Thursday, May 31, 2007
Tax Time Tune-Up
Developing healthy accounting practices throughout the year will save you when tax season begins
Bobbi Lane, who has photographed professionally for more than 25 years, is the chair of the Education Committee for the Advertising Photographers of America and teaches a class called “Successful Emerging Photographers,” which provides practical business skills.
Lane says a common mistake that prevents photographers from becoming more organized is mixing personal and business funds. It may seem obvious that separate accounts are required for staying on top of your finances, but Lane knows plenty of pros who don't, and they're raising a red flag to the IRS.
“You must have separate accounts,” stresses Lane. “Every dime you make and spend must go in and out of a business account. If the IRS doesn't see everything, they'll look at you for years.”
Lane found herself on the receiving end of an audit a few years ago. Unlike Lesko, who was told his audit was arbitrary, Lane knew why she had caught the attention of the IRS. She went from driving a regular-sized car to a sports-utility vehicle, and she started renting a second studio, doubling her expenses.
A QuickBooks devotee, Lane was able to quickly track down every penny she spent on auto expenses that year with the click of a button. Not only that, the report broke down those costs by category—gas, repairs, parking and so on.
When she met with the IRS, she went in carrying two boxes of receipts, checks and other accounting documents. They were only interested in the one small folder containing her auto expenses. Two hours later, she was free to go with no change to her taxes.
Hire A Tax Expert
Aside from organization, what saved Lane during her audit was having a good accountant who had set her up properly from the start.
Tax laws are complicated and constantly changing. There's no way to grasp all of the nuances, loopholes and special circumstances that determine what's legal. So finding a tax advisor who specializes in artists can save a significant amount of time and money, and also keep you informed. Ideally, your advisor specializes in artists because each industry has its own set of deductions. You have models, photography equipment and a studio. A restaurateur has food stock, dining ware and a kitchen.
If you can't find an advisor who focuses on artists, search for someone who works with small businesses. Start by going online to the forums sections of Websites for the Professional Photographers of America, Advertising Photographers of America and other trade organizations.
“Word of mouth is great,” Lane says. “One person in Los Angeles was looking for an accountant on a forum and four people responded right away.”
Another benefit to working with someone who's clued into the small-business world is that when tax laws do change or the IRS turns its focus to another area, your accountant or lawyer will be the first to know. If one year auto expenses are a red flag, your advisor may tell you to lower that deduction or not to take it at all to avoid an audit. This is information that only an expert can give and, while the search may take time, finding someone with whom you have a good rapport only will enhance your business.
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