Bookkeeping & Tax Compliance for The Artisan Nook

The integration of bookkeeping with tax compliance for a retail business like The Artisan Nook (a Massachusetts SMLLC) centers on meticulous tracking of three key areas: Sales Revenue, Sales Tax, and Payroll. Proper recording in the general ledger is the basis for accurate tax filing.

Here is a combined breakdown of the financial process, from transaction to final tax form.

I. Bookkeeping Fundamentals (Accrual Basis)

The Artisan Nook uses Accrual Basis Accounting, which is required since it maintains inventory. Transactions are recorded when they occur, not when cash is exchanged.

Accounting Element	Description	Tax Impact
Chart of Accounts	Must include separate Liability accounts for all taxes owed but not yet paid (e.g., Sales Tax Payable, Payroll Tax Payable) and Expense accounts for costs incurred (e.g., Wages Expense, Payroll Tax Expense).	Provides the source data for both the Income Statement (Gross Profit) and the Balance Sheet (Tax Liabilities) which flow directly to tax forms.
Sales Tax	Sales tax is never recorded as revenue or expense. It's a Liability because the business collects it on behalf of the government.	Accurate separation is critical for filing the state's Form ST-9 (Sales Tax Return) and ensuring the gross revenue reported on Schedule C excludes sales tax.
Payroll	Requires two sets of entries: Employee Expense (Gross Wages) and Employer Expense (matching FICA, FUTA, and SUTA).	Expense accounts (Wages, Employer Taxes) are deducted from gross revenue on the tax return, reducing the owner's taxable profit.

II. Bookkeeping to Tax Compliance Workflow

The core financial activities of The Artisan Nook are recorded using double-entry journal entries, which then populate the ledgers used for tax filing.

A. Recording a Retail Sale

Account	Entry Type	Amount	Purpose (Tax Link)
Cash	Debit (Asset ↑)	$106.25	Records the total cash received.
Sales Revenue	Credit (Revenue ↑)	$100.00	Source data for the business's taxable gross receipts on Schedule C.
MA Sales Tax Payable	Credit (Liability ↑)	$6.25	Source data for the business's sales tax liability on Form ST-9.
(Cost of Goods Sold)	Debit (Expense ↑)	(e.g., $45.00)	Deducted as COGS on Schedule C to calculate Gross Profit.
(Inventory)	Credit (Asset ↓)	(e.g., $45.00)	Reduces the Balance Sheet asset.

Tax Link: The balance in the MA Sales Tax Payable liability account is the exact amount remitted to the Massachusetts Department of Revenue (DOR) when filing the Form ST-9.

B. Recording a Payroll Run

Account	Entry Type	Employee Tax (Liability)	Employer Tax (Expense)
1. Gross Wages & Employee Withholdings
Wages Expense	Debit (Expense ↑)	$500.00
Federal Withholding Payable	Credit (Liability ↑)	(e.g., $50.00)
FICA Tax Payable (Employee Share)	Credit (Liability ↑)	(7.65% of $500 = $38.25)
MA Withholding Tax Payable	Credit (Liability ↑)	(e.g., $25.00)
Wages Payable (Net Pay)	Credit (Liability ↑)	(Remainder paid to employee)
2. Employer Payroll Tax Expense
Payroll Tax Expense	Debit (Expense ↑)	$50.00
FICA Tax Payable (Employer Share)	Credit (Liability ↑)		(Matching $38.25)
FUTA Tax Payable	Credit (Liability ↑)		(Federal Unemployment)
SUTA/PFML Payable	Credit (Liability ↑)		(MA Unemployment/Paid Leave)

Tax Link:

• Tax Forms: The balances in all "Payable" liability accounts are the amounts paid to the IRS (Forms 941, 940) and MA DOR/DUA (Forms M-941, DUA Form 1).
• Income Tax: The Wages Expense and Payroll Tax Expense accounts are the key deductions on the owner's Schedule C that reduce the business's overall net taxable profit.

III. Final Tax Filing Preparation

The accuracy of the bookkeeping dictates the speed and correctness of the final tax forms.

Tax Requirement	Bookkeeping Data Source	Federal Tax Form	State Tax Form (MA)
Business Income	Sales Revenue minus COGS, Wages Expense, Rent Expense, etc. (Net Profit).	Form 1040, Schedule C	Form 1 (MA Individual)
Self-Employment Tax	Net Profit from Schedule C.	Form 1040, Schedule SE	N/A (Federal Tax Only)
Sales Tax Due	Total MA Sales Tax Payable account balance for the reporting period.	N/A (State Tax Only)	Form ST-9 (Filed via MassTaxConnect)
Employee Wages	Total Wages Expense (for W-2 prep).	Form W-3 with W-2s	Form W-2 (Copy 1)
Employer/Withholding Tax	All Tax Payable Liability Accounts (total deposits).	Form 941 (Quarterly)	Form M-941 (Quarterly) & DUA Filings

Compliance Strategy: The owner uses the financial reports generated directly from the general ledger (specifically the Income Statement) to prepare the federal Schedule C and their state personal income tax return, ensuring every expense tracked in the bookkeeping system is properly claimed as a tax deduction.