Tax Do's and Don'ts for Makeup Artists
You've worked hard all year and created a solid portfolio and actually made money!, now it's time to file your taxes. Learn tax do's and don'ts to avoid a tax nightmare!
So you say “I’ve never been audited,” and “I’m a small fry, they don’t care about me,” and of course, “I keep all my receipts so I’m good.” I hear this a lot from my freelance friends that have never been through an audit. Making very little money is one reason you may be audited; the IRS doesn’t audit just the wealthy.
DON’T lie to the IRS. Please stay with me right now because this is the most important thing you’ve probably read all day. Real cases go like this: You’re a freelance makeup artist, you just dabble in it and live with your friend/roommate; you claim $20,000 in income for the year from various jobs because that’s what shows up on your 1099 forms. You claim $15,000 in expenses with gas, office supplies, your phone etc., so you will owe taxes on only $5,000 in income for the year.
Now enter the IRS. Your rent is $600.00 per month, your car payment is $200.00 a month, your expenses not including food, utilities, etc. is about $800.00 a month. Are you ready for the following question from the IRS?
“How did you pay your rent and car payments on $5,000.00 for the year?”
This is not the time to start making up falsehoods about loans family gave you, or money you found in the garage. That won’t work. The IRS employs intelligent people that have seen (and heard) everything. The chances are that when it comes to tax dodging you are not smarter than they are. Maybe you can tell them you made it babysitting? That would mean you failed to report income to the IRS, which would be a crime in the USA. If you like your own bed, and steel bars don’t appeal to you, don’t lie to the IRS.
DO keep a mileage log and your gas receipts – the real receipts, not just the statement. In an audit this will make your case a much better one. Mileage is something they almost always look at in an audit, so don’t fudge this. It’s just not worth the few dollars you may save. Document every address you go to (if claiming it as travel). There are numerous free apps for this that can help you.
DON’T say to yourself “I’ll worry about an audit when the time comes.” That time will probably come one day, and you need to be ready. Self-employed individuals are a target, and for a good reason; it’s easier to lie about pay and expenses when you’re self-employed.
DO hire a CPA to do your taxes. I know this is expensive, but the few hundred dollars you will spend every year can save you thousands of dollars in an audit and a lot of valuable time. The fines for an error, even a small one, will pay the CPA fees for years. You can use Quicken and TurboTax or other tax software, which is cheaper, but research every expense you’re taking. DON'T assume anything.
DON'T take cash from anyone and assume there isn’t a paper trail. An audit of your client who paid in cash for your services can lead to you as the source of her or his expenses. Also, a bank deposit of cash can lead to questions as to where you got the cash. I know it’s none of their business, but sometimes they make it their business.
DO claim dinner out with clients as an expense. Put the name of the client on the receipt. If you are wining and dining for business then you should get the write-off, but if you’re questioned about it you may be asked for that client’s information.
DON'T write off makeup you buy for your personal use. Keep receipts so you can show the IRS that you do buy makeup for yourself and you don’t write it off.
DO write off every penny of makeup that you purchase for your kit. It’s all a tax write-off. Makeup for your kit is a legitimate business expense for an artist.
DON'T try to write off clothing, jewelry, hair stylist, plastic surgery or Botox. I know you must look good as a makeup artist, but the IRS just won’t buy these expenses. I know, it sucks.
DO write off your home office, but only if there is NOTHING else that you do in that room. It can’t be a guest room and office. Take the measurements of the room, and calculate its percentage of your home's total square footage. This will be necessary to write off the utilities and rent for that space. (A 10x10 office is 100 sq. ft If your home is 1000 sq. ft then you can write off 10% of your rent and utilities.)
DON'T decide not to file taxes. This is a huge mistake! If you don’t file, the IRS will calculate what you owe for you. In my best Liam Neeson voice “they will find you and you will pay.” The first time you get a job that requires your Social Security number they will send a notice to your employer demanding a wage garnishment for past due taxes. I have had this happen with 3 of my past makeup assistants who failed to claim the income I paid them. They will hunt you down forever and the amount you owe will grow with fines. Think about 5 or 10 years down the line, you go to buy a house, they pull up your social security number and see a tax lien for past due taxes; a few thousand in past due taxes can turn into $20,000.00 with penalties and fees very quickly.
DO take about 25% of every payment you put into that account and transfer it to a savings account to pay the taxes on that money. If you are in a high tax bracket as a family you will need to save more than 25%, as your tax rate will be higher. Never touch the money in the tax savings account, it’s not yours. While most working people pay taxes monthly with their pay checks, self-employed people don’t. You are required to pay it all in April.
DON'T use your personal account for business. Your business should be a separate bank account. All expenses should go through that account and all income should be placed into that account.
DO start doing this now if you have not been doing this in the past. The sooner you start doing the appropriate things the better off you will be WHEN you are audited.
Please make sure to pass along these tips to a makeup artist friend you know!