Episode 22: Tax Season Prep for Creatives Made Simple

  📍 Welcome to CreativeMind Smart Money, the podcast where creativity and business smarts collide. I’m your host, Samantha Eck, bookkeeper, business coach, and your go to guide for building the creative business of your dreams. Whether it’s mastering your money, streamlining your systems, or growing your business, I’m here to share insights that empower you to thrive.

Plus, I’ll be bringing in industry experts to dive into all aspects of entrepreneurship, so you can turn your passion into profit without losing your creative spark. Let’s get started.

  You’re listening to the Creative Minds Smart Money Podcast, and I’m your host, Samantha Eck, bookkeeper for creatives and your go to gal for turning chaos into clarity. Today, we’re going to talk about a topic that might make you want to run and hide, but don’t worry, I’ve got you, getting ready for tax season.

I know we’re all in the midst of preparing for the holidays, but tax season is right around the corner. And I know it’s not the funnest part of your business, but it’s definitely one of the most important things when it comes to getting ready for your business.

So let’s break it down step by step. By the time we’re done, you’ll know exactly what to do to crush tax season without breaking a sweat.

Okay. Maybe a little bit of sweat, but no panic attacks, I promise. So to start talking about tax season, we really need to understand what it is that we need. So let’s start with the basics. To be 100 percent prepared, you need to gather all the right reports and records. Think of this as your tax toolkit.

We have three really big reports and then a few others that you’re going to want to think about. The first one is the profit and loss statement. This report shows you your income and expenses for the year. Basically, how much you earned, spent and hopefully profited.

Your P& L tells the IRS how much taxable income you made. And without this, you’re guessing. And you can’t really guess when it comes to taxes. Because the IRS needs to know exactly how much you made. If you’re using a software like QuickBooks or Xero, you can generate a profit and loss in a snap. However, if you don’t have a software, you’re going to have to start combing through your invoices, your bank statements, and your receipts so that you can piece it all together, which means lots of spreadsheet work.

The next statement is the balance sheet. This is a snapshot of your business’s financial help. Even if your accountant doesn’t ask for this, it’s very important to give it to them because it really does give you clarity on your business’s stability so that you can make smarter financial decisions. It also showcases a lot of your assets and things like that so that your accountant can hopefully, help set you up properly for next year.

The cash flow statement is the report that tracks the money flowing in and out of your business. It’s like the P& L’s cooler more detailed cousin. It helps spot patterns and shows whether you’re managing cash effectively, something the IRS loves to see. While this isn’t necessarily essential, it’s definitely good to show your accountant because it can allow them to compare the number on your cash flow statement versus the number on your profit and loss.

A couple of other extra reports I want to add in there for you to consider giving to your accountant when you’re ready. If you’re using an accounting software, these reports are really easy to pull. Unfortunately, if you are using a spreadsheet, this is something you won’t have access to. But one of the things is a Trial balance report, which is essentially showing what your accounts look like at a certain point in time to make sure both your assets and your liabilities and equity equal each other, which is very important in double entry bookkeeping and accounting, which is something that you wouldn’t necessarily have knowledge of, but it’s very important for your accountant.

The other report is your general ledger. Your general ledger shows everything that went on your business throughout the entire year and it is so important to hand off to your accountant because if they ever have any questions or doubts about something they can look through your general ledger and see where they might think something has gone wrong or something hasn’t gone quite right and automatically tell Where the issue is so let’s say for example, they notice that your advertising and marketing is over 10, 000 They could look at that and say hmm 10, 000 might seem a little bit high and when they actually analyze it and see okay Well, we had a lot of Google ads.

We had a lot of things going on, but then maybe they see An asset that was accidentally misrecorded to advertising and marketing. It just gives them that insight so that they can make those adjustments and also let you know if they spot anything wrong. So obviously reports are great, but they’re only part of the picture.

You also need to back them up with some sort of records. A lot of them are expense records, so if you have things like a 1099 or 1099k, if they’re applicable with PayPal, Venmo, things like that, they’ll usually all give you one thing. If you reach a certain threshold, so things like that are going to be really, really well received for your accountant.

Obviously, if you are having in accounting software, all of your invoices and things like that are stored within there. So that’s not really something you have to worry about, but those 1099s are going to be very important, especially if you’re a single member LLC or a sole proprietor. As in, S corp usually that gets filtered through your business.

So your 1099s are more likely to come into your business. Whereas if you are a sole proper and a single member LLC, those 1099s are going to go on the schedule C on your tax return. The next thing you want to think of is those expense records. So any sort of big asset purchases you made, you’re going to want to have those contracts for them so they can review them and make sure they’re recorded properly.

