Thread: Financial recordkeeping

I know we have at least one tax professional on Bhuz, but I can never remember who it is!

I'm working on a book for bellydance teachers, and I want to give them some guidelines on recordkeeping. I'm going to make it clear that I'm not a tax pro and advise them to consult one at the end of the year... but I want to give some guidelines on what receipts to keep. Here's what I'm thinking:

• Any expense that relates totally to teaching classes!
• Music used for class (drilling, student choreography)
• boombox/cds/ipod if you'll use it only for teaching classes
• mileage to and from classes
• props for student use during class (veils, zills, canes, etc)
• rent for teaching space
• advertising and office supplies

Sound right?

I'm iffy on the following:

• Clothing worn ONLY to teach classes
• Your own ongoing education expenses (workshop attendance, DVDs etc) if you're bringing the material into your own classroom

What if you have several classes and end up using a home office space to manage your teaching business? I've been told that claiming a home office is an invitation to auditors, so I don't do it.

Am I forgetting anything?

My general understanding is that if it's an ordinary and necessary expense to run your business, and if the expense ONLY benefits the business and not you personally, you may be able to claim it and should bring those receipts to your tax preparer. Is that about right?

Are you sure about the mileage? I am not a tax professional either, but I did take a class on Tax in law school, and I learned that you can't claim mileage to and from your job, but if you from one job to another, you can claim that mileage. My accountant only claims mileage for me on the days i go straight from work (office) to teaching a class.

I thought you couldn't claim it as an employee, but you can as a small business?

(stay close, Daniela, I'll be writing the legal section soon!)

I just checked on it and you're right! Looks like you can't count travel from your home to your place of work (class). But if you have two classes at different locations, you can count the travel between them. I wouldn't have realized that driving from your 'day job' would count.

Thanks so much for the correction!

I think I'll poke around the IRS website for a while tomorrow.

update: Looks like if you have a home office, you can deduct travel from your home office to an external location. That's probably iffy for someone who teaches just one class, but for a studio owner like moi who really has a dedicated office space at home for bookkeeping, website maintenance, etc. it seems legit.

Oh, cool....I have a home office for my day job - I'm here right now, actually. I'm looking forward to deducting that from my taxes! Oh, what about if you have a home studio? You get to deduct the space, right?

Not a tax person either but..

When you take a tax deduction for a home studio - that counts as depreciation. That can hurt the value of your home.

My father-in-law is an accountant. I had looked into "registering" a portion of my house for "business use". Basically, a small office with my retail stuff.

He explained to me that this could affect the value of my home later down the road. Also - he explained that my home may not be zoned to allow a "business".

Not sure how this all works but just decided to not do that...

Daniela -- If it's 'in the same trade or business'

Here it is straight from the horse's mouth:
Publication 463 (2007), Travel, Entertainment, Gift, and Car Expenses

I am actually writing a short article for Jareeda magazine on this very subject!

Lauren, your short list of expenses is correct. Since I teach classes, I write off in the year in which I purchased the items, music and clothing that I wear to teach classes. Although I have been known to wear yoga pants and other "bellydance type clothing" to the feed store, I typically don't wear it as everyday dress, so it is a legit business expense.

You can only write off those expenses which are business, not personal. Depending upon the cost, I either write off or depreciate my performance costumes...every CPA has their own idea of what to do about this, so it is best to check with your CPA.

As for the use of the car. In your case Lauren, if you have a home office in which you conduct substantial administrative or management activities, then you may write off the cost of travel from there to your studio. If you do not conduct a substantial portion there, then the cost of driving to your studio is considered commuting and you may not deduct it. If you have a "day job" and leave from there to teach a class or go to a gig, then that is tax deductible. Standard mileage rate is usually the best method and it changes periodically, you can always check the IRS website to find the current rate. Keep track of your total mileage for the year and also your business mileage. Many people just ballpark the figure, which I don't suggest; but also I see many people obsess over the possibility of being audited over this issue and honestly, in nearly 30 years of practice I have only had one client be audited on their mileage.

I've been told that claiming a home office is a giant red flag that says 'Audit Me!!!!' but if it's legitimate and you're keeping good records, an audit shouldn't be anything to fear, right? *shudder*

I would think the rules for a home studio would be the same as the rules for a home office - exclusively used for business, etc- but I think I'll have to just tell readers that those rules are complex and a tax advisor should be consulted. I just can't devote that much bookspace to an issue that would affect a really small proportion of my readers and has so many variables attached (whether you rent or own your home, for instance)

Originally Posted by Gilana

I am actually writing a short article for Jareeda magazine on this very subject!

Lauren, your short list of expenses is correct. Since I teach classes, I write off in the year in which I purchased the items, music and clothing that I wear to teach classes. Although I have been known to wear yoga pants and other "bellydance type clothing" to the feed store, I typically don't wear it as everyday dress, so it is a legit business expense.

You can only write off those expenses which are business, not personal. Depending upon the cost, I either write off or depreciate my performance costumes...every CPA has their own idea of what to do about this, so it is best to check with your CPA.

