What are the benefits of tracking your expenses?
There are a number of benefits to tracking your expenses as an artist. One of the most important is to be able to write off those expenses on your taxes at the end of the year. If you are like me, I sit down in front of my computer and look through all my email and paper receipts a couple of times a year and type them into the spreadsheet, assign categories and look to see how much money I’ve spent making my art. This process can be time consuming and I still always wonder if I managed to capture every expenditure I could be writing off.
Your accountant will thank you.
In March or April, I take that spreadsheet to my accountant when it’s time to prepare my schedule C to file a tax return. He appreciates the spreadsheet when faced with the prospect of a pile of receipts stuffed into a shoebox. After my taxes come back to me after filing, I put the envelope with my receipts with the tax return for the year in case of an audit.
Track your production costs to save time when printing and framing.
Another benefit of tracking your expenses is that you are able to look back at what it cost you to produce a particular piece so that you know what it will cost to make another. For instance, the printing, mounting and framing of an image for a client, or even the scanning of your film so that you can use that digital file to enter shows and put on your website. These costs are all important when quoting a price for a piece and tracking your sales versus expenses — if you want to know!
Should you keep paper receipts?
The important things to capture about your expenses is the amount, place, date and category the expense fits into. These are the items the IRS is going to expect you to document if you are writing off your expenses on your taxes. If you are ever audited and need to produce proof of these expenses, paper or digital receipts are acceptable. So, you don’t have to keep holding on to that paper! This means that working with an application that allows you to take a photo of the receipt with your phone and store those images somewhere secure is an important part of your workflow that will save you time and the hassle of manually tracking those receipts all year long. Technically you aren’t required to hold on to receipts for expenses less than $75 but I like to keep a good record no matter the expense amount.
Regarding categories, here is a list of the most common categories your expenses might fall into when you tally up your expenses at the end of the year for your tax preparer.
- Art supplies
- Books, magazines, reference material
- Business gifts
- Business insurance
- Business meals and entertainment
- Cabs, subways, buses
- Copying, printing
- Cultural events/ museum entrance fees
- Entry fees
- Equipment and software
- Film & processing
- Gallery fees
- Gas and electric
- Legal fees
- Memberships (museums, professional organizations)
- Messengers, private mail carriers, postage
- Office supplies
- Studio or home office rent
- Tax preparation,
Don’t forget to track the miles you drive all year long.
So, you can see there are definite benefits to tracking your expenses during the year. Most recently I’ve started tracking my miles throughout the year. I really like a program called MileIQ. It’s an app I downloaded on my iPhone that uses GPS to track when I drive everyday. When I reach my destination I get a notification asking me if my drive was business or personal. To select you just swipe left for Personal or right for Business. It’s just as easy as Tinder! The fact that it tracks automatically is the only reason I’m able to keep up with it. You can designate frequent drives and get a PDF report each month. I live in a suburban area and drive many miles every year. For a deduction of $.55 cents per mile, that is going to add up at the end of the year!