QuickBooks Tax Software: Preparing for Tax Time as a Sole Proprietor

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Oct 06, 2022

"Accounting software," "bookkeeping," "tax preparation," and "filing"— just mentioning these terms will make your brain bleed. For any business owner whose forte leans more on selling for profit than doing the crunch work, these terms connote some heavy financial and technical work.

As business professionals, we know it's more fun to see money flood in than it is to count it. But the reality is we all have to start accounting because we all have to pay taxes eventually.

Sole proprietors with profitable ecommerce businesses are burdened the most by income tax preparation. That's because they do it all themselves. So if you're one of them, let Unloop give tips on using your QuickBooks software to file income tax returns correctly.

Set Up Your Tax Form in QuickBooks Accounting Software

1. Click the gear icon at the top right part of your QuickBooks business tax software.

2. A pop-up rectangular box menu will show up. Click the Account and Settings under the Your Company section.

3. In the Company Type section, go to the Tax form drop-down box and select your business structure. In this case, since you're the only small business owner of an ecommerce business, you have to choose Schedule C (Form 1040).

Benefits of Setting up Your Tax Form in QuickBooks Online

A lot of QuickBooks tax return software users miss setting up their forms. They either overlook it or don't see its importance in the accounting aspect of business. But this simple move will make all the difference in the headaches you'll have come tax time.

Here are the benefits of setting up forms as soon as possible.

Streamlined

Transactions are directed to the correct tax form line items. This will help QuickBooks display the sum of all accumulated amounts on the selected tax form within the accounting software.

Accurate

You don't have to make any guesswork once your form is set up. Things like determining where the transaction is supposed to be placed in what line item on the form will be a breeze.

Audit-Friendly

Setting up a tax form and categorizing your transactions leave an audit trail. This makes the auditor's job easier. They can cross-reference your financial statements with the tax form line items and sign them off easily.

QuickBooks tax software - A businessperson in front of his desktop using a calculator

A List of Common QuickBooks Accounts for Sole Proprietorship Transaction Attribution

Making sure your tax form is filed correctly means classifying your transactions accordingly. To do that, you'll need familiarity with how each account and detail type in QuickBooks is linked on your Schedule C form. Below are the line items of each account in the QuickBooks tax preparation software and their designated detail type.

Note that these are only regular transactions by any business owner. If you wish to get comprehensive information about the list of accounts, you may consult an accounting professional adept with QuickBooks online.

Account TypeDetail TypeSchedule C Line Item
IncomeSale of productLine 1
IncomeRefunds and discountsLine 2
Other incomeMiscellaneousLine 6
ExpensesAdvertisingLine 8
ExpensesFees and commissionsLine 10
ExpensesCommunicationLine 25
ExpensesLaborLine 11
ExpensesDepreciationLine 13
ExpensesPayrollLine 14
ExpensesOffice / AdminLine 18
ExpensesRentLine 20b
ExpensesRepair and maintenanceLine 21
ExpensesSuppliesLine 22
ExpensesTaxes paidLine 23
ExpensesEmployee payroll taxLine 23
ExpensesUtilityLine 25
ExpensesWageLine 26

Common Questions About Tax Preparation Using QuickBooks Online

Discussing tax filing using accounting software is a complicated topic, even for the best small business owners. But just like any diligent businessperson, we have to know about certain things in using accounting software for our business taxes. That way we at least get a sense on how it works.

So here are the common questions business people ask about QuickBooks Online's account categorization and taxes.

Do I have to set up my tax form and map my transaction from the start?

Of course! Setting up your tax form is the only way QuickBooks can help you with future taxation. In addition, your QuickBooks online accounting software will only recognize your business structure through the type of form you choose.

In your case, as a sole business owner, selecting form 1040 lets QuickBooks know what type of business structure you have and help facilitate tax line mapping for you.

Do I have to determine the income tax I should pay manually?

Yes and no. This may seem difficult, especially if tax line mapping is involved. But once you've categorized all the transactions accordingly, QuickBooks will do its part.

The tax software will streamline everything for you to fill out your forms with the right amount and calculate the correct income tax.

Can you change the account type and detail type?

No, you can't. The account type and detail type on QuickBooks are fixed according to specialists. Unfortunately, that means you can't add your own category of account or detail type, and you'll have to work with what's already there.

QuickBooks software makes it so because allowing a user to change or edit an account or detail type would mess up how financial statements are presented. Not only that, but it may also disrupt other reports you generate on the software.

QuickBooks tax software - A man sitting in front of a laptop with hands behind his head

How do I know what account and detail types to choose?

The accounts that will contribute to your Schedule C are mapped above. You may use them to categorize your transactions.

You may consult an accountant for other transactions of a different nature, which may not fit any of the detail types above.

It's essential to bring in an accounting professional to classify your transaction so that you'll have all items properly categorized come tax time. In effect, it should show up perfectly on your Schedule C form.

Can I import my chart of accounts using a spreadsheet?

This concern is common to any seasoned small business owner. They may be using a spreadsheet or different software to do their accounting and bookkeeping and have a well-established chart of accounts.

Yes, they can import their account types and details. Here's how you do it:

  1. Go to Settings
  2. Go to Import Data
  3. Select Chart of Accounts
  4. Attach the spreadsheet in .CSV format which must contain the following headers
    1. Detail Type
    2. Account Name
    3. Account Number
    4. Account Type
  5. Click next
  6. Match the spreadsheet headers to QuickBooks headers
  7. Click next
  8. Double-check the details of the account name, account type, and detail type
  9. Click Import

Is there a way for me to avoid doing this confusing tax stuff?

Definitely! By hiring an accounting team that can handle your tax complexities.

Unloop comprises accounting and bookkeeping professionals who know how to map your transactions for hassle-free tax filing. Here are some broad strokes of what they can do.

Ecommerce Accounting Specialists

The team behind Unloop has years of experience catering to the accounting and taxation needs of ecommerce business owners. In addition, we handle individual sellers from different marketplaces, such as Amazon and Shopify.

Adept with QuickBooks and Xero

This team of accounting pros uses two of the most widely-used accounting software: QuickBooks and Xero. We can track down a problem within the software and fix it such as setting your business's tax form.

If you're not on this accounting software yet, we can also help you migrate for a better accounting and bookkeeping experience.

Partnered with Certified Public Accountants (CPA)

We can go full circle on your taxes. Apart from recording transactions accurately, we can also prepare the financial statements needed come tax filing season.

CPAs also back our team of accounting and bookkeeping professionals. That means Unloop can tap this network of licensed accountants if you want tax filing done.

Convenient Tax Filing With QuickBooks Tax Software and Unloop

As an ecommerce business owner, your thoughts should be about how to generate more revenue. Ideas that involve how to maximize profit, increase sales, and expand your business should be your day-to-day work. But learning accounting software, classifying transactions, selecting the correct tax forms, and filing income tax correctly can get in your way.

While it's good to know about accounting software and income taxes, it's more practical to have professionals handle it. It's faster, more accurate, and you’re sure to be compliant.Talk to us so we can get started on making your QuickBooks software work to your advantage. Dial 877-421-7270 for a consultation, or check out our ecommerce services now.

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About unloop

Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.

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