Your Zine and the Taxman, cont'd
Part II - Expenses
This is the fun part, the reason why you're reading all of this. I'm gonna show you how to write off records and CDs, going to shows, guitar strings, food money, and oh so much more. I've written off my record player, spray paint, creepers, tattoos, and lots of other weird shit! Be creative. I'll go through the expense section and explain the sections most commonly used, as well as point out the areas that you don't want to inflate, as they're at a high risk for audits. Be broad and simple with your descriptions. I'm skipping over the areas not commonly used in the types of small businesses we're dealing with.
Line 8) Advertising - anything used / spent to promote the business. Ads, flyers, stickers, business cards, demo tapes, etc. (Include the cost of making and distributing them)
Line 9) Bad Debts - usually you can only use this if you're selling a product. If someone ripped you off put it here, but I wouldn't take advantage of this one.
Line 10) Car & Truck Expenses - deduct car / van expenses, either the actual amount spent operating and maintaining the vehicle, or 31.5 cents per mile. You need written records for this, just keep track of it in a journal. Part IV of Schedule C must be completed, reporting total miles and business miles for the year. Unless you spent heaps of money on repairs, I would recommend using the standard 31.5 cents. It's much easier to keep track of and file. There some rules specifying what miles are deductible, so do your homework.
Line 11) Commissions & Fees - money you spend on freelancers, such as artwork or mastering. If you pay anyone over $600 you're supposed to report it, so keep things realistic.
Line 12) Depletion - skip it, you're never gonna use this one. It's for natural resources, oil wells and shit.
Line 13) Depreciation - this one is complicated but rich $$, especially if you have a lot of expensive musical recording / computer/ photo equipment, etc. Depreciation entails deducting a portion of the cost each year, rather than all at once. You can depreciate assets you bought new for the business, and also "put in service" stuff you previously owned but are now using for the business, as well as equipment you bought used. A separate Form 4562 is needed. You have the choice of either depreciating over a period of time, or taking the full amount (called a section 179 expense). Decide what's best for you, how much do you need to lower your income from your "real" job? This is another one you need to research or see a tax pro about.
Lines 14) to 16) - skip it
Line 17) Legal & Professional - anything spent on lawyers, accountants, and tax preparation
Line 18) Office Expenses - consumable goods, such as paper, pens envelopes, postage, etc.
Line 19) - skip it
Line 20) Rent - report rent paid for equipment, rehearsal spaces, etc.
Line 21) Repairs - self-explanatory, but this is for repairs only. Improvements go under line 13 and are depreciated.
Line 22) Supplies - anything that doesn't go under Line 18. Film, discs, strings, office equipment and furniture, etc.
Line 23) - skip it
Line 24) Travel, Meals, & Entertainment - this is another must if you're in a touring band. It's complex, so let's split it up:
1) Travel: This is huge, it includes plane, tram, and bus
fares, taxis, lodging, laundry, telephone, and tips!
a) Meals: You can save your receipts, and claim that amount.
If you're a chump! The government gives a standard meal allowance
that ranges from $26 to $38 per day, varying by city! I don't
know of anyone who spends more than $26 a day on food for themselves
while on tour.
Line 25) Utilities: This is usually just for telephone, see Business Use of Home and Other Expenses. For phone calls, you can only deduct long distance calls unless you have a separate line for the business.
Line 26) Wages - ask your accountant
Line 27) Other Expenses - these are listed on Part V of Sched. C. Examples include educational expenses, lessons, bank fees, subscriptions & trade/ professional journals. You can also list equipment and supplies instead of putting them on lines 18 and 22. You can list utilities here if you don't want to deal with the Business Use of Home Form 8829. I put my tattoos & creepers here as "stage costume"!
Line 30) Home Office Expenses - this is strict. The room must be used only and regularly for business. It must be the principal place of your business. If you have a room or area with desk, computer, files, etc., or a room for painting or a darkroom, you're fine. You can't use your bedroom "cuz that's where you write all your songs!" You need form 8829, which helps you determine the proportion of your home used for business. The amount of space of your "office'' is divided by the total square feet of your home, resulting in a percentage. That portion of your rent, utilities, insurance, mortgage interest, repairs, etc. are all deductible. If you're interested in doing this you need to consult a professional on whether your office qualifies.
Looking at lines 28-31 you can see how the loss is figured. You add up your expenses, and subtract them from your income. The difference is your loss (gain). That amount is subtracted from the amount you made at your "real" job. So, if you're in the 15 percent tax bracket, every $1000 in losses is an extra $150 in your pocket. Free money!