Accounting for Creatives | Michelle Cornish | Skillshare
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9 Lessons (19m)
    • 1. Introduction

      0:41
    • 2. Income Sources for Creatives

      1:53
    • 3. Class Project

      0:28
    • 4. Expenses for Creatives

      3:22
    • 5. Donating Your Work

      1:24
    • 6. The Engagement Letter (Terms of Service)

      3:14
    • 7. Tracking Your Income and Expenses

      4:31
    • 8. Working with an Accountant

      2:49
    • 9. Conclusion

      0:16
23 students are watching this class

About This Class

Join writer, illustrator, and former CPA, Michelle Cornish, to learn important tips and tricks for keeping track of your income and expenses from your creative business! 

Michelle left an almost 20-year career in public accounting to pursue her dream of writing and illustrating. This course is the joint effort of her right (creative) and left (analytical) brain. Yes, you get the whole brain in this course! 

What do you need to know to grow your creative business and save tax? 

This class will provide invaluable tips for increasing your income and demystifying the accounting process!

Lessons include:

  • Tracking your revenue to identify your most profitable product/service
  • Claiming eligible business expenses
  • Common deductions missed by most freelancers
  • Saving tax when you donate your work
  • Accounting apps
  • Finding and working with an accountant
  • And much more!

This class is for everyone who makes a living as a creative. It's perfect for artists, musicians, and writers. If you have a creative talent you are monetizing, you'll want to take this course.

