Record keeping means just that -- keeping your records. That means save your receipts; write down your appointments, meetings, and classes; and record your income. It sounds simple, but you'd be surprised how many of us don't do it successfully. And chances are you're one of them.
If you make the process difficult and time-consuming, you'll stop doing it. I've found that the easiest approach is to get a file-size box and throw anything having to do with money -- receipts, paid bills, bank statements, etc. -- into it every night or whenever the records come in.
Whether you spend money by check, cash, or credit card, always keep the original receipt, and at the end of the day put it in the box (PIITB). An original receipt is important for all business-related expenses because it specifies what you purchased; a check or credit-card statement doesn't.
I can't overstate the importance of keeping every receipt. Let's say you meet with a friend to discuss an audition over coffee. You may not think that $5 receipt is important. But throw away one $5 receipt every day for 300 days and you've tossed $1,500 in deductions, which translates into $225 back in your pocket if you're in the lowest tax bracket. That might be a month of classes or a new headshot or some decent meals.
When you pay your bills online or by check, notate how you made the payment and PIITB. When you get your bank statement each month, PIITB; those statements include proof of your check and online payments.
Write Down Your Schedule
Whenever you get an audition or make an appointment for any business purpose -- lunches, classes, photo sessions, meetings with agents, whatever -- keep a written record of it. Include the address, the date, and the purpose of the meeting. Whether you drove a car, took a taxi, or used the subway to get there, you have travel expenses you can deduct, either fully or partially. And writing down that event helps to substantiate other expenses it may have involved. For example, if you pay for classes in cash, your written schedule helps to validate those costs. A credit-card charge to a restaurant says you ate something, but your appointment book proves you met your agent.
The IRS loves it when you keep a day-by-day record of your schedule in a nice, neat binder, but I've seen people convince auditors by showing them the scraps of paper on which they jotted down their audition appointments whenever their agent called. The key point is to record and keep this information.
Save Income Records
When you get a paycheck, take the check stub and PIITB. If the check doesn't come with a stub, write down who paid you (don't forget the employer's address and contact information), how much you were paid, and what you were paid for -- and PIITB. If you keep a receipt book for your work, that's great, but still save your check stubs. They may contain pertinent information you wouldn't normally include in your receipt book. Obviously, if someone pays you in cash, you need to keep a written record of that too. The same information is necessary and, again, PIITB.
At the end of the year, you're going to have to separate all those receipts into categories such as marketing, meals, commissions, classes, etc. Of course, you can always use a binder with multiple folders or a computer program to meticulously categorize your receipts as you go, doing it every night if you like. There are wonderful systems available, and I admire the efficiency of using them, but it's something I know even I can't maintain throughout the year.
If you're audited, the IRS will demand to see the receipts for any items you purchased, along with proof of how you paid for them. So whatever method you use, what's most important is that you keep it simple enough that you'll follow through each and every day. Oh, and don't lose the box.
Next week we'll discuss itemizing deductions.
Chuck Sloan can be reached at firstname.lastname@example.org.