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You are an artist. You may be an actor, a painter, or a writer, but you are an artist. And of course, you are running a business. Or is it a hobby? The biggest question of all is do you know the difference? Think about what makes a business a business. Think of how a big company runs things. They have a business bank account and business credit cards, they keep records of all business expenses, they keep records of all sales, they pay all their expenses from their business bank account, and they know when they have made money (a profit) and how much. And you would certainly never see the CEO going out and buying printer supplies from his or her personal bank account.
You need to ask yourself, do you run your business like this. If the answer is no, then you are not running a business. If the answer is no, then what you are doing is merely engaging in a hobby, and it may be an expensive one. You might be saying, But Im no accountant, Im an actor. True. However, as painful as it may be, you can learn to keep proper track of your business finances and keep them separate from your personal finances.
At Abundance Bound, Inc, one of the first things we discuss with our clients is their financial starting point, because you need to know from where you are starting in order to know how to get to where you want to go. Having an accurate snapshot of your finances as they are is essential as you begin the wealth-building process, and it also allows you to truly see how much, where, and on what your money is going. (If you would like assistance with this, email info@abundancebound.com and put Chart of Expenses in the subject line. We will send you an Excel chart that allows you to track your monthly income and provides an extremely detailed list of possible expenses to help you remember all of the different ways you are currently spending your money. There are also free tele-seminars that will help make sense of this process see AbundanceBound - Financial Education and Planning for Actors and Artists"details)
The absolute most important thing to do for your business is to separate all your personal income and expenses from your business income and expenses. As we mentioned above, you would not see the CEO of a Home Depot go out and buy printing supplies from his or her personal account, and you should not do this either. This means you need to have a business bank account. If you do not, then all your income and expenses are mixed together and it is far harder to keep track of everything. You can easily start a DBA (Doing Business As) which will allow you to qualify for a business account (for more information visit www.legalzoom.com).
So, you have a personal account and a business account. Now you place your personal earnings (your day job such as waiting tables, tutoring, etc ) in your personal account and you put your business earnings (acting jobs, work sold to a publisher or at an art exhibition, etc ) in your business bank account. Likewise, you would pay for all of your personal expenses (rent, groceries, clothes, vacations, etc ) out of your personal account and you would pay for all of your business expenses (acting or art classes, head shots, mileage to/from auditions, etc ) from your business account.
This is very straightforward. The thing is it is simple, but not necessarily easy. First, it depends on how organized a person you are and it depends on your desire to do these things. The point is they can, and must, be done if you are to run your artistic business truly as a business. Right now, you may want to say, STOP! I dont make enough money from my business to pay for all of my business expenses. If this is the case, simply make a loan from your personal account to your business account, and make sure you record that loan. When the business becomes profitable, it can then repay the loan. Be sure that it does.
You should also have a separate business credit card (even if the card is in your personal name). You should only be charging personal items to your personal credit card (and hopefully you are paying off the balance every month) and business expenses should only be charged to the card that you have designated as your business credit card. This way, if you are carrying a balance on your business credit card, then the interest will be tax deductible. This is not possible if there is even one personal expense on the card.
Now, what about those expenses that cross the line sometimes they are personal and sometimes they are business. These are things such as mileage on your car or household expenses if you work from home. For these expenses you must keep very clear records of when and how much of your expenses are personal vs. business. Keep a small book in your car to record business mileage. Make sure you keep all your household bills (mortgage/rent, phone, hydro, etc ) filed away so that you can use them to determine what portion you can write off as a business expense.
There are three reasons why it is important to treat your business like a business and follow the suggestions above. These are:
1. If your business is not run as such, you will never be successful. And if you do not treat your business as a business, you will never make a business income.
2. If you do not keep appropriate records, records that clearly indicate you are running a business, then, if you are audited, the IRS may classify your business as a hobby. This could mean loss of tax deductions, and you may even have to pay penalties. Worse, the IRS could go back through previous years returns, and apply the same filter to your deductions (we had a student who, before he started with us, had this happen to happen to him. Needless to say, that was not a happy day for him!). This is not what you need when you are trying to make your business profitable.
3. You will be able to track the progress of your business easily. You will be able to look back a year from now and say, Wow! My income went up by that much? Or, Yes! I finally turned a profit this year!
You can do this. Have faith in yourself and your business. It will grow and you will be successful. Just remember to keep the personal separate from the business and keep clear records of the two. Then you can watch your business grow and never look back.