Art as Business or Hobby – It’s Your Choice
by Miata Edoga
Many people dream of artistic success. Whether you are an
actor, painter, musician, sculptor or singer, you want to
make your living (and more) doing what you love. But many
people run their artistic careers like hobbies, and then
wonder when they don’t get the results they desire…
You are an artist. You may be an actor, a painter, or a
writer, but you are an artist. And of course, you are
running a business. Or is it a hobby? The biggest question
of all is – do you know the difference? Think about what
makes a business a business. Think of how a big company
runs things. They have a business bank account and business
credit cards, they keep records of all business expenses,
they keep records of all sales, they pay all their expenses
from their business bank account, and they know when they
have made money (a profit) and how much. And you would
certainly never see the CEO going out and buying printer
supplies from his or her personal bank account.
You need to ask yourself, do you run your business like
this. If the answer is no, then you are not running a
business. If the answer is no, then what you are doing is
merely engaging in a hobby, and it may be an expensive one.
You might be saying, “But I’m no accountant, I’m an actor.”
True. However, as painful as it may be, you can learn to
keep proper track of your business finances and keep them
separate from your personal finances.
At Abundance Bound, Inc, one of the first things we discuss
with our clients is their financial starting point, because
you need to know from where you are starting in order to
know how to get to where you want to go. Having an accurate
“snapshot” of your finances as they are is essential as you
begin the wealth-building process, and it also allows you to
truly see how much, where, and on what your money is going.
—
NOTE: If you would like assistance with this, email
mailto:info@abundancebound.com and put “Chart of Expenses”
in the subject line. We will send you an Excel chart that
allows you to track your monthly income and provides an
extremely detailed list of possible expenses to help you
remember all of the different ways you are currently
spending your money. There are also free tele-seminars that
will help make sense of this process. See AbundanceBound –
Financial Education and Planning for Actors and Artists for
details at: http://www.abundancebound.com
—
The absolute most important thing to do for your business is
to separate all your personal income and expenses from your
business income and expenses. As we mentioned above, you
would not see the CEO of a Home Depot go out and buy
printing supplies from his or her personal account, and you
should not do this either. This means you need to have a
business bank account. If you do not, then all your income
and expenses are mixed together and it is far harder to keep
track of everything. You can easily start a DBA (Doing
Business As) which will allow you to qualify for a business
account (for more information visit http://www.legalzoom.com).
So, you have a personal account and a business account. Now
you place your personal earnings (your day job such as
waiting tables, tutoring, etc …) in your personal account
and you put your business earnings (acting jobs, work sold
to a publisher or at an art exhibition, etc …) in your
business bank account. Likewise, you would pay for all of
your personal expenses (rent, groceries, clothes, vacations,
etc …) out of your personal account and you would pay for
all of your business expenses (acting or art classes, head
shots, mileage to/from auditions, etc …) from your business
account.
This is very straightforward. The thing is it is simple,
but not necessarily easy. First, it depends on how
organized a person you are and it depends on your desire to
do these things. The point is they can, and must, be done
if you are to run your artistic business truly as a
business. Right now, you may want to say, “STOP! I don’t
make enough money from my business to pay for all of my
business expenses.” If this is the case, simply make a loan
from your personal account to your business account, and
make sure you record that loan. When the business becomes
profitable, it can then repay the loan. Be sure that it
does.
You should also have a separate business credit card (even
if the card is in your personal name). You should only be
charging personal items to your personal credit card (and
hopefully you are paying off the balance every month) and
business expenses should only be charged to the card that
you have designated as your business credit card. This way,
if you are carrying a balance on your business credit card,
then the interest will be tax deductible. This is not
possible if there is even one personal expense on the card.
Now, what about those expenses that cross the line –
sometimes they are personal and sometimes they are business.
These are things such as mileage on your car or household
expenses if you work from home. For these expenses you must
keep very clear records of when and how much of your
expenses are personal vs. business. Keep a small book in
your car to record business mileage. Make sure you keep all
your household bills (mortgage/rent, phone, hydro, etc …)
filed away so that you can use them to determine what
portion you can write off as a business expense.
There are three reasons why it is important to treat your
business like a business and follow the suggestions above.
These are:
1. If your business is not run as such, you will never be
successful. And if you do not treat your business as a
business, you will never make a business income.
2. If you do not keep appropriate records, records that
clearly indicate you are running a business, then, if you
are audited, the IRS may classify your business as a hobby.
This could mean loss of tax deductions, and you may even
have to pay penalties. Worse, the IRS could go back through
previous years returns, and apply the same filter to your
deductions (we had a student who, before he started with us,
had this happen to happen to him. Needless to say, that was
not a happy day for him!). This is not what you need when
you are trying to make your business profitable.
3. You will be able to track the progress of your
business easily. You will be able to look back a year from
now and say, “Wow! My income went up by that much?” Or,
“Yes! I finally turned a profit this year!”
You can do this. Have faith in yourself and your business.
It will grow and you will be successful. Just remember to
keep the personal separate from the business and keep clear
records of the two. Then you can watch your business grow
and never look back.
—————————————————————-
Miata Edoga studied acting at Williams College, MA, and at
the Royal Academy of Dramatic Arts in London. Five years ago
she realized that the only way to guarantee the career she
wanted was to do it herself, and so started educating
herself about finances. This led, two years ago, to the
formation of Abundance Bound, Inc http://www.abundancebound.com,
a company who’s mission is to develop a community of actors
able to pursue their financial goals free from the crushing
weight of financial stress.
—————————————————————-
Copyright (c) 2007 Peter D. Marshall / All Rights Reserved
Recent Comments