Monday, February 22, 2010

Keeping Good Records

Question: Why should I bother to keep records of income and expenses?

Whether you sell your art to make a profit or if you sell casually at a few art fairs or to friends you are responsible to claim the income on your tax return. You will be able to reduce the amount of taxes you owe if the IRS determines that you are operating as a business. It is only as a business that you can deduct the expenses of your art. This not only includes the purchases you make for producing your art but other expenses as well. Some of these include advertising, professional services, office expenses, art fair fees or even a home studio deduction if your studio qualifies. This can greatly reduce the amount you will owe in taxes. The IRS has certain factors they use to distinguish hobbyists from professionals who get this tax advantage. One of these is if you take a profit three out of five years, as determined by your schedule C. You’ll need these records at tax time, why not make it easier on yourself and keep them updated weekly or at least monthly depending on how much income and expense activity you have.

Of course, income tax benefits are certainly not the only reason you should keep well maintained records. Your records will be an indicator of what sells well or what makes a bigger profit. It’s documentation that you will need if you decide to get a bank loan. If you want to hire staff you’ll be able to determine if you can afford to. There are so many reasons to keep good records.

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