your business properly than be disappointed later when you find that you can not deduct what you thought you could because you mixed your personal and business finances.

Maintain meticulous records. You will need to know the following information when it comes to filling out your Schedule C at tax time (assuming you are a sole proprietor) and submitting your sales tax return to your state.

Keep all your receipts from everything that you purchase (You may choose to use an accordion folder and separate your receipts by month and by either sales or expenses.)

Information you will need to keep record of for Schedule C:

Earned Income

Gross receipts (all the sales and monies that you take in)
Less returns and allowances (damage, theft, samples, donations)
Interest income

Cost of Goods Sold (COGS)

Year end inventory value (raw and finished) carried over to as starting inventory
Wholesale purchases for personal use
Labor paid for contract service (not your own labor)
Materials and supplies (used in creating your craft)

Expenses

Advertising (business cards, brochures, newspaper advertising, post cards announcing shows, web site costs and fees, etc.)
Bad debts (bad checks, bad credit card purchases)
Transportation (applies only if your business leased or owned a vehicle)
Commissions/Fees (consignment/mall commissions and fees, show fees, jury fees, business checking account fees, business credit card or Pay Pal processing fees)
Depreciation (applies only to business equipment and vehicles)
Employee benefits program (only if you have an Employer Identification Number - EIN with the federal government. Most of us have a Tax Identification Number - TIN, usually our social security number for a sole proprietor)
Equipment costs for your business
Insurance (liability and casualty insurance other than homeowners/renters insurance)
Interest (business loans and business credit cards)
Legal/Professional Services (fees to draw up contract, consultations, etc)
Office expenses (pens/pencils, paper, letterhead, card stock for business cards or hang tags, printer supplies, postage and shipping & handling, etc.)
Pension/profit sharing (IRA contributions)
Rent/Lease (studio or retail space, outside the home)
Repairs/Maintenance (maintenance contracts on business equipment and repairs)
Subscription dues
Supplies (any raw materials to create finished products)
Taxes/licenses (business license, occupancy permit, property tax)
Travel (tolls, parking, meals and mileage to and from: shows; distributors to purchase supplies; printer for business related print jobs; potential clients to promote lines, etc.)
Utilities (only if outside the home)
Business use of home (business designated space, based on % of square footage of dwelling. Form 8829 required)

Note: If you pay over $600 to a particular person or shop (rent or consignment fees, etc.), you need to send them a 1099 form, and conversely, if you received over $600 from someone, you should receive a 1099 from them.

Possible other information for your own tracking records

Inventory and value of raw materials used to create your craft
Inventory and value of your finished craft (especially wise when consigning)
Discounts given customers

Information you will need to keep record of for State Sales Tax:

Depending upon the state in which you live you may need more information. This is general, as it is covers many states.

Gross receipts
Amount of sales tax collected
Exempt sales (wholesale, etc.)

Note: Any state in which you physically sell (attend a show) you will need a resale certificate that you can get from the state's Department of Revenue. This does not include consignment sales, as the shop will be the one collecting the sale tax - not you. You only need to collect sales tax in the state that you reside in or have a certificate in.

A good bookkeeping software program can help keep you on track and organized. There are many out there; however, two popular ones are Quickbooks/Pro and Peachtree Accounting. You could also simply use Access or Excel if needed though they are much less intuitive.

Good luck and may you prosper in your business!

Many thanks to June Smith for looking over this article and helping me clarify it. June is a professional crafter of 15 years and has worked in accounting and with the IRS. Her primary line is large, contemporary wall art, which she sells through local galleries. Thanks again, June!

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