MUSICIANS ARE YOU RUINING YOUR TAX RETURN BY FILING YOURSELF?

ladygaga

To all my future musician clients, I know you’ve tried saving money by using TurboTax or some other DIY tax website and you’ve probably made a few mistakes. The problem with these DIY tax programs are that they don’t ask the right questions specific to you as an artist, so you wind up with the wrong answers.

Here’s an example of a mistake that I’ve seen musicians make — YOUR CLOTHES, HAIR, AND MAKEUP AREN’T DEDUCTIONS, unless your “on stage outfit” is a costume, it’s not deductible for tax purposes.

Here are a few other tax items you may be missing or not.

#1 – 1099-MISC INCOME WAS MISSING

You forgot to include the 1099-MISC you received from a venue, artist, record label, or publishing rights organization. The IRS knows you got the money, and they’ll be contacting you soon, because the person who paid you reported the income because it is required for them to report it if it was $600 or more…you are still responsible for reporting ALL income received even if you did not receive form 1099-Misc

#2 – YOU DIDN’T SEND FORM 1099-MISC TO THE APPROPRIATE PARTIES, BUT TOOK A TAX DEDUCTION

Anyone you pay $600 or more should be rewarded with a Form 1099-MISC. If you don’t send them a 1099-MISC by January 31, the penalty is $30-$100 per form! So, ensure you send those out on time. Taking the deduction without sending the proper forms is a red flag.

#3 –  YOU DEDUCTED “FREE” SHOWS TO NON-PROFITS AS A CHARITABLE DEDUCTION

Wrong! Your free show was free; you don’t get to deduct what you would have made if you had charged the charity. The actual deduction you could take would be the mileage deduction for driving to and from the event at the charity mileage rate.

There’s no shame in pinching the pennies to do your own taxes, but make sure you don’t make mistakes and ruin your tax return. If you’d rather play it safe, hire a professional like us so that you can fix it before it’s too late to receive a refund or costlier in interest and penalties!

I’m Blogging and I’m Making Money Doing It….What Do I Do Now?

Bookkeeping for Bloggers

I‘m Blogging and I’m Making Money Doing It….What Do I Do Now?

As an EA and a certified bookkeeper I get asked questions like, “what do I do now that I am making money from blogging?” Or, “what information should I keep for filing my taxes?” I had no idea that people were making a living from blogging. These online diaries known as weblogs or ‘blogs’ have morphed into a cutting-edge phenomenon that has provided a platform for the internet’s next wave of innovation and moneymaking opportunities. For those of you who are thinking about getting into blogging and are wondering some of the ways bloggers are making money from this well here are some of the ways they’re doing it. They are putting advertisements on their blog like Google AdSense which is an easy non-technical way of generating income. All you need to do with AdSense is copy a code and paste it on your website. Another way is to be in an affiliate program which allows you to post a link to the company’s product on your blog and if someone clicks through your blog to their site and orders, you would get a portion of the sale. Also, you can make money from private sponsorships and when your blog becomes really established with readers you can expand by offering memberships to your website to gain access to exclusive content on your blog. There are a lot more ways to generate money by having a blog but those mentioned are the most popular. However I’m not here to tell you how to make money I’m here to explain what to do when your blog starts to generate money and to give you some resources to help you navigate through the process.

business or hobby

Well as I stated earlier you can make pretty good money blogging. As you start making money your blog becomes your business and the way it works is this: For tax purposes, a business is any activity in which you regularly engage primarily to earn a profit. You don’t have to show a profit every year to qualify as a business. As long as your primary purpose is to make money, your blog should qualify as a business (even if you show a loss some years). Your blogging business can be full time or part time, as long as you work at it regularly and continuously. However, if your primary purpose is something other than making a profit—for example, to communicate with your friends or make your opinion known—the IRS will find that your blog is a hobby rather than a business.

