Freelancing can be hard for creatives. If you don’t enjoy the business-y stuff, that aspect can become a big headache for you at times. Such as when you have to hustle to promote your next gig, learn social media marketing or even things such as filing tax once a year.
A common question that comes up regarding taxes is: can you write off taxes on your DJ equipment?
The answer is- if you bought new DJ equipment in this financial year, you can seek a tax deduction on it. In fact, there also are a couple of other spend areas- Such as spending on marketing, travel logistics that DJ’s usually get written off. Let’s look at them in detail
What Other Spend Buckets Can You Write Off?
While there can be a lot of different expenses for any DJ, the general rule of thumb is that if the expense is necessary for the business and considered a standard expense in the profession, then it probably is allowable for tax deductions.
For instance, if you have a website for marketing your services- you can write those expenses off. Similarly- you can deduct expenses on flyers printed for promoting your gigs, as it all comes under marketing expenses.
Meals when you are attending and out of town gig, are also tax deductible- although only to a certain extent, and not fully.
If you use your car to travel to and from gigs, you could even apply for a deduction on the mileage. Who knew, right?
You can even write off a visit to the tax advisor- which is highly recommended by most freelancers. If you can afford the upfront cost, it will save you much more money overtime
I also came across a couple of DJ’s online who mentioned writing off some portion of their home studios built for their business. In the same breath, I also feel I should mention other DJs which said that this was most likely to irk the IRS and incur an audit.
What Should You Be Careful About Writing Off?
Entertainment taxes changed quite a bit in 2018. Client entertainment is generally not deductible. It is somewhat of a grey area as per the latest IRS guidelines. For instance, taking a promoter out for a meal, is not deductible.
One could argue that being in the entertainment industry, taking a client to a show for a gig for business purposes, should be deductible. Which is why I said this is a grey area- you should record this expense like all others but be sure to discuss it with tax advisor.
Clothes are another spend that it’s best to avoid trying to get a deductions from. The reason some DJ’s do file it is because they use special costumes for their gigs. So unless you do that, don’t even try.
Are There Any Disadvantages To Writing Off Taxes?
As long as you are compliant with the rules and regulations there really is no need to worry about writing off taxes. However, it is the compliance part that is tricky since there are so many rules to keep in mind.
If you absolutely can’t afford seeing a tax advisor, then it’s probably best to not claim any deductions that you yourself are not sure about.
The other option is to just go for a standard tax deduction. This is a flat amount, decided by the US government every year, that is non taxable- no questions asked. The exact amount you can claim under standard tax deduction depends on the category you fall into.
For instance, according to turbotax, in 2017, singles filing returns as well as married people filing returns separately could claim $6,350 as non taxable income. Married couples filing jointly could claim exactly double that amount- $12,700 And single individual filing as Head of household(i.e: with dependents) could claim $9,350
So, if you were unable to track your finances properly for whatever reason, you could always go for this option. However, if you are freelancing or running a business, you will probably save more money if you claim more than the standard amount, as per your expenses. this is what is called allowable tax deduction.
Best Practices For Writing Off Taxes
Get A Separate Bank A/c
Getting a business bank account for your DJ business is, in my opinion necessary. It ensures that your personal income and expenses do not get muddled with your business ones- so it’s much easier to track when the time comes to file returns.
Also in case you get audited by the IRS, it just makes the job easier for them if you have good financial hygiene.
You should generally track all your expenses and in as detailed a manner as possible. There are obvious expenses like new gear and the not-so-obvious ones such as printing promotional material for an upcoming show. You need to track them all, as, over time, even the small spends here and there will build up to a significant amount.
To this end you should keep with you, a copy of the bill whenever you incur an expense for your business. You don’t need to keep the physical hard copies necessarily( although it’s good to).
However, do ensure that you have a system for digitally uploading your expenses to an online drive or your laptop- because you will need this while claiming the deductions
Maintain a log of the date, place, cost and time of meal, along with the receipt.
Most freelancers seem to find benefit from the standard mileage rates for business travel, which the IRS sets every year. This is, if you use your car for business travel.
You may even be able to claim toll, train, cab, parking, etc expenses as long as you can prove they were directly related to your business.
Here’s what your mileage log should reflect:
- The date of your trip
- Your starting point
- Your destination
- The purpose of your trip
- Your vehicle’s starting mileage
- Your vehicle’s ending mileage
- Tolls or other trip-related cost
You could just go for the standard mileage deduction, if you haven’t been able to track all your trips comprehensively for this year. You won’t get some of the benefits, such as claiming deductions on repair and gas refills, though.
Best Ways To Be Tax Compliant
You need a way to manage and track all your finances. And excel alone can be a little too bothersome.
This is why most freelancers and small businesses use Quickbooks Self Employed. It syncs up with your bank account so you can track income and expenses. It also has a paid app that allows you to track mileage.
A free alternative of Quickbooks is Wave. It has ads in the free version, but that’s the price you pay(pun intended!). It also allows you to send out invoices and get paid through credit card and ACH- though there are some charges associated with that.
This article is meant to provide you with some information to get you started on gathering knowledge about taxes. Rather than poring through the internet and going in depth on how to file your taxes, I believe it’s just a much better use of your time to consult with a tax advisor- especially because you can write off the consultation as well!