Last year I published my first book, Fire Up Your Profile For LifeWork Success to add value to my coaching practice. Well before April 15th rolled around I wished I had hired a tax accountant or bookkeeper. We got in the habit of doing the taxes ourselves using Turbo Tax and didn't realize the difference it made when we added inventory the need for Cost of Goods Sold--not as simple as it appeared.
I had the idea I could just expense the books I purchased and add my book sales to income. Apparently this is a common misconception that oversimplifies the process.
According to the IRS, the following items need to be taken into consideration when computing COGS:
- Inventory at the beginning of the year
- Purchases less cost of items: a) withdrawn for personal use (deducted from inventory, but not otherwise recorded for business tax purposes), b) product promotions (deducted from inventory and expensed as advertising) c) product donations (deducted from inventory and expensed elsewhere).
- Labor costs (generally applies to manufacturing and mining operations)
- Materials and supplies (generally a manufacturing cost)
- Other costs (generally applies to manufacturing and mining operations)
- Inventory at the end of the year
Last year I used the free inventory program InFlow for PC. It was simple to set up and generated useful reports for sales, sales tax, and books used. It has been years since I worked in bookkeeping, and I realized I hadn't kept the detailed records that would have been helpful.
This year I found AccountingEdge Pro for Mac in an inexpensive Apple Bundle and decided to give it a try. It takes longer to set up since it uses double entry accounting. It has a lot of online support articles and videos which were helpful, so after setting up my business, I realized I made some errors in the setup. I decided to change the original company setup to a test company, and then start a new company set up with a another company name. There doesn't appear to be a limit to the number of customers you can add as there was with InFlow and it has a Cost of Goods Sold account. I believe things will go much smoother when April comes around next year.
Improvements I made this year:
- New accounting program
- Set up a binder for monthly/quarterly business reports
- Print Paypal, royalty, accounting, and bank reports monthly/quarterly
- Maintain the folders for information from the bank, book printer, online sales, and Paypal
- Physically count and record books on hand at the beginning and end of the year, periodically, and before and after an event.
We all have the intention of keeping good records throughout the year and having them organized and accessible for taxes. But when you develop a new product it initially sells quickly, and it is easy to be excited and overwhelmed with initial success. When deciding what products you want to sell, consider your bookkeeping and taxes.
After selling some books, I was ready to increase my clients and move on to the next book. I didn't want to spend more time on record keeping and mailing than was necessary, but in my enthusiasm I mailed books to different locations, sold them at special prices, and didn't invest the time needed to understand the implications. Understanding the implications of different methods of selling a product will help in making decisions and keeping up accurate records.
An eBook you sell on your website doesn't require inventory and the bookkeeping that goes with it, but if you sell a PDF yourself it can easily be shared with people who didn't purchase it.
Selling your book through an online company like Amazon or Barnes & Noble simplifies your bookkeeping. They send you a 1099-Misc form for royalties (which are recorded separately on your tax form) at the beginning of the year for filing your taxes. You don't need to pay for and manage mailing, taxes in different locations, inventory, and cost of goods sold. Shipping to different locations requires the most record keeping.
Often the best way for a coach to sell their books is by word of mouth, presentations, classes, and workshops--basically selling your product yourself out of the trunk of your car. You may even want to carry a book with you so that when someone wants to buy it, you have one handy. Just remember to record all of the books you sell. It is also easier if you sell all of your books for the same price. Most customers like an even amount to pay--especially if paying cash--so I include the tax in the price and round it off to a dollar amount.
It's been a great experience selling books, and it has helped my coaching business, but I will do a much better job accounting for books this year whether I hire an accountant for taxes or we do them ourselves.
Share tips and ideas you have found for organizing and record keeping for your business products.
Cost of Goods Sold and the Tax Gap (FS-2006-23, July 2006). http://www.irs.gov/uac/Cost-of-Goods-Sold-and-the-Tax-Gap. Accessed 4-19-2014.
Consult an accountant or appropriate professional for tax information. The intention of this article is to share personal experience and is not in any way tax advice.