Death. Public speaking. Taxes. There is a reason why "taxes" can be one of the top three most dreaded things in life. We might not like thinking about taxes, but there are certainly benefits to doing so. By taking every legitimate deduction, making accurate estimated tax payments and choosing the most beneficial savings vehicles, artists can nearly "create" money where it did not previously exist. Treat your creative work like the business it is--it is certainly worth it.
Successful artists know that it takes more than creativity to succeed. Business acumen and attention to detail are critical to all entrepreneurial ventures. When it comes to maximizing your allowable tax deductions, records count. Track everything. Yes, everything. Whether you use a simple Excel sheet and itemized receipts or sophisticated accounting software and digital records, clearly document any expense that is even remotely related to your work as an artist. Come tax time, you might be surprised by what can be legitimately deducted. Keep the following potential deductions in mind as you track your expenses: studio and/or home office space and operational costs (heat, electric, etc.); business phone and/or cell phone expenses; work- and/or medical-related travel; education and training classes; art books and magazine subscriptions; donations to nonprofit organizations; any material used in your art; stamps and mailing costs; promotional costs (graphic designers, printers, advertising, giveaways); professional fees (for accounting, legal matters, etc.); business banking fees; and work-related meals (generally deductible at 50 percent of total cost). Consult your tax adviser for more information and to confirm all expenses.
Pay Your Estimated Taxes
If you file a schedule C form, as a business you are required to pay taxes on your income as it is earned. Estimated taxes owed are based on the previous year's tax bill. So, if you owed $12,000 in federal taxes for the 2009 tax year, you would be required to pay $12,000 during 2010 to meet your required estimated tax payments. This typically can be done on a monthly or quarterly basis. State tax requirements often are the same, but check with your state's department of revenue to be certain. Paying your estimated taxes on time saves fees and ensures you do not owe more than you can handle come April 15. Keep close tabs on your income to ensure you are consistently paying the correct amount. If you find you are earning more this year than last, adjust your payments to reflect the increase. Nothing is worse than finding out you owe more than you can comfortably afford. If you prefer to have someone else handle your calculations and payments, an accountant, tax professional or business adviser might be able to help.
Save More, Reduce Taxes
Most individuals are familiar with the traditional investment savings vehicles that help reduce taxes: IRAs, roth IRAs and employer-sponsored 401ks. But did you know that as a business owner filing a schedule C form you can set up your own Simplified Employee Pension (SEP) plan? Even if you are a one-person shop, you can set up a SEP for your business. A SEP offers a number of key benefits for the self-employed. Like an IRA, monies contributed to your SEP reduce your taxable income and grow invested in your chosen investment funds tax-free until you withdraw them after retirement. However, and quite importantly, a SEP typically allows you to contribute far more to your retirement than an IRA because annual contribution limits are based on income level rather than a predetermined maximum. Additionally, funding a SEP does not preclude you from also having an IRA. SEPs generally are very easy to set-up and manage. Most banks and investment firms can help you with the initial paperwork during a quick meeting. Check with your tax and investment advisers to see if this is a good fit for you.
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
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