The right time to start prepping for tax season is the beginning of the year that the tax return represents. It is important that everyone, especially people who are more “right-brained” such as artists and designers, maintain some kind of budget framework so that they can navigate their finances in a relatively orderly fashion.
The laws of financial gravity dictate that whatever money comes in, goes right back out…and then some.
The best way to avoid this is to set up a system where—either through a fixed monthly or weekly amount, or if that’s not possible, then a fixed percentage—funds are put away to cover the following:
- Business expenses, including anticipated purchases, portion of rent if applicable, etc.;
- Living expenses. Preferably you will have put together separate budgets in order to always know why you’re ever short….spending too much personally or if the business isn’t generating enough net revenues;
- Short term savings for estimated tax payments, sales tax, if applicable, which should be separated at time of any taxable sales, IRA or SEP or Uni-K pension plans;
- Longer term savings such as for vacation fund, education, anticipated property purchase, investing, etc.
Within this system you should dedicate different accounts and credit cards to business and to personal. Once this is done, you’re on your way.
We at Braverman CPA can help set you up with QuickBooks, so you have access to your financial information throughout the year. If you use a different accounting system, we can evaluate to make sure it’s usable for all necessary functions. Certain expenses need to be detailed and/or documented in addition to running your books in this fashion, as follows:
- TRAVEL: Aside from showing payment, you need to provide evidence of the business purpose of any trip. If your trip is mostly personal and you go to a couple of galleries or concerts, it’s probably not deductible. However, if you have correspondence with some galleries and have sent them your work and set up meetings and have an itinerary with contacts and purposes or if you’re writing an article on an area of France and have tried to sell it or have sold it or if you’re going shopping at specific markets for materials and/or samples for your new line or for properties for your film development co., etc. and have evidence, then it’s most likely going to be deductible.
- ITEMS PAID FOR IN CASH: For items paid for in cash such as magazines, cabs, food, gifts, mostly under $25 each, you need to keep a log showing Who, What, When, Where, Why and of course, how much.
- AUTO: Keep a log of your business as well as personal mileage. For business, you need the aforementioned 5 W’s and of course, how much. By keeping the logs, you might be able to write off your actual business expenses or, if owned, you may be able to use a mileage allowance, which is better, especially for hybrids and motorcycles or scooters.
Make it your 2019 resolution to get your books set up right! When they’re set up correctly, you’ll reap the benefits throughout the coming years.
Any accounting, business or tax advice contained in this post, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.