Profit & Loss Statement
As we head into tax season, let’s take a look at one of the most useful tools for running a small business — the Profit & Loss Statement.
What’s a P&L?
A Profit & Loss Statement (P&L) is simply a monthly statement of the following:
- How much money your company earned in revenue
- How much money you spent on your business
Track how much money you earned as a webcartoonist. This would include Patreon earnings, advertising income, book sales, convention earnings, freelance projects, commissions, etc. Put them in an itemized list and calculate the total. It’s a good idea to have all related invoices and receipts printed out and on file for these items.
In this section, create an itemized list of every expense you made in pursuit of your webcomics business. This would include printing costs, purchasing drawing tools, new computers, rent for studio space, Internet access, travel expenses related to conventions, etc.
If you work from home, you may be able to deduct a portion of your utility bills (electric, heat, Internet, water/sewer, phone, etc.) based on the percentage of your total square-footage that your studio represents. But remember: The IRS insist that if you do this, that studio space be used only in pursuit of your business.
It is crucial that you keep all receipts and invoices involves with these transactions. In the event of an IRS audit, you will be called upon to prove all of these expenses.
Calculate the total.
Profit / Loss
Subtract the total amount of expenses from the total earnings and you have either a Profit (if the result is a positive number) or a Loss (the the result is a negative number).
Your P&L statement will be the itemized lists of both earned revenue and expense, along with the final total — which will be identified as either a profit or a loss. In some cases — and your CPA can guide you on this — you may even have a third category to represent “Cost of Goods Sold.”
Print this statement and put it in a folder with all of the necessary receipts, invoices, and related paperwork.
When tax time comes, you will have a ready-made guide to nearly all of your earnings and potential deductions.
Dedicated bank account
It is for this reason — and others — that I always advise that you have a dedicated bank account for your webcomic business. If you relegate all of your webcomics-business-related income and expenses to that account, your monthly statement gives you an excellent head start on your P&L statement.
A also strongly recommend that you do this as a monthly habit. Firstly, it’s an incredible boon when it comes down to tax season. Having file folders of P&L statements, invoices and receipts is going to make tax prep much easier than it would have been without them. Secondly, it’s a good way to chart the health of your webcomics business from month to month — and that information comes in handy when you have to decide, for example, whether to pull the trigger on that comic convention you’ve been considering. And finally, it’s the only way you can calculate your estimated tax obligation of your CPA has advised you to make such payments.