Prepping for “The Tax Talk”: A Sample of Potential Freelancer Expense Deductions Included

Art & Money Matters Mondays

There are 2.5 weeks left to year end and I’m planning early for the conversation with my tax advisor (what I term, “The Talk”).  It’s not the thing most people look forward to at the top of the year but

in the words of my grandmother, “there are some things in life that grown ups just have to do!”  

I am here to help you make this process easier.  The earlier we start preparing for “The Talk” the better.  You’ll start the new year feeling more EMPOWERED and more CONFIDENT around your Finances!

So schedule a couple days over the next few weeks and dedicate a few hours per day to organizing your receipts or downloading your expense reports, categorizing your expenses and recording them in an organized way so the conversation with your tax advisor goes smoother.  Sunday is Administrative day for Art & Money Matters.  Starting January 3rd and every week thereafter, I’m dedicating a couple hours to tax prep.  Find a day or figure out a schedule that works for you. Here’s how January may look.

Jan 3rd:  Organize Receipts.
Take out your bag, box or folder of receipts and organize them by month. Ask your tax advisor which of your personal and business expenses will be deductible.  This would help you figure out which receipts are most important to keep. Ill share my list below.  Oh and don’t forget about the items you purchased online.  Search your email for e-receipts and online payment confirmations and print those out.

Jan 10th:  Categorize Personal Deductible Expenses
I’m not a tax person but every year I get a better understanding of what my advisor is ultimately trying to accomplish by filling out these tax forms, especially the 1040 (US Individual Tax Return) and Schedule C (Profit/Loss from Business).  What I’ve come to realize is that we pay taxes on income made in excess of our expenses, the Net Income.

So my goal should be to reduce Net Income, right? In other words, since Income (-) Expenses = Net Income, ↑ Expenses leads to ↓Net Income. That’s why it’s so important to know and track those expenses the IRS will allow you to deduct (subtract) from your Income. Work with your tax advisor to build a list of Personal Deductible Expenses relevant to you!

A tax advisor would use the greater of the standard deduction (amount stated by IRS) or your total Personal Deductible Expenses.  Here’s a sample list of Personal Deductible Expenses.  Have receipts or proof for EVERYTHING!
– Medical Expense (Insurance Premiums & Out of Pocket Costs)
– Charitable Contributions (Cash contributions & Fair Market Value of Donated Goods) –> have the donation letters or payment confirms
– Educational Expenses related to jobs
– Child or Dependent Care Costs
– Retirement/IRA/SEP account Contributions
– Moving Expenses (more than 50 miles away for work)
– Mortgage Interest Paid
– Real Property Taxes
– Student Loan Interest Paid
– Additional State taxes paid last year
– Estimated Federal & State Taxes paid during the year
– Business Expenses not reimbursed by an employer
– Travel Expenses for work or job search (travel, lodging, dry cleaning, tips, auto rental & gas/repairs, Wi-fi, etc)

Jan 17th:  Categorize Business Related Deductible Expenses
I love this part! I know I’m a numbers nerd but I feel CONFIDENT around $ and I want you to get there too!!!  Over the past few years I’ve become really disciplined about tracking these expenses.  As Creative Professionals, we all have multiple income streams outside of formal employment.  So for each type of business where I collect Income as an Independent Contractor/Freelancer/Business Owner, I track the related expenses.

For example,
As a Wellness/Fitness instructor, I track Business Liability Insurance premiums and supplies used to train clients.
As a Performing Artist, I track Audition Expenses (accompanist, headshots, etc) and Coaching/Classes and Lessons
As a Service-based Business Owner, I track Office Supplies and Business Hardware & Software purchases or rentals.

Here’s a sample list of Business-related and Professional Deductible Expenses I use.  Have receipts or proof for EVERYTHING!

Advertising & Publicity (online & offline)
Agent/Manager/Booking Agent/PR commissions & fees
Coaching/Classes and Lesson (not gym membership)
Dues & Subscriptions 
Equipment/Software Purchase or Rental (provide details because the item may be considered an Asset versus an Expense)
Internet and/or Cable (% related to work)
Meal & Entertainment (Business Only) –> on the receipt, include for whom and for what the expense was incurred
Office Supplies
Rental (studio, home office) –> the IRS is particular about Home Office deductions
Professional Development (conferences, workshops, continuing education courses, etc)
Repair & Maintenance (Equipment, Wardrobe, Instruments)
Telephone (% related to work) –> Suggested: get a 2nd line
Trade Publications 
Trade related Tickets for Research (performances, film, conventions/conferences)
Trade (Research & Miscellaneous) Supplies (scripts, sheet music, DVDs, recorders, downloaded music, Apps, Pilates/yoga props)
Travel Expenses (out of town if related to your Creative work or Business)
Transportation – local (related to your creative work, seeking employment and/or clients)

Jan 24th:  Use resources and set up systems to make this stuff easier next year!!!
Organizing Receipts:  I store physical receipts by month in a receipt/coupon organizer.  You can buy one at any school or office supplies store; it’s been a super helpful organizing tool for storing receipts throughout the year. For e-receipts, create a New Sub- folder in your Inbox called “RECEIPTS” and put receipts for Business related expenses there so it’ll be easier to locate  at year end. For those who, like me, track their expenses using computer software or a mobile app, find a mobile app to track your expenses on the go!  There are so many Apps out there.  I use HomeBudget.  But here’s a list of Personal Expense Tracker apps for IPhone & Android…and  a list of Business Expense Tracker apps.

Jan 31st:  CELEBRATE GOOD TIMES! and schedule an appointment with your tax advisor.
I’ll celebrate my accomplishment with my favorite desert, cocktail (or two) or event.  Then Ill call my tax advisor and schedule time to have  “THE TALK”.

 

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