Manage Your Business Better With Financial Foreplay
Here’s what my work to-do list looks like for this week:
Aaah look at all that creativity, sketches due, finals to work on, a picture book idea to re-write… wait whats that at the bottom? Work on taxes?? (sound of needle screeching on record)
TAX stuff?? bluugh
Taxes are something that most people, but especially creative people, shudder about. When I polled several artist friends most admitted to just shoving a bag full of receipts at their accountant. Fellow Once Upon A Sketch contributor Kevin Cross put it bluntly “not everything in this job is butterflies and rainbows.” As a small studio owner you have to do it all, from creating the work to cleaning the coffee maker. Watching income and expenses is just another part of that job. Just like you wouldn’t clean the coffee maker once a year (well you shouldn’t do that,) you also shouldn’t wait til the end of the year to get a clear snapshot of your studio’s financial picture. But many creatives, especially those starting out, are not sure where to start or where to get answers. So I sat down with Laurel Green, principal at Greenbooks, a bookkeeping agency that works exclusively with visionary and creative small businesses, to ask a few questions about tax basics for creatives. She shared her answers below… and even made it sound fun with Financial Foreplay:
OUaS: What are the three absolute must-haves or must-dos that any creative should keep in mind when it comes to preparing for tax time?
LG: First, find a knowledgeable and reliable CPA or Certified Tax Preparer who works with clients in your creative field. Do not use a preparer who is not registered with the IRS or received a Preparer Tax Identification Number (PTIN). Ask friends and colleagues for referrals.
Second, maintain separate accounts. According to IRS Small Business officials, the tax agency is turning its attention to “flow-through entities,” which includes S corporations and sole proprietorships. This means they’ll be on the lookout for business owners who try to deduct the same expenses on different filings. If you haven’t done so already, get a business checking account to match your personal accounts and separate all transactions. It can reduce the chance of an audit.
Third, save every tax form that arrives in your mailbox. Being organized will reduce stress, save time and money, and ensure that you get all entitled deductions.
OUaS: What is the biggest mistake you have seen or know of creative people making when preparing for taxes? How can it be rectified?
LG: Don’t wait until the last minute. Nothing is more frustrating than searching for everything you need when the tax return is due in a couple of days.
The biggest mistake a creative person (any person) can make is bringing a shoe box or manila envelope crammed with receipts to a CPA or Tax Preparer and paying them to organize it for you.
Motivate yourself to sort through your receipts with what I call Financial Foreplay. Pour a glass of wine, light a candle, and dump those receipts on a bed. Organize your records by month, separating them into two categories: income and expenses. Then sort them by type. For example, under the expense category you might have advertising, office supplies, utilities, labor, and taxes to name a few. The more detailed your information is the less time your tax preparer will spend decoding information. Continue reading