Mind on Your Money

In my experience many of those in the creative arts take an “out of sight out of mind” approach to their finances and taxes.  While there are artists, musicians and gallery owners that track and manage their money well—using either professional software such as QuickBooks or simple spreadsheets—a good majority of the freelance artists that I have hired, managed or worked with tend to put money matters off until it is too late.  You’d be surprised at the number of musicians that have reacted in great shock to receiving their year end 1099 because they weren’t keeping track of their earnings over the course of the year, and “suddenly” faced a tax responsibility on those earnings.  In most cases these artists were not saving the recommended 30% of earnings and setting it aside to pay their taxes.  Most likely these artists will have to take a huge hit on their current overhead to pay the taxes, and in some cases incur debt to cover the costs, or even worse not pay the IRS at all, thinking it will go away or that the chances of being audited are too small. 

I’ve found that freelance musicians often have trouble separating their personal and business monies as well.  I was surprised recently when a bandleader that hired me for a private party had already spent the deposit check from the client.  On top of that, he wasn’t sure if he would be able to pay the rest of the trio in a timely manner because he needed the balance payment to cover some of his personal bills before he could pay out the musicians he hired!  Clearly he didn’t understand the concept of keeping his personal checking separate from his music business activities. 

Below are some very basic money management tips for artists who often depend on variable, unsteady income.  In addition to these tips, the COSE Arts Network will present a 2-hour tax and money workshop on November 19^th.  Our presenter is Joanne Montagner-Hull, a CPA with Your Bean Counters , who not only has 30 years of accounting and business experience, but has a background in the theater as well, so she really gets what it means to be an artist.  Please click HERE  to learn more about this workshop and sign up today.

Record Keeping
Read this paragraph, and then immediately create an Excel spreadsheet where you will record every single payment you receive from your arts activities.  Record the date you received the payment, the source, the amount, any mileage you incurred during the job and any other expenses you incurred.

Keep Receipts
Very straight forward, but very essential.

Save for the medium to long term
If you are an artist that sometimes goes months without payments or commissions, or a musician that gets paid gig to gig, divert a comfortable percentage of those payments to a very safe place such as CD’s or a savings account.  Even though those two savings options yield next to no interest earnings these days, you will rest assured that you have started a “rainy day fund” that can’t really be drawn upon to pay your regular overhead expenses.  Try diverting the same percentage, say between 5% and 6%, from every single payment you receive, whether it is large or small. 

Start a tax fund
Aside from your medium to long term savings, put roughly a third of your freelance earnings away for taxes. You must pay the IRS, state taxes and Social Security out of these freelance earnings

Quarterlies – Make partial quarterly payments towards your taxes four times a year — ask your accountant about this.