What essential part of your business you might be overlooking...
For many painters, reality is that they love to paint, but they don’t like spending time adding up invoices, preparing taxes, etc. However, if you want to run a successful business you need to keep an eye on your expenses. Paying taxes is the law, and it will help you know if you are making a profit at the end of the year, and what that is.
Bookkeeping is an essential part of your business and it can be done easily if you do it regularly enough and you get used to saving all of your paper records. To know what records to keep you should contact the IRS or a CPA to check what expenses can be deducted as such, and what income qualifies as business income.
There are plenty of software programs out there that could make your task easier to accomplish if you are a computer kind of person. You can go as simple as an Excel workbook, or you can use a software like QuickBooks. We use QuickBooks and we had our CPA set the file for us according to our needs. We were able to get trained in 2 hours, and every now and then we call our CPA to ask questions. It is fairly easy to use and it really makes tax filling a lot easier at the end of the year.
Below is a list of the things you should keep records of. These are just examples, your business might have different categories, but the ones listed below are pretty basic:
A – Face Painting Supplies: keep records of all of your purchases. All stores should send you an invoice with your order, either by e-mail or with your order. Make sure you keep copies of them and make a small chart with each purchase so that at the end of the year you don’t have to go over your invoices again. Keep in mind that if you did not pay for sales taxes when you bought your paints you must do it at the end of the year. If you did pay taxes for the paint to a state different to the one you live, you might need to pay the difference between that tax rate and the one for your state.
B – Costumes: do you have specific outfits that you use only for your face painting business? Keep records of those purchases to make sure you count them as business expenses.
C – Office Supplies: to run your business most likely requires paper, ink cartridges, pens, etc. Keep a chart with those purchases, save the receipts, and add them up at the end of the year. Again, if you fill in your chart every time you make a purchase, it will be much easier to find the total spent at the end of the year.
D – Services: do you use internet, electricity, your own home space? If you, you are probably entitle to deduct part of that as a business expense. Keep records of how much you spend on your phone, internet, rent, energy bill, etc. At the end of the year you should be able to deduct a portion of those expenses. Usually, you will calculate what portion of your home you use exclusively to run your business, and then divide that by the total surface of your home. That will give you a number below 1. You will multiply that number by what you spend on rent and energy to calculate how much you could deduct. Please visit the IRS website or contact your CPA for specific rules.
You should also be able to deduct part of your internet and phone bill; the total should equal what you think is proportional to your use of those services for your business versus personal use. So, if 10% of the time you are using your cellphone for business, and 90% of the time you are using it for personal purposes, then you should be able to deduct 10% of your annual bill. Some exceptions apply (normally you can't deduct expenses on your first land line).
E – Marketing: do you spend money on business cards, website fees, yellow pages, gig salad (or other directories), printed ads, online ads, etc? If so, keep records of each expense on a chart and save your receipts. They could all be listed, for example, under an “advertising” account.
F- Insurance: do you have business/entertainer insurance? If you do (we strongly recommend for you to have it, you can check our previous post about it here), you can deduct that as a business expense.
G – Miscellaneous: any other expenses that you don’t know exactly how to classify. Keep records, and later you will find a category for them when you are filing your taxes.
H- Mileage: if you want to deduct miles driven that are work related you must keep a mileage log. The log should include your odometer reading at the beginning and end of the year, the odometer reading at the beginning of a business trip and at the end of the trip. It should also have the address of destination and the purpose of the trip. Depending on who you ask, they might give you a different opinion on how detailed that log must be. Another option is to do an online search of the trip you made and calculate the miles driven back and forth, and write that on your log instead of the odometer readings. That might not be compliant with IRS regulations though, so double check. Also, keep in mind that some car insurance companies require that you have a business rider on your insurance if you want to use your car for that purpose. Not having that rider could potentially create issues at the time of a claim, so check with your car insurance agent.
I – Legal and tax related expenses: have you paid a lawyer to draft a contract for you? Do you pay for a CPA to help you with your taxes, or you bought a tax preparation software? Keep records of those expenses in a chart with descriptions of the purpose of each expense.
J – Bank fees: does your business bank account has maintenance fees? Did you get a bounced check fee, and overdraft fee, etc? All of those might be deductible expenses, make sure you keep records of them.
A – Full payment for your jobs: keep records of the person or company you worked for, the date, location and total billed. You should have a copy of the invoice or booking sheet for each gig.
B – Tips: although it is hard for the IRS to realize if you are declaring your tips, it is always a good idea to declare all of your income. It will keep you out of trouble and increase your contributions to Social Security, which should reflect on a better Social Security check at the end of your career.
C – Other income: as an example, you can receive payments from Google if you make YouTube tutorials and are part of their partner program.
It can look like a lot at the beginning, but as you get used to keeping your records updated with every purchase or gig, you will realize how easy it is to know what you are making, and make adjustments to your business accordingly. This way, filing taxes at the end of the year will become a much easier tax.
Also, good records will make a tax audit a much less stressful experience. No one is exempt from tax audits, so it is always better to be prepared. When keeping records, you should think that they need to be good enough so that you can explain your expenses and income up to 7 years back in time. That is a LONG time, so keep your records as complete and clear as possible.
Don’t stress, this might be a boring part of your business, but the information you will get from doing this will help you accomplish your business dreams, and will put you a step ahead of your competition.
Disclaimer: these are opinions based on our personal experience, we are not lawyers or CPA’s, so we recommend for you to contact a lawyer and or CPA before making any decisions. We are not in any ways giving legal or tax advice and we are not liable for any decisions you make or stop making based on the opinions provided above.
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