In 2016, Ellen made the leap she’d been dreaming of. Satisfied that her constant hard work as an artist was beginning to really pay off, and with a cushion stashed in her savings account, she quit her job to focus full-time on her art.
Things went well that first year. With a structure already in place and now 100% more time to focus on things, she grew her art business relatively easily. She was able to cover all expenses and even set aside a little money at the same time.
When tax season rolled around, Ellen began to get anxious. This was one component of going it alone that she had very little knowledge of and hadn’t prepared much for. To save money, she had decided to prepare her own taxes with the help of computer software.
What a nightmare. For days, Ellen poured over bags of receipts trying desperately to piece together her entire financial year. She wasn’t sure whether she’d accounted for every sale and every expense which made her even more nervous. And to top it all off, Ellen had no idea that she should have been paying quarterly taxes throughout the year. Suddenly she found herself stuck with a huge tax bill and not enough money set aside to pay it off.
Ellen was absolutely devastated by her mistake.
Luckily, even though this was a difficult moment for her, it was also a huge learning experience. Choosing to become your own business means that you accept a big financial responsibility. That doesn’t just mean you make enough money to meet your current needs, you need to be planning for the future both distant and immediate.
Managing your yearly tax bill is of vital importance. As an independent artist, this may not be your forte so hiring a tax professional to help keep you on track is something to seriously consider.
Keeping good records of your income and expenses is absolutely critical for every small business owner, and that is exactly what you are. Save receipts and track all sales and other income.
Finally, as someone who is self-employed, you do not operate on the usual W-2 tax system. Rather, you will generate and submit 1099s. Throughout the course of the year, you will also be expected to pay quarterly tax bills since no money is coming directly out of your earned income like it does with a W-2.
Again, hiring a professional, while an additional expense, could, in the long run, end up saving you money in that an accountant will know about deductions and tax rules you may not.
Navigating all this isn’t easy for many people. At Praxis Center, believe it or not, we have a course for that. Don’t find yourself in a tough spot come tax time, seek out the support you need to stay ahead of Uncle Sam.