testing, profit and taxes

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Shaos
 
Posts: 76
Joined: Sun Oct 04, 2009 9:41 pm

testing, profit and taxes

Post by Shaos »

pricing and taxing look simple - retail_price minus cost_of_materials equal profit from which I pay taxes BUT
how should I treat a few boards that used for soldering and testing (it will not be sold anywhere)?
it is not "inventory" anymore, right?

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Franklin97355
 
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Joined: Mon Apr 21, 2008 2:33 pm

Re: testing, profit and taxes

Post by Franklin97355 »

That would be R&D and would be an expense.

Shaos
 
Posts: 76
Joined: Sun Oct 04, 2009 9:41 pm

Re: testing, profit and taxes

Post by Shaos »

Thanks!
What is appropriate way to document this?
So in case of an audit which piece of paper I should have to prove that it was used for testing?...

mikeselectricstuff
 
Posts: 164
Joined: Fri Jun 11, 2010 9:21 pm

Re: testing, profit and taxes

Post by mikeselectricstuff »

I think you're going into too much detail. Profit = sales (plus stock on hand) less <all business expenditure>.
Unused/broken/test stuff is just a bit of expenditure that doesn't come back as sales, like all the other things you spend money on. No need to prove what every tiny bit of hardware was used for.

adafruit
 
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Joined: Thu Apr 06, 2006 4:21 pm

Re: testing, profit and taxes

Post by adafruit »

these are good questions but they are really best answered by an accountant, depending on how you end up forming your company and paying taxes, your record keeping will vary
only an accountant will have the experience to give you the correct answers for tax and record-keeping questions!

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lyndon
 
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Re: testing, profit and taxes

Post by lyndon »

Like adafruit said, ask your accountant or tax specialist for specifics, but here is a very good IRS publication that should answer all those questions. http://www.irs.gov/pub/irs-pdf/p334.pdf

As an aside, if you do your own taxes now, it may be a good idea to get an Enrolled Agent (EA) to do your taxes for at least the first year you're in business. An EA can handle your small business taxes and you can learn enough from them to do it yourself from then on. I've used both an EA and a CPA and the only difference I noticed is that I wrote the CPA much larger checks.

Shaos
 
Posts: 76
Joined: Sun Oct 04, 2009 9:41 pm

Re: testing, profit and taxes

Post by Shaos »

yea sure, every hobbyist must have personal accountant, tax adviser, lawyer and secretary ;)

P.S. thanks for the link to the official IRS doc - it has some important info, but not everything that I need to know...

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