You’re going to want to have your receipts. If you don’t have an accounting software and you haven’t been attaching them, those are definitely going to be something that they want. And even if you’re not sure if it’s deductible, keeping a receipt anyway can help a tax pro decide if it is or isn’t deductible.

Obviously your bookkeeper, if you’re working with one, should know those things, but there are also things that tax pros might be more knowledgeable about in that case. Then you also want to have some bank statements, even though your documents might be all recorded in your bank account, everything like that.

The accountant is definitely going to want to look through the bank statements and make sure that there’s no mixing and that there’s nothing they’re missing. You don’t really need personal bank statements. You only need your business’s bank statements, just so they can understand everything.

The next thing you’re going to want to give them is a mileage log. If you drove to client meetings, shoots, or craft fairs, and you’re not taking an automobile expense deduction, then they’re going to need that mileage log so that they can appropriately calculate how much you’re going to be getting back in mileage.

Then you also have contractor payments. If you hired any freelancers or contractors, say like me, you’re going to want to make sure that you issued a 1099 to anyone you paid more than 600 to. There’s a section on your tax return where they actually need to mark off that you actually sent out the 1099s.

So having a record of that is really, really good. Now here’s where you start saving money. We want to talk about deductions. Deductions obviously lower your taxable income, which means that you owe the IRS less. So if you work from home, you can deduct a portion of your rent utilities and internet. This isn’t tracked in your bookkeeping software.

This is very important to know. A lot of my clients come to me and they have, you know, Their utilities going through their business account things like that. That’s not how it actually works at the end of the year you give your Accountant all of these costs your rent your utilities your internet and then the surface area that you’re working in So let’s say you have a 52 square foot area that you are doing your work in That accountant will then take that and have that percentage of all those utilities, rent, and internet calculated so that they can write those off for you.

You also want to think of supplies, travel, things like that. Again, if you’re keeping detailed records of this throughout the year with your bookkeeping, this will be a breeze. You can literally just hand everything off to them. There’s very little you actually need to provide to your accountant. And most Bookkeepers will give you tax ready documents that you can just hand right off to them.

So you don’t even need to lift a finger. You’re pretty much ready. Now, if you are mixing business and personal finances, you’re making tax season way harder than it needs to be. Way back when we started this podcast, we were talking about why it’s so important to separate your business and your personal.

Obviously we get cleaner records. fewer headaches, and the IRS loves clean, separated records. Because if you’re mixing funds, it can raise a lot of red flags, especially during an audit. So if you haven’t already, open a dedicated business bank account so that you can have so much less stress next tax season.

The next thing we want to think about is quarterly taxes. If you’re self employed, And you usually owe 1, 000 more at the end of the year. You’re expected to pay taxes throughout the year. This doesn’t mean that you’re paying more taxes. It just means that you’re splitting them up into quarterly. Estimated tax payments are based on your income.

Basically, you’re pre paying your taxes to avoid a giant bill at the end of the year. Failing to pay them can actually result in penalties and nobody wants that. So if you’re expected to owe more than 1, 000 a year, you essentially want your tax bill at the end of the year to be 1, 000 or less. So the best way to calculate that is to set aside 25 to 35 percent of your income for taxes and make sure that it’s actually set aside.

We’re going to talk and go a little bit more in depth into quarterly taxes in a later episode, but there’s just the straightforward version for you. Now, taxes are complicated, especially for creatives and people who have so many different expenses. If it feels overwhelming, there’s really no shame in hiring a CPA or a tax preparer.

I’ve known tons of clients who’ve done their own taxes through TurboTax for years, but eventually you get so complex and you have so much going on that it’s just better to have someone else look over it. A pro can really spot deductions that you didn’t know existed, file everything correctly and on time, and save you time and stress so that you can focus on what you love and what you do best.

I want to remind you that hiring isn’t just an expense that is write off able, but it’s also an investment in your peace of mind. Obviously, the best way to make tax season less stressful is to start preparing now for next year. Here’s your quick game plan. We want to spend 15 minutes a month updating your records.

Automate where you can by using accounting software to track income and expenses automatically. Set aside a percentage of every payment you receive so that you can start saving for taxes now and pay those quarterly bills on time. You want to create a digital folder labeled 2024 taxes and start saving all your records that aren’t in your accounting software.

📍 All right friends, that’s your tax season game plan. I know this isn’t the most glamorous part of running your business, but it’s one of the most important. When you take the time to get your finances in order, you’re not just surviving tax season, you’re setting yourself up for long term success and less stress.

And hey, if you’re feeling stuck or you need someone to get your books caught up, I’ve got your back. Helping creatives like you navigate finances is my jam. I’m always here for you. Until next time, farewell fellow travelers.