7 Tax Tips for Creative Entrepreneurs
March 27th, 2013 by Morna
Yes, it’s tax time again. As a self-employed business owner, it’s important for me to have a handle on my business and know what is deductible and what isn’t. Invariably when I talk about taxes with creative entrepreneurs, someone will tell me they have an accountant. “Terrific,” I say. “But what does she know about your business in particular?” You go to an accountant because she knows taxes. She can be very knowledgeable about small businesses, but she cannot know the nuances of every type of small business. She works with what you give her. That’s why it’s important for you to do your own research, understand tax strategies and keep track of deductions to which you are entitled. Here are some tips for maximizing those deductions.
1. Keep better track of your mileage. I’ve read that when you estimate, you actually underestimate. I use the Quilt Engagement Calendar in conjunction with the trip meter in my car. I set the meter to zero at the start of my trip and then enter the mileage in the calendar at the end, along with a notation as to the purpose of the trip. The IRS doesn’t care how you track your mileage, just that you have written logs. You can also track your public transportation costs in the same log.
2. Group your errands. The IRS allows business owners to deduct business mileage. For 2012, the rate was 55.5 cents per mile. (For 2013, the rate is 56.5 cents.) If you have personal errands, do them at the same time as your business errands.
3. Use the per diem rates for meals. The IRS has established per diem, or by the day, allowances for meals that self-employed individuals can use. At your option you can use either the per diem or actual costs, depending on which gives you the greater deduction. I find that in most cases, the per diem is better. Remember, that you can only deduct 50% of the per diem or actual meal costs. For per diem rates, refer to IRS Publication 1542, Per Diem Rates.
4. If you operate as a sole proprietorship, consider hiring your children aged 18 and under. You can get a deduction for their wages (up to $5,950 in 2012), and in most cases your children do not have to pay taxes on the wages. Details: IRS Publication 15, “Circular E, Employer’s Tax Guide.
5. It may not be too late to set up a retirement plan for yourself to shelter some of your income. Talk to your accountant about your options.
6. Don’t forget about professional publications and dues. All the quilt and many other magazines that you buy are deducible if you use them in your business. Your IAPQ dues are also deductible, as is your trip to the Creative Arts Business Summit.
7. And, if your books weren’t up-to-date or you are a shoebox records filer, vow to be better in 2013.
For more information, you can refer to IRS Publication 334, Tax Guide for Small Business. Also recommended is 475 Tax Deductions for Businesses and Self-Employed Individuals by Bernard Kamaroff, CPA.
Please share your favorite tax tip by leaving a reply below.
Janice said:
Ahhh, taxes! Not a fun topic, but you offer great tips. Thanks!
Sharon Mackay said:
Thank you, thank you, thank you!! I explored your site and though I was impressed, I wasn’t completely sold on joining but I definitely am going to be a member now that I have read your article on Tax Tips. This has been my number one concern during this process of starting up my T-Shirt Quilting business (seriously, even more than getting clients or finding wholesalers or anything else!) I was amazed at how much straighter I sat and how much higher my shoulder became when I realized (while reading the article) that I can make this work and all I have to do is be persistent, dedicated, and focused – while being responsible for researching all aspects that need to be addressed to make my business a viable part of my community. Thank you so much and I look forward to learning from you and your members (and hopefully even having the opportunity to meet and thank you in person one day!!)
Morna said:
Sharon, You’re welcome and thanks for sharing. We’ll look forward to your joining us. It is about focus and dedication and persistence to your goals. Good luck!