Hi again! In my last post, I described a challenge from the creative side – my relationship with my inner critic. Today’s post deals with something I am less adept at: TAXES!
This year was the first year I claimed deductions for my career in entertainment. Specifically, I deducted expenses both as a background performing artist and as producer of IndieGoGo-funded project, Les MiseraBaristas. After IndieGoGo fees, that project raised a net of $2,228. Guess whose bank account those funds went into? Mine.
In the eyes of the Internal Revenue Service, that’s income. Taxable income. Oh, you didn’t know that? Yes, it’s true. If you receive money via crowd-funding – be it Kickstarter or IndieGoGo – you have to report that as income on your taxes. The IRS wants their share of that income, and it could cost you if you don’t have any way to account for your production expenses.
In my case, I could have lost hundreds of dollars worth of my tax refund because of this crowd-sourced income. Fortunately, it didn’t even put a dent in my refund. Why? I kept all my receipts, and I categorized each one to account for every penny of where that $2,288 worth of funds went.
Here’s what I did: I carefully documented every receipt, every category I spent money on to make the project happen. Wardrobe purchases? Deduction. Props and set decoration? Deduction! Craft services, catering, equipment, location fees, production insurance, crew member pay? Deducted, deducted, deducted.
I kept track of every physical copy of my receipts on a piece of printer paper. I then scanned each digital copy of the receipt and placed the physical copy into a three-hole binder. Never claim anything you don’t have proof of, and always be organized.
Now, I’m not going to walk you step-by-step on what sort of system you should have. I’m not a professional, and my system works for me because I understand it. But once you have all of your stuff together, you really should get in touch with a tax professional. More specifically, you should get in touch with a professional whose expertise is within your field. I sought out a tax preparer who specializes in film and television expenses, and she hammered out a beautiful tax document that would have taken me days – maybe even weeks – to figure out on my own. I simply filled out my information on her provided online form, categorized how much I spent for each expense, and sent her a couple of my own Excel sheets to use as a reference for exactly where every dollar went. I can be very precise when I want to be.
Organization, by the way, will save you money. If I were to have handed her a stack of my receipts and told her to figure it out, I’m sure the rate would have cost at least double. But since I came prepared, my tax preparer only had to focus on ensuring all the proper forms were filled out in just the right way. I had tried to use TurboTax to report my special income and deductions, but that would have cost me just as much as the tax preparer – and with less accuracy and peace of mind.
I know this is a pretty specific subject, but I also know plenty of Facebook friends who raised funds from crowd-funding sites such as IndieGoGo and Kickstarter to make their projects happen. To those friends, I hope this helps. An early strike is best if you want to make the April 15 deadline. Procrastination and disorganization can cost precious money.
Please keep in mind that I am not by any means a tax professional. I have omitted plenty of important information because tax code is too cumbersome for me to wrap my brain around, and my ignorance on the matter is bountiful. What I do know is that my diligence paid off, and good bookkeeping helped me keep all of the tax refund I would have normally received.
And you know what? Organization isn’t even my jam. My girlfriend doesn’t understand why, after 4 years, I still put spatulas in the silverware drawer, eggs in the vegetable drawer, and books in the freezer. But when real money is on the line, you bet I’ll spend a little extra time filing a few papers.