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magicbillk New user 64 Posts |
Hey Danny!!
Big fan. Have been for years. What advice would you give to someone who wants to make magic their official business? Would you recommend becoming an LLC, DBA, corporation....? Should we separate our checking and savings accounts? Any other recommendations for getting a business started? Thanks in advance! -Bill
"For those who believe, no explanation is necessary. For those who do not, none will suffice." -Dunninger
www.magicbillk.com |
Danny Orleans V.I.P. Chicago 119 Posts |
Hi Bill:
Making magic a business does require thought and planning. You'll want to consult with your accountant and your lawyer to make a decision that best suits your personal and professional needs. Factors that they will use to make a decision include ... 1) whether you are single or married with a family 2) whether you are an owner of property and whether or not your office is located in your home 3) the number of employees on your payroll and whether they are full time or part time 4) how much money you make per year 5) the types of gigs you do and the extent to which your clients are litigious. 6) your healthcare needs -- if you are incorporated, your healthcare insurance premiums and expenses may be deductible on taxes. Certainly you should have separate business and personal checking accounts, if for no other reason than to be able to separately track your business income and expenses from your personal. If you get audited (I have been -- 3 times!!!) this will impress the IRS officer along with your good record keeping. Additional advice? Be sure you are aware of what is legally deductible and what isn't. You need to be sure that you take every legal deduction. Finally, if you travel a far distance to get to a gig, keep all back up receipts in one file for each job. For example, if you have to fly to Vegas for a gig, along with your contract indicating your fee for the gig, should be receipts for airfare, hotel, shipping, cab or car rental receipts, and restaurant receipts. Dining out is only (partially) deductible if you are dining with a client or someone with whom you are discussing business. When I was audited, the agent asked me to explain certain expenses and I was able to pull a file from a particular job showing her the income source and related expenses which were all logical for the gig. Hope this helps! |
frankieacemagic Elite user 498 Posts |
Hey Danny!
Audited 3 times??? Yikes. Is this pretty standard? I keep books, and my father is an accountant/my accountant, but I never imagined that audits happen repeatedly. Do they just audit self employed folk more often? |
Danny Orleans V.I.P. Chicago 119 Posts |
Frank,
The first audit was an error in coding by the government. I did a show for the a museum in New Jersey at the state capitol. For some reason, the IRS thought that the check paid to me was an unemployment check from the state of New Jersey. I never did find out why this error was made. These were the days way before personal computers. The audit was an "in-home" audit. I had to pay my accountant to be there. I was able to show the contract with the museum, which of course showed the same fee + expenses which was on the "unemployment check," so that matter was resolved fairly easily. However, the agent then turned to the accountant and said, "While I'm here, let's look at some of these other expenses that you're writing off on your schedule C. Auto, home office write-off, props, travel, hotel, advertising, printing, agent's fees and more. He went down the whole list and made me verbally and through paperwork, explain my deductions. Happily, there was NO CHANGE to my tax liability, but that's because I was organized and could produce back up easily. The SECOND AUDIT was "random." Or so they said. The THIRD AUDIT was because I booked a lot of magicians, balloon twisters, and face painters one year and therefore sent out a lot of 1099 forms to a lot of subcontractors. They wanted to make sure that none of these subcontractors were really full time employees. Answer to your final question: YES, Self-employed tax payers are audited more frequently. So keep your receipts and good records!!! |
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