Yes, it’s tax time again. As a self-employed business owner, it’s important for you to have a handle on your 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 nine tips for maximizing those deductions. To be sure that these apply in your particular instance, be sure to discuss with your accountant.

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Recently I attended a conference where I had a chance to talk with a number of different business owners, not all in creative fields. One of the topics that came up was the dreaded “F” word — finances. In fact, we heard an entire presentation geared to helping us understand financial terms and creating a dashboard so that we could look at our key indicators. Remember, if you do not measure, you cannot make changes, and that is why we need to track through those indicators.

One of the questions from the group was about paying yourself. When should you pay yourself? Should you just reinvest all the money in the business and not take any out as a salary? Should you wait until the end of the year and then see if anything is left? Should you pay yourself first?

I know we always hear we should do this; yet, how many really do? I know I hear people say, “Wait, I will take extra out at the end of the month.” This is particularly true for those who are just starting their business and who are not relying on their business to support the household. The thought is to wait until you get some experience and cash flowing in.

Profit First
Mike Michalowicz
Obsidian Press; $24.95

This book was recommended to me and when I found it in the Kindle store for $2.99, I hit the 1-Click® button, downloaded and began reading. I am so glad I did. Most of us learned the basic formula Income – Expenses = Profit. Profit is what you have left. Mike teaches you Income – Profit = Expenses. Even if you know to pay yourself first and are doing it, this is more. You start with four types of accounts (Profit, Owner’s Pay, Taxes, Expenses) and divvy the money up in the order according to set percentages. What happens if you don’t have enough left for your expenses? It doesn’t mean take from the other accounts; it means you need to get rid of the expenses you cannot afford. One of the other suggestions Mike offers is to get  a handle on bill paying by doing that twice a month, on the 10th and 25th. The book includes an Instant Assessment so you can see where you stand, as well as suggested percentages to apply to the four accounts. Yes, some of it seems obvious, yet how many of us are really doing this? Definitely worth the read.

Look for this book at your favorite quilt or book retailer. Here’s a link to Amazon if you would like to learn more about the book.

This past Friday I gave the keynote at the Studio Art Quilt Associates Conference. I had a great time connecting — and reconnecting — with so many talented artists. My talk was titled “Starving Artist No More: 7 Steps to a Profitable Creative Arts Career.”As the title suggests, I spent a lot of time talking about your mindset. One of my slides included a favorite quote from Mika Brezinski on knowing your value, which I will share below. From my experience working with creative entrepreneurs, I often find they struggle with determining a value for their work and then charging for it. Here are some tips for dealing with worth.

475 Tax Deductions for Businesses and Self-Employed Individuals
Bernard B. Kamoroff, CPA
Taylor Trade; $18.95

This book in its previous edition as 422 Tax Deductions has been one of my annual favorite resources when it come time to do my taxes. Sure I use an accountant, but I have to pull the information together for him. I expect him to understand tax law; I can’t expect him to understand all the nuances of my business. This book helps me be sure that I have got all the deductions I am entitled to use. Topics are listed in A-to-Z order and I review them each year. The author also has a sense of humor. Just check out his list of emergency rations to deduct. One of the bonuses of the book is that it is updated annually to keep up with tax law changes, and you can get a free update through the book’s website. Plus, the book’s cost is tax deductible.

Look for the book at your local quilt shop or book retailer. Here’s a link to Amazon if you would like to learn more about the book.

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.

I know we always hear we should do this; yet, how many really do? I know I hear people say, “Wait, I’ll take extra out at the end of the month.” This is particularly true for those who are just starting their business and who aren’t relying on their business to support the household. The thought is to wait until you get some experience and cash flowing in.

We have less than two weeks before the year ends and we start 2013. You can still take positive actions to end your year right and get a head start on 2013. Here are five tips:

1. Don’t wait until Dec 31 to check your financials. Do you need to follow up on any late invoices if you want the income to be in 2012? Do you need to make any expenditures by year end? If you listened to my call with CPA Maggie Mayer, we discussed some of the changes you could make by year end to make a difference in your tax situation for the year.

2. Look back over the year to see what your successes were. I think as entrepreneurs we often do not take the time to celebrate what we have accomplished. We are always onto the next big thing. Go back and list what your accomplishments were. I bet you can come up with 100 if you try.

3. As you looked over your successes, did you see places for growth? Spend some time over the next two weeks getting clear on what’s possible for you. Consider who you’ll need for support, whether that’s private coaching or your own personal networking group.

4. Have you started planning for next year? Have you purchased your calendar or created one that works for you? Have you entered dates for big events and those appointments with yourself? That way you can start the year on the right track. You’ll see where you need to fill in to build your business.

5. Have you thought about what Your Big Why is? What’s the reason you get up each day and work in and on your creative arts business. If you are unclear, set aside some time over the holidays to consider it. That will make a difference as you begin the New Year.

Please share your thoughts below.

Have you taken time to look at your financials? How can you know where you are or what adjustments you need to make if you don’t? I know, so many artists say they aren’t interested in numbers; it’s such a left brain activity. I don’t buy that argument. Organizing your work space so you can create art is a so-called left brain activity; so is putting together that list of art supplies to order. You do those anyway because you want to create art.

You should have that same thought about your numbers. You want to create a profitable business – and you definitely use lots of right brain activity in that – knowing your numbers is part of the picture to get you there. And, if you don’t look at the whole picture, well, it’s like a half-finished quilt. You don’t have the complete story.

What do you need to look at? Here are two specifics: your profit and loss statement and a cash flow statement. We’ll talk more about those in an upcoming article.

You’ll note I titled this article “Your quilt business is like a restaurant.” When you own a successful restaurant, it’s divided into two areas: front of the house and back of the house. Front is what the public sees, ie., the host/hostess, the waiters, and the dining room. And back of the house is where the work takes place.

For creative artists, I see the front of the house as our completed art. Most of the real work takes place back of the house, whether that’s our creating or our looking at our books or our efforts to get our art seen. Restaurants have staff both in the front and the back of the house. So do our creative businesses. We might have reps to market our business and we might have bookkeepers to input the numbers into our financial software. We don’t have to do that work that doesn’t fit our skill level or that seems too “left-brained” to us. It does, however, fall to us, the business owner, to look at the big picture. Part of that is looking at those numbers and becoming creative about how to grow our businesses.

Please share your thoughts below.