Here we are in midsummer, some days on the beach or maybe hiking in the mountains, the quicker pace of autumn not yet upon us and the year-end tax decisions oh so far away. So indies, maybe you have a minute or so to think about who you are and what you do and how both are related. You've heard me talk about this before. It's the indie-business mindset thing.
Having that mindset means that we're aware of how our personal lives and our business lives intertwine. One of the places I've written about it is here: You are a business. Treat what you do as a business.
That mindset also brings an understanding of how our interests and passions are intertwined with our businesses. Just a few weeks ago that situation was demonstrated in a dustup here in Santa Fe. The county board sent out notices pressing its indies to purchase a business license. Registration costs $100 and annual renewal costs $35.
The county's demand brought protests from a number of artists. In a piece in the Santa Fe New Mexican, our local daily paper, a local painter described herself as "hopping mad" because "she does not consider herself to be running a business."
Well, indies, you know how wrongheaded I know her reaction to be. I commented in an op-ed piece that my goal has always been to teach and advise artists on how to treat their art as a business. Only if they look at what they do as a business will they be aware of all the deductions available to them and will they be able to take advantage of the tax laws and regulations and thereby pay the least tax legitimately possible.
For instance, only if an artist is considered a business by the IRS may she deduct a loss from other income. That means that if the costs of running her sculpture studio were $5,000 and her income were zero -- yes, zero -- she'd have a $5,000 loss. If she's a business, then she may deduct that $5,000 loss from her other income whether it be investment income, salary for her or her spouse, taxable social security or alimony. Doesn't matter. The $5,000 loss may be deducted from any income.
If she is not considered a business by the IRS, then, poof! She can do nothing with that loss that could have saved her thousands of dollars in taxes.
It's easy to prove that you are a business if you make a profit. But how do you prove you're a business if you make no money? Well, the IRS says you "must show a profit motive." And how do you show a profit motive if you have no profit?
The IRS says: "A profit motive is indicated if you treat your activity like a business." There are nine IRS guidelines to use in determining whether you are acting like a business. Pretty much they say if it walks and talks like a business then it must be a business and includes things such as: keeping accurate records; your expertise in the field; time and effort you expend in your endeavor.
A business license goes a long way as evidence that what you do you do as a business. Paying $100 to register and then $35 each year is an inexpensive way to prove you're a business. And, keep in mind, the fee is tax deductible. So you get a $135 business expense deduction which, depending on other income, could save you up to $70 in taxes.
Artists are professionals. They need to think of themselves as professionals and demand to be treated with the same rights and respect as other professionals.
So, I told the artists: Pay for the license. Hang it up for the world to see. Because you're a pro.
The approach and discipline of treating your indie venture as a business will reward you with the confidence to handle the ups and downs of running your own business whether you're an artist, an IT specialist, a carpenter, a chef, or an attorney.
So, video game inventors, deduct those game purchases with assurance. It's a legit expense because you are a business.
Here's a few more posts on the subject:
Learn more. Reduce stress and reduce taxes.
When & Whether To Hire A Pro
Selling on Ebay? Fear be gone!
Indies are responsible for their business decisions. No excuse.
Think Like an Indie Business
Enjoy your summer!
June
