(This is the second post in the Tax Tips for Hollywood Freelancers Series on Fighting Broke. You can read part one here.)
We’re two weeks away from the deadline to file your 2013 taxes.
If you haven’t filed yet, this post will guide you through organizing all your information, before hauling ass to your tax professional.
If you’ve already filed, then you’re probably thinking, “whew! Glad I’m not one of those suckers who still hasn’t filed their taxes. Now I don’t have to worry about it for another 365 days.”
But ask yourself this: if you freelance and pay self-employment tax, when’s the best time to get organized for filing your 2014 taxes?
Your buddies, employed by the man, they can get away with starting in January 2015. As a Hollywood freelancer, though, the best time for you to start is:
Or a month before that.
Filing your taxes is essentially a constant work-in-progress, and here’s why…
You Must Keep Amazing Records
Yes, it’s awesome if you have an encyclopedic knowledge of what deductions you’re allowed to take.
But all that knowledge is fruitless without near impeccable records.
Because if you’re paying self-employment tax and taking deductions, the IRS is going to look more closely at your filing.
If you tell the IRS you owe X dollars, and they think you owe Y, whoo boy, you better prove it.
They may not audit you this year… or the year after that…
But they have the right to an audit within 3 years of filing.
If that ever happens, you need to show how you got your numbers.
Now, I realize some people are more predisposed to keeping amazing records than others. You may not be one of those people.
Fortunately, you read this Hollywood career and personal finance blog. And c’mon, I’m an anal retentive dude who makes Tibetan monks look disorderly. Would I tell you to “get organized” without providing the proper tools to do so?
Of course not.
No, I’m not going to suggest you run out and buy a filing cabinet and hanging folders and a shoebox for your receipts. We’re going to take this another level.
Here are some things you’ll need:
A Badass Spreadsheet
You need a spreadsheet that tabulates your expenses and reminds you of some of the typical expenses a Hollywood freelancer should track.
My accountant (who is awesome) offered his spreadsheet for my use. I took one glance at it, chuckled, and told him I’d make my own.
The problem: it wasn’t detailed or specific enough to the entertainment industry.
Instead, I spent a few hours creating my own.
I used it for a month or two, then made a couple tweaks.
It its current iteration, it captures 99 percent of my spending.
I think it could save you a lot of time, and I’m including a download link below.
It’s formatted to track spending per month and per category, and the first sheet includes all the deductions that I’ll cover in the next post of this series.
On the second sheet, you can plug in your expenses as they occur, and if you properly label each category, it’s a simple task of using the “filter” to total up the month’s expenses in any category.
Finally, the third spreadsheet tracks mileage, which can be plugged back into the first spreadsheet, so you can calculate your deduction based on miles driven.
As with everything shared on Fighting Broke, take what’s useful to you. Then discard the rest.
Feel free to tweak or modify, but I’d appreciate if you linked back to Fighting Broke.
You can download that Fighting Broke Taxes Spreadsheet by clicking here.
Track Your Receipts
Besides itemizing your expenses, you need to track receipts of those purchases. This is further evidence should the IRS audit you.
Do yourself (and your accountant) a favor: no shoeboxes, people. Don’t jam those receipts in there and fork over to your accountant when it’s about to bust open like a piñata. Instead, try this:
Keep your receipts in an envelope as you collect them. Once a week (I do this on Sunday’s) enter all expenses into your spreadsheet, then make a digital record of the receipt.
Once the receipts are digitized (and preferably, backed up to a cloud or external hard drive) you can throw them away.
I keep my receipts in Evernote, and use an “Expense” tag, so they’re just a click away. But use whatever system works for you. This could mean taking photos of each receipt. or using a flatbed scanner, then filing them away. Whatever works.
If you’re worried about missing deductions (let’s face it: you will) then I’d recommend a free service like Mint to track your spending. With Mint, you can track all your expenditures across all your accounts in one place. It’ll help you remember things like:
“Oh that’s right, I did actually pay money to go see ENDLESS LOVE. How drunk was I?”
“I must have blocked out those drinks with that Coordinator from CAA. Well, at least I can take a deduction for those drinks.”
Other Best Practices
I focus on tracking expenses and receipts because this is 90 percent of the heavy lifting. Plus, it should happen throughout the year.
Before you step in with your CPA (or do your taxes yourself — something I vow never to do again) make sure you download all reports from any investments, retirement savings, and loan interest payments you made during the year.
Most brokerages and loan centers make this really easy. They’ll even e-mail you when your forms are available.
Save ’em, print ’em out, and go get your tax on.
Next time, we’ll cover common deductions if you’re freelancing in Hollywood.
Photo Credit: Tarale