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Transcripts

1. Introduction: Hi and welcome, Teoh. Accounting for creatives. I'm Michelle, a writer and accountant with almost 20 years experience in the public accounting industry. This class is for you if you make or create things in your business. So if you're a writer, musician, artists, dancer, inventor, all of those things qualify. I'm going to explain to you why you want to track your sources of income. Why, that's important as well as what expenses you can deduct. I'm going to share with you what an engagement letter is and why it is super important in the creative industry. And I'm going to share some accounting Absar gonna make your life a little bit easier when it comes to tracking your income and expenses. So I'm really excited that you're joining me here today. Let's get started 2. Income Sources for Creatives: all right, I want to jump right in and talk about income sources for creatives. So when you have a creative business, it's really common to have several different sources of income, and sometimes they don't even seem to be related. So what you want to do is make sure that you're tracking each source of income separately, and this is really gonna help you when you start to grow your business. So, for example, maybe you sell your artwork so you've got pre prepared pieces that you've done ahead of time, and you offer those for sale at a show or on your website or through etc. So you would have that. That would be sales of a product. Then maybe you do custom work for people as well. Those will be custom orders, and then maybe you also like some some of your artworks. You would have a licensing fees separate from the other two sources of revenue as well. The reason that it is really helpful to keep your sources of income separate is that you'll start to see trends as far as which sources of income you are earning the most money from, and it's always best weighing. You start to look at growing your business to focus on those sources of income that are already generating the most income for you, especially if those are the things you enjoy the most. So you might find that your custom projects have triple the revenue than all other sources of revenue that you have. If that's something you enjoy doing, then you might want to consider a strictly focusing on that source of income going forward , so segregating your revenue will have really help you to analyze how things are going in your business. Now, if you're not sure how to price your services. Peggy Dean has a really great course cult pricing your work, and I will put the link in the resources section below Up. Next, I'm going to be talking about expenses. Your homework for this section of the course is just identifying the different revenue sources that you have. You can post them in the project section below, or you can just make a note of them for yourself. 3. Class Project: The project for this course is going to consist of three steps, so Step number one is identifying your sources of income. You could make a note of that right now, so it's easier when it comes time to do your project. Step Number two is going to be identifying the different accounting software, or APS that you might want to use when tracking your income and expenses. And step number three is creating an engagement letter for yourself, and I will talk more about that when I get to the engagement letter section. 4. Expenses for Creatives: Okay, let's talk about expenses in your creative business. How do you know if an expense is an eligible business expense? One way to look at it is to think about whether or not you would have the expense if you didn't have your business. So if you wouldn't have the expense if you didn't have your business than that is definitely a business expense, then there are other types of expenses that are larger because of your business. So one of an example of one of these types of expenses is your cell phone use. So especially if you are on a plan where you get charged per minute, you are gonna have a higher cell phone bill if you're using it for both business and personal and making all your calls through one phone. So how do you determine which portion is for business? You can go through your phone bill and identify all the business calls and look at the total volume of calls and calculate a percentage based on that. Then the eligible business courses is going to be a percentage of the overall phone bill based on what you calculated. So there are a couple of expenses that are commonly missed for business owners, especially when working from home. So the business use of home amount is something that you can claim when you work out of your home and you don't have another office to go to. These are portion of your home expenses, such as mortgage interest or rent, depending on whether or not you own your own your utilities, your house insurance, property taxes and even repairs and maintenance. The percentage you can use for business purposes depends on the amount of the area of your home that you use so you could basis on the square footage of your home. So if you used 100 square feet for your office and your overall square footage every home with 1000 square feet, you could use 10% of those expenses as an eligible business expense. Now there are some caveats involved. Do you want to make sure that you check with your local professional, come to make sure that is the best deduction for you to claim another expense? It is commonly missed, especially when you work from home or don't have a separate business vehicle Is business use of your personal vehicle. So this would apply if you're doing deliveries for your business or running around town picking up business supplies. And you want to make sure that you have a mileage tracker so you could keep a notebook in your vehicle and track the mileage that you use for business purposes as well as the overall mileage. Because again, you're going to calculate a percentage based on the business use. So, for example, if you drove 5000 miles or kilometers in the year and 500 of those were related to business trips, whether it was going to conferences delivering products to customers, picking up supplies and those kinds of things, that would mean you could claim 10% of your total vehicle expenses as a business expense. Now there are. If you live in the United States, there are a couple of different ways to calculate this, so make sure that you check with your local accountant. But I do believe regardless of where you live, you do need to keep the vehicle logbook, so make sure that if you plan to deduct a portion of your vehicle use as a business expense , make sure you're keeping track of all your trips personal and business. For a more detailed explanation about eligible business expenses, you could take a look at my course. We're keeping boot camp eligible business expenses, and there's a link to that in the resources section below. 5. Donating Your Work: artists are often asked to donate their work to shows, and the funds raised will then be used for charity. So this section of the course is specific to Canadian tax laws. But if you live in a different country, don't skip this section. There may be similar rules that apply in your country, so definitely check with your local professional countin. So when you donate your work, even though you're not receiving any money for it, you can still claim the expenses that it cost you to create that work. So any supplies that went into that work you can still claim as an eligible business expense. Now some charities will give you a donation receipt when you donate your artwork, and the value will be something that they might determine in conversation with you. Or they might just determine it based on looking at fair market value of similar work. If you received a donation receipt in exchange for the work that you don't need it, you then have to claim an equivalent amount as income. This is because you have the donation receipt and you can claim that as a donation credit on your tax return, so If you're not sure what to do or how to handle it, just check with your accountant and they can help you out. The key is to remember that if you receive a donation receipt, make sure you claim equivalent revenue. If you don't receive a donation receipt, then you don't need to claim anything in revenue for that piece of donated work. Okay, up next, I'm gonna be talking about engagement letters, which are really key to protecting you in your business. 