Keeping good books and other records and carrying on in a professional manner can constitute that you are running your blog as a business. Working on a regular basis and earning a substantial profit, even after you’ve had some losses in the past will help show that you are serious about trying to make it a success. As a business, you now have to claim all income; even the free stuff you get, unless it’s labeled as a gift or corporate sample, is considered income. If your blog qualifies as a business, you’ll be able to deduct your business expenses from the income you earn from the blog. If you have a loss, you’ll be able to use it to reduce your taxable income from other sources such as wage income and investment income. It’s also worth noting that your expenses shouldn’t really outweigh your income (although sometimes it’s unavoidable in your first years of business, taking into account start-up costs and so forth). Keeping receipts, a separate bank account and all other documentation is a great start for getting your business organized for tax time. It also shows that you are running your blog as a legitimate business. Once you’ve established that you are running a business, it is now time for you to set up an entity structure (LLC, S-Corp, C-Corp).  I do not recommend that you be set up as a Sole Proprietorship.  I do encourage you to speak to your tax professional about the tax implication of each entity and what will work for you.  Check out this link for more information on whether you’re considered a business or a hobby.

deductions3

So then what things can a blogger deduct? Just about anything that is directly related to your blogging business and is necessary and reasonable in amount. Below are some categories and expenses a blogger could deduct.
Internet fees
Website hosting fees
Domain name cost(s) and renewals
Business Travel

Transportation costs: car mileage; airline tickets; taxis; buses; trains
Hotel costs for business trips
Costs of conferences, plus all related expenses
Continuing Education
Further education classes
Webinars
Business podcasts
Meals
Meals are only deductible as an entertainment expense when provided to a customer or client. In general, only 50% of the cost of the business meal can be deducted; other rules limit “lavish or extravagant” meal and other expense deductions
Depreciation
Fax/scanner/copier equipment
Computer equipment/Laptop
Furniture
Supplies
DVDs and CDs related to your blogging
Movie or theater tickets, etc., if related to your blogging
Stock photo purchases for your blog
Film, Web & Digital cameras
Props
Dues & Subscriptions
Books and magazines used for research
Research sites that require a subscription
Memberships to professional clubs and affiliations
Advertising
Business logos and graphic design fees
Business cards, letterhead and other stationery
Online self-promotion fees (that includes banners and AdWords costs)
Legal and Professional Services
Search Engine Optimization services and fees
Website design and/or maintenance fees
Tax preparation/Bookkeeping fees
Business incorporation costs
Costs for Trademarks or Copyrights
Home Office Deduction
You can deduct the part of your home you use exclusively for blogging as an expense, including a portion of the rent, water, heating bills, insurance and so on.
Office Expenses
Business equipment rental
Tax and accounting software
Postage costs
PayPal and Bank fees
Post Office Box fees
Prizes and giveaways
For more information on deducting business expenses check out this link.

keeping track3So now you know what you have to do, here are a few options you have for keeping track of your income and expenses.

First, hire a bookkeeper. Of course I would tell you to do this because I’m a bookkeeper (wink). Some may think it’s too expensive which is understandable if you’re not really making a substantial amount of revenue, but for those making a living at this may want to consider it because in the long run you could save a lot of time and money when it comes tax time. It is definitely the easiest way to go because you can just drop off a box of receipts to a bookkeeper and pay them to organize, align and produce a package that will help you file your taxes or even pay them to do your taxes if they are also licensed tax professionals.  A bookkeeper will have complete and up to date records of all your business interactions, produce professional reports and ensure your books are accurate. If you don’t have the funds at this time to hire a bookkeeper there are other ways to keep track of your activities: For example you can use Microsoft Excel to keep track of your business income and expenses.  It’s much easier to keep track of every activity if you have a separate bank account for your blogging business.  Another way would be to use an online accounting program; I’d recommend using Wave Accounting or FreshBooks.  These online programs usually have bookkeepers or accountants, as their advisors. These folks can help you if you get stuck or have questions or just want advice and it’s FREE.  FreshBooks have limitations but you can upgrade if need be. When you decide you’re ready to purchase software you can always contact a QuickBooks ProAdvisor and they can help you choose the correct QuickBooks package and give you special discounts. Most of the QuickBooks ProAdvisors can be contacted via email or phone to help answer any questions you may have with your QuickBooks. Click this link to find a QuickBooks ProAdvisor

This quick introduction definitely does not compare to meeting with or speaking to a certified bookkeeper, accountant or enrolled agent (EA). It is only meant as a quick guide to get you started with keeping track of your business activities. If you are able to meet with a bookkeeper, I highly encourage you to do so; they can be great resources to have.

