In 1716, Christopher Bullock first uttered the infamous idea that the only things in life that are certain are death and taxes, and if you haven’t already dealt with them, we Americans will once again run up against our wonderful April deadline to file our own income taxes. For those of us who are self-employed, sustaining ourselves solely from our DJ income, there’s the sting of actually writing those checks to the government treasury, realizing how many gigs we’ve actually worked in order to support their often wasteful, and always gross expenditures.
That hurts. But it hurts even worse if we don’t get absolutely every dollar we can in legal deductions, and avoid paying anything we don’t absolutely have to! To facilitate this, we are forced to keep some fairly meticulous records; be sure to demand receipts for any and all business expenses. And yes, that includes the gas for your vehicle. Now, keeping said records is where your efforts should end in a perfect (or near perfect) world. Beyond that, I highly suggest that you follow these top two rules:
Rule #1: Hire a professional
I’m sometimes aghast that the same DJs who argue in chat forums that a professional artist is the only way to go when designing a logo, or a professional website builder/company is essential for your web presence, will turn around and blurt how they use TurboTax or, possibly worse, do their own taxes. This logical disconnect can and will cost you far more money in the long run!
A personal tale: When I look for any professional services, I tend to look for people who are passionate about what they do; those people who, like me, live, eat, and breathe their job because they love it! Many years ago, I met just such a person. Arriving early to pick my wife up from work, I had 20 minutes to spare, and since my wife worked in a mall, I decided to wander around. I quickly stumbled into an H&R Block office, where I met a most remarkable woman named Vickie. I could tell right away that she was one of those people.
Before and after tax time, Kathy kept busy doing corporate tax work. She talked about tax prep the way my DJ colleagues talked about their gear and the latest music. I hired her to do my taxes that year, and not only did she get me a larger refund than in years past, but she took the last two returns I had prepared by someone else (who did returns for my in-laws), and found that he had missed a few things that netted me another $160. In short, she’d paid for herself a couple times over.
Kathy soon rose through the ranks, eventually ending up in the corner office of Block’s prestigious “Executive Tax Service.” Even so, she still did my returns personally and charged me the regular rates I had paid when she was but a minion in the machine. And no, she was never the cheapest, but her business savvy and impeccable tax law knowledge paid off without fail. That’s why, beyond hiring a true pro, I suggest shopping around for someone passionate about their work.
Rule #2: Keep records of everything — leave nothing out!
When keeping records, give your tax professional everything! And yes, this means reporting income as well. ALL of it. While it may be highly tempting to not report that gig you did on a handshake, that didn’t involve a written contract, or that one you did because you gave the client one heck of a great deal, it also looks odd to the IRS when you put a lot of time, energy, and effort into a business that generates paltry income. Odd enough to trigger audits!
Now, single operator home-based businesses are sometimes flagged automatically, or at least flagged for audit more often than other returns. Once again this is where your pro comes in! When I was audited one year, I had a “tax team” (Vickie and her associate, Kathy) come with me to my meeting. In the end, it was “accepted as filed.” Having your preparer on hand is not only a comfort, but shows IRS officials that you’re meticulous and have someone on-hand who speaks their language.
So you’ve reported all of your income, you now must be determined to keep all of it you can! This happens by including every write-off you can; if you have a company vehicle, keep your gas, oil, and maintenance receipts. Keep a mileage log. Write off your cellphone if it’s a “company” number (the one on your business cards). Do you have internet service because of your business? Don’t forget those bills! Any paid music downloads, clothing worn for performance, office supplies–everything! Keep receipts, both paper and electronic, and back up the latter. (They must be retained for at least seven years.) This is the balance; you’ve reported your income, now you report your outgoing expenditures.
There you have the top two rules for DJs (and a whole lot of other businesses) at tax time. In upcoming issues, I’ll have a few other tips on how to keep more of what you make and make upgrading your service a way to reduce taxes even more. Until then, safe spinnin’!