6. The Engagement Letter (Terms of Service): engagement letters are really important in most types of businesses. They're sometimes called terms of services or proposal letter or even a letter of intent. The purpose of an engagement letter is to be very, very clear. What you're offering to your client having something in writing protects you. In the case of a disagreement between yourself and your client, there are several different parts to an engagement letter, and I've provided a sample engagement letter in the resources section, which you can use as a template. Keep in mind, I am not a lawyer, and this is not legal advice. This is just a starting point for you if you worried as to whether or not this would stand up in court than definitely seek legal advice. All right, so the first part of the gauge mint letter is the greeting. So this is where you would think the person for hiring you or thank you. Thank them for enquiring about your services or for asking you to work on a certain project . In the next section of the letter, you would spell out your services. You want to clearly indicate what you will be doing and what you will not be doing so. This is helps to prevent what's called scope creep. Scope. Creep is where you have a client who has asked you to do one project, and then they keep asking for extra little things along the way that are not really part of the same project. And so the scope begins to expand. The scope of the project begins to expand. So you want to speak. Specify in your engagement letter exactly what you will be doing so that you can avoid scope creep. And then if your client asked you to do additional projects, you could create a separate engagement letter, and they will be billed separately for those additional projects. Next, you will spell out what you need from your customer or client. Eso. Maybe they need to provide you with some sort of brief or description so that you can properly complete the project. Make sure you include that in the engagement letter so that they can't say that you had everything you needed when you didn't Next, you're going to spell out exactly what you're going to provide for them. So what are the delivery bols that you're going to be creating and when will you be delivering those? And then you want to include a paragraph that states what your fees will be for the project . And I also like to include a sentence about late payment, so I would include that I will be charging a certain percentage if payment is received after a certainty. You might also want to think about accepting a deposit from the customer if it's going to be a large project, and you could include that in your gauge mint letter as well. So you would just state how much of a deposit you are requiring from the client. It's also a good idea to include a sentence or two about how the relationship between you and the client can be terminated. So if you're not happy with working with a client or they're not happy working with you, what needs to be done, is it a matter of giving two weeks notice a month's notice? Do they need to give you the notice and writing? How do you want the relationship to be terminated? So this is not the most fun part of accounting for your creative business, but it certainly is important so that you can protect yourself and that both you and your clients are happy 7. Tracking Your Income and Expenses: Okay, so let's talk about accounting APS. It could make your life a whole lot easier, but the key is to identify what you want the act to do for you. So there are several things to think about. Do you want the AB to handle invoicing for you? I highly recommend this even though papal does have a pretty good invoicing process. If you invoice directly from your bookkeeping or accounting app, you will be able to track who hasn't paid you. And, um, this is super importance. That's then you don't have to log into your PayPal account and check it that way you can check it directly in your bookkeeping app. You also want to think about whether or not you want the app to be able to track inventory . So if you have some inventory that you're selling on your website or through etc. Or something like that, maybe you want to be able to track that going in and out of your business. So there are some accounting upset will do that for you as well as keeping as well as acting as a bookkeeping up for you. Another nice feature is to be able to link your bank account and credit card to the accounting up so that it will download transactions from your business bank and credit card account, which makes it a lot easier for you to do the bookkeeping. You still have to go in and allocate the expenses to the proper expense account. But this is it saves you a couple of steps of importing everything manually. There are some accounting APS that also store receipts for you, so this can be really handy, especially if you want to be paperless in your business. Um, accounting abs are also great because they automatically back up your data for you. So depending on who you go with, always double check that they do have an external server where they're backing up your data . So then you don't have to worry about doing a separate backup yourself. You still can just be extra careful, but is kind of nice that you don't have to worry about that step. Okay, so let's talk about some common APS that I recommend. So wave is a nice free app. It's good if you have about 20 transactions or less per month. If you start to get busier you want might want an app that's like zero. That's X e r o. It has some nice time saving features on it that will make your book even go a whole lot smoother QuickBooks online as another good one, especially if you have employees that you pay. So QuickBooks online has a built in peril. Logical that doesn't cost any additional fees. So with wave, even though it is a free accounting up, if you decide to have payroll, you need to pay for that portion of the program. Sage 50 is another common accounting app that has traditionally been a desktop program, but they have recently come out with Cloud version. I have not personally used age 50 in the cloud version. I have used the desktop version, and it's good for people who want to be able to do double entry bookkeeping on, and it's set up like a double entry system as well. Wave and Zero and QuickBooks online are also double entry systems, but the way the interface where you enter the information just looks a little bit different than sage 50. So I have used all four of those. I have not used the Stage 50 online app. I have only used the desktop version, and my recommendation would be to think about which program has the most features that you want. So take some time and research what you want your accounting or bookkeeping up to be able to do for you and then make sure whatever program you choose has those features. Those four programs are all good, but they are best for different types of businesses. So QuickBooks online is good if you have employees and payroll, it also tracks inventory. Zero has a number of additional Absa Qinling to it so it can do payroll and track inventory , but it is for additional cost. Zero really excels in the time saving features that it has, So if you want to be able to do your books really quickly, zero is a good option for that. And wave is good when you're just starting out because it is free. And if you don't have a lot of transactions when you're just starting out, um, it's it can handle those really nicely for you. Okay, so your homework from this section is to research what kind of features you want in a bookkeeping or accounting app and then see if you can find some APS that offer those features. And most accounting and bookkeeping maps offer a free trial, so it's really nice that you can try it out ahead of time. Make sure you like the user interface, and it's easy for you to use. Also, a number of abs have their own training videos, which is really handy to learn the program, and you can also find tons of stuff on YouTube as well. 8. Working with an Accountant: all right in this section. I want to talk about working with an accountant. So as a former c p. A. I do feel like it's very important for business owners to have a professional accountant number. One reason that I recommend this is just that the tax laws are changing all the time. So if you don't know what you can claim what you can't claim and you're trying to file your own taxes, you're probably going to be paying more tax than is necessary. If you find yourself a good professional accountant, you will find that their fees are probably going to be less than what they will save you in tax overall. So it's really a win win situation. Professional accounts can also help you with things like marketing your business, being strategic, how to save on certain expenses, growing your business when you get to a certain level that you just feel like you're plateau ing and you want to be able to drive more sales that can help you figure out what's going on without you on. Of course, saving tax is really the number one reason to hire yourself a professional captain. Now, the best way to find a good professional accountant is to actually interview them. So you want to ask lots of questions so you really get a sense of what their leg and if you would be comfortable working with them because you're gonna be sharing a lot of personal information with them. So it's very important that you are comfortable with the person that you end up hiring. You will also want to check if they for are familiar with your industry and if they know the bookkeeping or accounting app that you use. If they are familiar with the APP, then they can also help you if you get stuck, or you're not sure how to enter something that can help you figure that out. Now, when you decide to hire an accountant, they will have an engagement letter for you. So make sure you read that is similar to the type of an engagement letter that I was talking about in the previous section. So there are going to spell out their terms of service, and some account ones will put the price right in the engagement letter, and others won't. So if you're concerned about how much it's going to cost. You can ask them for an estimate, and they can let you know up front. So accountants do charge in different ways. Some charge by fat flat fee. Some charge by the hour if they charge by the hour. I do recommend getting an estimate because it's really hard for you to know how long it's going to take them to do the work for you. So if you can get an estimate that will give you a more accurate idea of how much is going to cost you, I have put in workbook in the resources section. This workbook is actually from my book. Keep more money that it talks about how to go about finding an accountant. But I think you can use the workbook without the book. And it will just give you a sense of the types of questions that you want to think about when hiring an accountant. And it gives you an opportunity to create a nice list so that when you're ready to interview some accountants, you can just take the list with you instead of worrying about forgetting what you want to ask. All right, so up next I'm going to talk about your project for the course 9. Conclusion: I hope you found this accounting for creatives. Course helpful. If you have any questions, please post. Um, and I'll enter them as soon as possible. And I can't wait to see your projects. And I wish you the best success in your creative business. Thanks for watching.