If you have any questions please email me and I’ll be glad to answer any of your questions.

Debbie Thomas, EA, NRB

It’s Spring – Let’s Get Organized!

SPRING CLEANING

Are you ready?  Well then let’s get started!

I hope you’re energized and ready to start clearing out all of those old documents that you have accumulated over the years. Putting your financial matters in a nice organized manner will give you peace of mind.  Did you not feel good when you finally finished  your “household” spring cleaning … everything now is where it belongs, the smell of bleach and lemon filling the air of the once cluttered rooms and that sense of relaxation after relieving that big inhale.   Now picture that same feeling (minus the smell of bleach and lemon) when it comes to getting your paper work in order.  No more asking yourself, “where is that form, I just had it the other day,” or misplacing your child’s field trip form that was supposed to have been signed a week ago.  On a serious note though folks, let’s just say you get audited – which means you’re going to have to pull out your tax returns along with all the information that was used to prepare that return – well do you know where it is?   Exactly.   Wouldn’t you feel a little relieved knowing that if anything like that ever happened that you would be more than ready?   Also, with the New Year and the start of Spring you may want to consider getting your finances together maybe start a wealth planning program or just get yourself on a budget.  With your paperwork in order it will make the process a whole lot easier.

Now, no one said this is going to be easy but having a checklist and a guide can take a lot of pressure off of having to do it yourself. Think of it as having your own personal assistant.  Now just like starting a business you have to start with a business plan.  You have to know where to start by knowing what you will need to make this process successful.  So to start off, below is a list of things you will need.  How cool is that!!

spring cleaning-page1

I suggest that you take 4 days to do this 4 step process.  But if you think you can get it done in one day go for it.   OK, here we go!

Step 1 – Gather ALL of your documents – (including unopened mail, receipts, bills, etc…).

Step 2 – Set up a filing system –  click here for a list of folder names that you can choose from depending on what you have.  This is where the labels come in handy.  Start writing the names on the tabs so you can later put them on the file folders or if you are going to scan just check mark the the folder tab names on the list so you can later entered them into your computer program.

Step 3 –  Separate – Now it’s time to get your posted notes out and label them with the following:  (1.)  File/Scan  (2.)  Bills To Pay  (3.)  Review  (4.)  Shred.  Spread the posted notes out and start separating your paperwork into the 4 piles.   If you do not know what papers to keep click here for the records retention schedule

Step 4 – File/Scan – It’s time to grab those labels (tabs) you previous made and start putting them on the filing folders (or start creating digital folders with the names you checked on the list into your computer program).  Once that is complete start filing/scanning.  Grab the papers in your “file/scan” stack and start separating them into the appropriate tabbed folders or start scanning them into the labeled digital folders in your computer program.   Next, grab your “bills to pay”  stack and put those in the “Bills to Pay” folder.   Now grab your “review”  stack and put them in the “Review” folder.     After you’ve put the documents in the correct folders it’s time to file them away into a file box or filing cabinet.  If you scanned your documents you can now  save the files onto your flash drive.   Finally, we come to the best part, the “SHRED” pile.  No need to explain that one but I’m going to: Shred with your shredder or burn in your fire pit whichever works best for you.  Just don’t throw them in the trash without being shredded (the trash bag is only to be used for the papers already shredded).   DON’T BE A VICTIM OF IDENTITY THEFT.

OK, you did it!  [High Five] Now don’t you feel GOOD!  I’m so happy for you.  This is the first step of getting your finances in order.

Well it’s been great sharing this information with you.  Until next time relax and have a wonderful day!

Debbie