As for the use of the car. In your case Lauren, if you have a home office in which you conduct substantial administrative or management activities, then you may write off the cost of travel from there to your studio. If you do not conduct a substantial portion there, then the cost of driving to your studio is considered commuting and you may not deduct it. If you have a "day job" and leave from there to teach a class or go to a gig, then that is tax deductible. Standard mileage rate is usually the best method and it changes periodically, you can always check the IRS website to find the current rate. Keep track of your total mileage for the year and also your business mileage. Many people just ballpark the figure, which I don't suggest; but also I see many people obsess over the possibility of being audited over this issue and honestly, in nearly 30 years of practice I have only had one client be audited on their mileage.

*gloms onto Gilana as a resource*

Bless you, woman! When I've completed that section of my book (I promise, it's not going to be more than a couple of pages) can I send it to you for doublechecking/corrections? And if so, can I have your 'real name' and credentials so I can properly acknowledge & thank you?

If you'll send an e-mail to me at Lauren AT Lotus-arts DOT net I'll have your e-mail address handy when the time comes.

You are my hero!..g.:

Originally Posted by ravenadesigns

Not a tax person either but..

When you take a tax deduction for a home studio - that counts as depreciation. That can hurt the value of your home.

My father-in-law is an accountant. I had looked into "registering" a portion of my house for "business use". Basically, a small office with my retail stuff.

He explained to me that this could affect the value of my home later down the road. Also - he explained that my home may not be zoned to allow a "business".

Not sure how this all works but just decided to not do that...

Hmmm... I'm not understanding a lot of this. First, I don't know why a tax deduction would depreciate your home's value. Second, I don't know who you would be 'registering' with, I thought you just... deducted it or didn't. And I was told it's not necessary to be zoned for business in order to deduct, and in fact home offices don't require zoning variances unless they'll be generating noise or traffic. (clients or students come to your home).

I'm sure your FIL knows what he's talking about. But I'm not understanding it.

eta: I did a quick google, and it looks like you can *claim* the depreciation of your home (which happens whether you have a business there or not) on your taxes -- but then there will be tax consequences when you sell the home -- seriously bad consequences if you've been deducting depreciation while the value of your property was actually going up! Maybe that's what he meant?

This is all getting outside the scope of my knowledge or of my book -- but it's interesting! And since many of us do have a home studio or home office, it's relevant.

I have literally no time to write, but if you want to call me, pm me :)

Originally Posted by amity

I have literally no time to write, but if you want to call me, pm me :)

Amity, it was you! I knew it was a Bhuzzer with an 'A' name!

PMing you.

Sure! I'll send you a separate email which will give you my info.

Yes, the depreciation can get involved and it is best to check with your tax advisor on this issue. I would not address it in your book other than to mention to check with tax advisor.

Every state also has different laws concerning registering your business, so again, check with your tax advisor.

I believe it's Amity:)

Apparently it's Amity AND Gilana -- and they've both offered to proof/correct/etc my tax section.

Oh happy day!

I'm curious to know if my training is tax-deductible...like could workshops be considered a professional conference? You know, I'm improving my teaching and training?

I'm curious to know if my training is tax-deductible...like could workshops be considered a professional conference? You know, I'm improving my teaching and training?

Yep, it's considered continuing education/seminars, etc.

Originally Posted by Gilana

I'm curious to know if my training is tax-deductible...like could workshops be considered a professional conference? You know, I'm improving my teaching and training?

Yep, it's considered continuing education/seminars, etc.

*does happy dance!!*

So, for anyone who is wondering, here is an example of deductible expenses...

Last weekend I flew from Seattle to Boise to attend Sidonia Om Dunia's annual workshop/hafla weekend. I was taking several workshops and dancing in the evening show. In order to keep everything straight, I put it all on my business credit card.w.: When I get the statement I will break down the expenses into various categories:

Travel - airfare and hotel, shuttle from airport to hotel
Meals - meals are deductible at 50% even when out of town
Seminars/workshops - cost of the 3 workshops I took
Supplies - bought 4 Cd's and 2 coin scarves which I will use for class
Costume expense - bought a new cover-up

Does that help?

Ooh, meals are only deductible at 50%? I traveled down to the Jersey shore for a gig and spent the night - I was planning on deducting everything, so good to know? What about driving for a job like that? Technically I am not driving from one job to another, but it was damn far away!

Originally Posted by danielabellydance

I traveled down to the Jersey shore for a gig and spent the night - I was planning on deducting everything, so good to know? What about driving for a job like that? Technically I am not driving from one job to another, but it was damn far away!

You would be able to deduct the mileage round trip @ 58 1/2 cents per mile.

Don't forget the expense of insurance for your studio/teaching. (Simply speaking as an individual who often has to "spell things out" for the people I work with on a regular and continual basis - just gotta love academics!)

Ooh, thanks Tedi! And Gilana for the example.

Gotta love a bellydancing CPA!!

Oh yeah, the insurance! Performer liability insurance, instructor insurance, event insuranc - all deductible!