Trish and Harold's Weblog

News, information, and random thoughts from the busy lives of Trish Egan and Harold Phillips.

Tuesday, March 09, 2010

Back-To-Business: A Taxing Situation II - Track The Money

Sorry about the late post, folks... once again, the "scheduled posting" function doesn't seem to have worked on Blogger; I need to get better about checking to be sure my posts go up when they're supposed to. My apologies!

The Back-to-Business Series: Index

So, do you hate me after last Monday's post? Did you curse and scream your way through collecting receipts and figuring out how much you drove and whether that drink you had with your actor friends was a legitimate expense or not?

Sorry about that guys... I really am. It stings me more than you know to see actors sweating at tax time, trying to pull all their paperwork together in a race to get their taxes in by the deadline. It really doesn't have to be that way - not if you do a little preparation and management throughout the year.

A large part of my private business coaching sessions with actors is dedicated to setting up systems; systems that - when they're followed regularly - make tax time a lot easier, and keep actors on top of their business throughout the year. Over the next few weeks we'll go over some of these systems - and hopefully you'll start keeping track of things, making next April a lot easier.

As I said in the first post of this series, IRS rules determine a lot about how we do business. The IRS tells us what expenses we can write off - and by doing so, they tell us what we should be investing in to grow our business. You've probably heard the old saying "you have to spend money to make money," right? That saying gets to the heart of what we report to the IRS every year - expenses and income - and it also gives a nod to the reason for most of the stress people feel at tax season: the hustle of pulling together all their pay stubs and receipts to show how much money they spent to make their money.

You can cut down on that stress a great deal if your acting business income and expenses are already separated from your personal income and expenses. One of the simplest and cheapest tools an actor can use for this: a manila file folder. That's it - costs you just a few cents per folder. When you buy something for your business, you put the receipt for that purchase in the manila folder (making sure to note the purpose of the expense - like "Lunch with Director ____," or "Photos by ___"... you get the idea. Remember, if you ever get audited, documentation is everything!). When tax time comes around, you open up the folder, separate your receipts into the categories listed on Actors Tax Prep's handy expense list, and you get to work filling out your tax form.

Hey, while you're at it, invest another few pennies in a second manila folder, and put the pay stubs for jobs you've worked during the year (or copies of the check, if there's not a stub enclosed) into it. That way your business income is ready to be reported as well - you just have to sort it into W-2 and 1099 income!

But wait a minute... that's not really making the tax process much easier... you still have to sort your receipts and pay stubs to get your taxes ready. There's got to be a better way to do it so you don't have to spend so much time in April... what if we pre-sorted our expenses and income into the appropriate categories during the year? It'd be a pain using our manila folder method... you'd have to open the folder every time you got a new receipt, paper-clip it to the other receipts in that category... eh. What a pain!

Unless there was a way to divide your expenses and income into categories automatically... like, maybe, one of these? Costs a little more than a manila folder... but it saves you time in April, because you can assign a category to each pocket at the beginning of the year, and then drop your pay-stubs or receipts into the appropriate pocket as the year progresses. Come tax-time, your paperwork is all pre-sorted.

Except... You still have to take the time in April (or March, if you're on top of things) to pull all that paper out and sort it, add up the numbers, and transcribe it onto your tax forms. Still seems like a lot of work, doesn't it? Isn't there a way to get all your income and expenses onto one sheet of paper, without all that labor?

Of course there is... and you probably get one of those sheets of paper in your mailbox every month! Next week we'll talk about your bank statement, and how you can use that to help you run your business... and get you ready for next year's tax season!

Lets get to work...


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