At this time of year, I have taxes heavily on my mind. Perhaps you, too, are busy preparing your 2011 returns before that dreaded April date, or maybe you’re way ahead of me and have already taken care of everything. While being a self-employed studio owner can be a bit of a pain come tax time, there are also many deductions you should be taking advantage of:
There are a number of tax deductible business expenses allowed by the IRS. These include money spent on advertising, travel, memberships, licenses, and maintenance. If you put an ad in the paper, purchased a business license or membership for your local teaching organization, attended a conference, provided incentive prizes, had your piano tuned or bought coffee during a business meeting, then you should be reporting these on your tax forms. Studio Helper and Music Teacher’s Helper make recording these things very simple. You simply enter the expense in the Studio Expense portion of the dashboard and toss the receipt into a folder in your filing cabinet so that you have supporting documentation in case you are audited. Be sure to provide specific details when recording the expense so that you know what category it fits into when you are doing your taxes the following year.
If you operate a home studio and/or office, then a portion of your utilities and mortgage or rent will also be tax deductible. You will need to calculate the square footage of your studio space and then the square footage of your home. Then calculate what percentage the square footage of your studio is of your home. This portion of your total mortage and utilities for the year is tax deductible. Since I pay all my bills using an online bill pay service through my bank, it is relatively easy to find year-end totals of utilities and mortgage payments and provide supporting documentation. If you don’t use such a service, then you should easily be able to call your utility company or mortgage lender and ask them to provide you with a year end summary of your payments.
If you aren’t in the habit of recording the miles you drive that are business-related, then you are quite possibly missing out on a tax deduction of a few hundred dollars a year. Every trip to a music store, conference, and business meeting is tax deductible mileage. The IRS reimbursement rate for mileage last year was 51 cents for the first six months, and 55.5 cents for the second six months. You will need to record the miles on your odometer at the beginning and end of the calendar year. Studio Helper and Music Teacher’s Helper have a Mileage Tracker where you can enter in miles driven that relate to your business. If you don’t have this tool, then keep a notebook in your car where you can enter the date, distance, and place every time you run a business errand.
Other Helpful Tips
- Keep all receipts and documents related to your taxes (both business and personal) for three years after filing them in case you are audited.
- Some self-employed workers find it easier to pay taxes quarterly rather than annually.
- TurboTax has a great program out for business owners who are sole proprietors. While the software will set you back $80, this is much cheaper than paying an accountant to do your taxes and does a wonderful job guiding you through every possible tax deduction.