7 years ago, upon discovering that I could write things off and reduce my taxes as a self-employed musician, I set up an easy system to track my income and expenses. When it’s time to actually do my taxes, there’s little left to do.
Since it’s getting close to that time of year, I thought I’d share my system with you.
This post is about what to do all year in preparation for tax time. It’ll make your life easier…and it’ll make your accountant’s life easier, too!
Feel free to use it and to tweak accordingly.
Here’s what you need to do:
#1 THE RECEIPT BOX
Get some sort of box. A shoe box, a fancy box, whatever.
Next, get a pack of envelopes. Write one category of expense on each envelope. Here are my categories:
- research – CD’s, books, DVD’s, magazines…anything you buy that is used for research
- supplies – guitar strings, office supplies, manuscript paper, etc.
- TTC – yes, always grab a transfer. They add up!
- mailing – I don’t know if this is an official category, but I throw in receipts from the post office from mailing my CD’s, grant applications, etc.
- accounting – even more incentive to get an accountant…it’s a write-off!
- union dues
- meals & entertainment – you can only write-off 50% of meals. Not meals by yourself, but meals that are actually meetings where you discuss work stuff.
- capital – big purchases like guitars and computers. This stuff gets accounted for in a different way – depreciation, bla bla bla. I just give the numbers to my accountant and she figures it out.
There are more categories of things to write-off (more on those categories in a minute), but these should be a good start for the receipt box.
#2 THE BINDER/SPREADSHEET
When I started this process years ago I was interested in seeing my income and expense totals for each month.
My binder contains 12 separate (monthly) papers per year, with the income and expenses tracked together. Now, there’s no reason why you’d need to break it down month-to-month like this, it’s just one way of organizing it all.
If you’re more of a paper person, you can print this out and use it (make 12 copies, one for each month)
I’m retiring the binder this year and going digital. If you already know how to set up a spreadsheet, this might be a better solution than the paper thing (spreadsheets add themselves!!!)
Unfortunately, I forget everything I learned in Grade 10 Data Processing class, so I had to find a template online and tweak it.
If you don’t know how to create a spreadsheet, you can do what I did…
1. Download this free template from Vertex42.com
2. Turn this into an Income tracking spreadsheet by changing the text to whatever works for you. Here’s what mine looks like. I’ve filled out the first few cells as an example…
3. Use the same template to create an Expense spreadsheet. Mine looks like this…
(I would have included an .xls download of this tweaked spreadsheet, but I don’t have permission from Vertex42 to do that. Sorry!)
And now, the most important step…
#3 THE WEEKLY RITUAL
This is what ties it all together. Once a week (Sundays work best for me), do a little bookkeeping. Here’s what you do:
Get out your binder/open up your spreadsheet…
1. track income
- look over the calendar for the past week and write down all the money you made
Get out your receipt box…
2. track expenses
- take all the receipts out of your wallet
- walk around the house and gather up any other receipts (check the car, too)
- one-by-one, pick up each receipt, jot down the info in the binder/spreadsheet and then file the receipt away in the categorized envelope
- do this until all receipts are put away. That’s it!
The benefit of using a spreadsheet is that the totals will be generated automatically throughout the year, whereas with the paper system you have to get out the old calculator at the end of the year to do your totals.
There’s more. These are also write-off’s. You may not get physical receipts for this stuff during the year, or it may be online. Don’t forget about…
- rent – if you’re a self-employed artist and you use your home to rehearse, record, teach, etc, then you can write-off a portion of your rent
- phone bills
- recording expenses (did you make an album this year?)
- CD’s given away for promo
- internet bills
- car (I don’t own a car, but I know there is a lot you can write-off if you have one)
- subscriptions – check your credit card statements for automatic payments. Do you subscribe to any music sites?
- double-check your online receipts in your email account – itunes, ebooks, paypal, etc
…and a few other sources of income to gather up at the end of year…
- CD’s – I’ve yet to set up a good tracking system for my CD sales, so I usually end up doing this all at once. (check all the sites and stores where your CDs are sold/downloaded)
- royalties – Socan sends a T4A
- CBC – they send a T4A, too
- grants – yes, you have to pay tax on your grant money. You’ll get a T4 thingy, too.
Am I forgetting anything? Let me know.
Hope that helps!