It’s tax season, ya’ll! (says the girl who just moved to Texas). In the spirit of tax season I have put together a two-part piece on the issues of making money. My first two pieces in February were a little on the lengthy side, so I want to keep these short and sweet and get right to the point. Or as the IRS would say, let us get right down to brass tacks.
The IRS doesn’t give a shit about your creativity.
Too harsh too soon? Sorry to be the bearer of bad news, but sometimes we creative professionals just need a little kick in the pants, a dose of reality. This is totally ok, and something that we need to do, constantly, to keep ourselves in check. And if you can’t take today’s dose of reality, then maybe you might want to reconsider this whole running a business thing.
As a business owner, the IRS only sees you as having one job… to make money. You must have a profitable business. Luckily the fine folks in Connecticut (yes, that is where the IRS is headquartered if you did not know) are not all bad and they give us this lovely grace period where we are allowed to take a loss and not make a profit the first couple years. However, this get-out-of-jail free card is NOT something you get to cash in every year! (I’m looking at you, Amazon!…uugg!) Don’t even ask me how they get away with it. Must be nice to be a gazillion dollar corporation.
Anyway… back to you. You, wonderful self-employed person, do not get to operate in the red every single year. If you are doing this then I have some news for you… you are not running a business; you just have an expensive hobby. “But Anne! I’m only doing this part time. I’m not self-employed. I have another job. This is just for fun.” Let me make this very clear. If you are doing it for fun, then you shouldn’t be taking money from people. The second you take money for services or goods, that is a business. So decide which one you want to have…and fast. The IRS does not like liars.
In the six or seven or so years that I have been in business, I have seen a huge wave of new, younger people enter into my profession. Bursting with energy and lots of questions, these people flock to Facebook groups and networking organizations with what may seem like naive, inexperienced questions, but who can blame them?! They are new for pete’s sake! They don’t know much yet! I get it. I was one of those people once.
Inevitably, questions of, “how much should I charge?” come up. This is such a loaded question when it comes up in a Facebook group and one that really should not be crowd sourced by people that don’t know your business. However, if you are going to ask this question from seasoned professionals, you must be prepared for the honest truth. And from everything I’ve been seeing over the years, nine times out of ten, the answer leads to, “you’re not charging enough.” Now, I’m not going to get into why you’re not charging enough. I am going to save that for the next post, but I do have my theories. Sorry for the teaser! Now, you’ll just have to come back for part two.
The Bottom Line: Know Your Numbers
The bottom line is this: the only way you can make a profit is by knowing what it costs to run your business. How much money do you need to make to support yourself? To support your family? What are your costs of goods? Are you saving for retirement? How much do you need to set aside to pay your taxes? You do remember that you need to pay taxes? Depending on what state you live in, you might owe income tax to both the federal government and your state government. Make sure you know! Do you need to be charging sales taxes to people buying your services or goods? This depends on what kind of business you are running and where you are located.
Too many questions? This is why all good business owners need a good accountant. If you are running a business then you need this person in your life. People who have hobbies do their own taxes. People running a business have accountants. Get one!
Stay tuned for part two of this post later this month where I outline some of my theories behind why people are so reluctant to make money in their careers. I’ll be dropping some big ‘ol truth bombs on you so if you’re ready to hear more straight talk then please come back again!
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