You have just filed your taxes and you breathe that sigh
of relief. It’s over for another year. Or is it? The
answer is NO, or at least it should be, because tax
season is just about to begin. That’s right. The
organization it takes to make the most of your taxes
begins now.
As artists it is essential to understand that regardless of
your current income, if you actually intend to make
money from your craft, there are ways in which you
must treat it like a business. There are two critical
concepts you must become familiar with to be fully
prepared to do your tax return. Without them, you are
not running a business – you are engaged in a hobby –
and should never expect that hobby to be financially
profitable. The first is you MUST be organized.
Organization means being sure you have all the
documentation you need and that you have a place for
everything and have everything in its place. You might
find that a computer-based program, such as Quicken or
Quickbooks, is the answer to keeping all your records in
order. If you are more comfortable with paper then be
sure to get a paper organizer that is efficient and easy to
use. Actors have an enormous resource in a company
called Holdon Log (visit http://www.holdonlog.com).
They provide both computer programs and carefully
designed log books that allow actors to record everything
from auditions and callbacks to expenses related to
creating and maintaining your professional image. Find
tools that work for you and USE THEM throughout the
year to keep the records you need to efficiently and
effectively file your taxes.
The second important concept is to keep your business
finances separate from your personal finances. Have
one bank account for each business you have and use
this account to pay all your business expenses. This is a
professional way to conduct your business affairs and it
is a good way to keep your records in order. Again,
remember that your acting, photography, writing, or any
other creative career is a business and should be run out
of a separate bank account. If you do not have funds in
your business account then loan your business some
money and keep careful track. The business can pay
you back when times are better and in the end you will
know that your business paid its own way.
Become familiar with the tax system and how you can
maximize your return. One way is by starting a home-
based business. You can earn money and with the
deductions you will have, such as a portion of your rent/
mortgage and your utilities, you will be able to keep
more of that money in your pocket. You can even write
off your losses against other sources of income. The
best thing to do is hire a tax professional to handle your
taxes, someone who will be able to maximize the
amount of money you can save. Remember, you have
to spend money to make money. There are, for
example, accountants that focus on preparing tax returns
for actors and/or other entertainment industry
professionals. An accountant that specializes in filing
returns in your area of expertise may be your best
choice.
Finally, there is an avenue that is available to explore,
yet is something you may not be aware of, may not have
considered, or simply may not believe is even possible.
This are tax advantage investments, such as retirement
plans, self-directed IRAs, and real estate. I know you
may be thinking this is crazy, you hardly make enough
money or you don’t know anything about investing, but if
you take it one step at a time and do your homework,
there are ways that you can actually have your money
start working for you.
The key is to know your options, be organized, and
conduct yourself in a professional manner. A very
helpful resource to understand taxes better is the book
Lower Your Taxes – Big Time! Wealth-Building, Tax
Reduction Secrets from an IRS Insider by Sandy Botkin,
CPA, Esq. You will find valuable tips and rules explained
in a way that completely non technical people can
understand. The chapter entitled “How to Shield Yourself
from the IRS Weapon of Classifying a Business as a
Hobby” is absolutely critical and will pay you back for
the cost of the book many times over.
Whatever you do, do not leave your tax preparation until
mere weeks before your return is due to be filed. This
will cause you an un-necessary amount of stress and
may cause trouble for you with the IRS if you do not
have your documents in order. It may also cost you
money you can’t afford to pay.
