Do You Need a 1099?
As a dancer, it’s very possible that you work for yourself. You might receive a 1099 from the studio you dance at, you might work for multiple venues, so it’s possible that you get more than one 1099.
If you’re receiving a 1099, though you do have a “job”, you’re also not an employee which makes you a business owner. You get to make as much as you want, deduct as many expenses as you want (well, within reason… more on that later), and you can 100% improve your profits–aka the cash that you actually get to keep.
Regardless as to whether or not you receive a 1099, you’re absolutely required to report ALL of your income to the IRS–even tips, even amounts you were paid that are not included in your 1099. The easiest way to do this is to track things yourself and then use the 1099(s) to verify your numbers. Your 1099 should equal the exact amount that you were paid by your studio for the year.
What To Do With All Of The Cash?
Let’s talk cash because there’s certainly a lot of cash at play. Cash should be deposited on a regular basis, whether that’s daily or weekly is completely up to you. I encourage you to create standard operating procedures for your business. Pick a day that works for you and once a week or daily, head to the bank and deposit the cash.
It’s extremely important to record your tips. The IRS requires us to report every dime we earn–cash or otherwise, legally or illegally (it’s true lol). But recording your tips is actually also going to be really valuable information for you.
Can You Deduct Expenses?
As a contractor (someone who receives a 1099 during tax season as opposed to a W2—those who receive a W2 are employees and they cannot deduct job related expenses for the most part), you absolutely can and should deduct expenses related to your work. Saving receipts is important, but even if you don’t have the receipt, you’re still entitled to the expense. The reason to keep the receipt is so that you have proof in the case that you get audited by the IRS. It’s definitely a best practice. My favorite method is to snap a quick picture of it and either upload it to a dropbox folder or even add it to a photo album in your phone. You’re only going to need these if you get audited, but keep in mind the IRS can go back a few years for audits so a picture definitely lasts longer.
Alternatively, you can keep an envelope with all of your receipts–or a shoe box. If you get audited it’s going to be for the entire year so there’s really no reason to keep them separated by month though it makes things a little easier–again, IF you get audited.
What do I ultimately recommend for expense tracking? Always pay with a debit or credit card and once a week update your expense tracker (I have one for you at the end of this post). Paying with a debit or credit card creates a paper trail which is great if you end up losing a receipt (or two) and end up getting audited.
Can You Deduct Makeup, Clothing, and Shoes?
Essentially, everything that you spend for your business is deductible but clothing and makeup is always a grey area. Technically you are allowed to deduct anything that is used exclusively for your business. So, maybe get a set of makeup that’s just for your biz and keep your personal makeup separate.
Anything that you use personally outside of work cannot be deducted. The best advice when it comes to clothing, shoes, and makeup is to keep good records and don’t overdo it. The IRS loves to throw around the word “reasonable”, and yeah what’s “reasonable”, right? Well, as an expert in your own industry, you know when you’re being honest and when you’re trying to pull a fast one.
Keep it reasonable, stay honest, keep good records–get yourself to a point where you’re confident asf defending your tax deductions as valid business expenses; essentially, prove they are in no way shape or form used for personal use, and you’ll be fine (for the most part) in the case of an audit. Disclaimer: If you get audited, you’re gonna wanna bring in a tax attorney but doing all these things will completely give you a leg up.
Also, keep track of your mileage. Mileage can be a pretty big tax deduction and there are a few apps that can help you keep track of this for year end. Mile IQ is a client favorite.
If you’re an employee and receive a W2 at year end, you won’t be able to deduct any of these, but if you receive a 1099 at the end of the year, you’re considered a contractor aka freelancer aka 100% legit business owner. And when you’re a business owner, it’s important to keep track of your records. For taxes, yes, but also for making decisions in your business.
How Should You File Taxes and Setup Your Business?
Essentially, you have two options for filing taxes. You could either file as a Sole Proprietor which is the default (even for LLCs) or you could take things a step further and elect S-Corp status (available for LLCs only).
Keep in mind that becoming an s-corp is only beneficial when you’re able to pay yourself a reasonable salary (and pay payroll taxes) and still make a profit. This type of structure is pretty complex so I definitely suggest having a consultation with a CPA (like me!) for this.
As for your business structure, the only difference between a sole proprietor and an LLC is limited liability. This means that if you get sued or default on a loan, only your business bank account is at stake–they can’t come after your home or car or personal bank account. The catch here is that you must have a separate bank account for ONLY your business transactions–both income and expenses and your records should be kept neatly.
Also keep in mind how much it costs. In some states it can be $800 per year and in others it’s $50 per year. Head to your state’s secretary of state website and get all the details before deciding. Oh! And don’t pay anyone to do this for you. Everything you need is on your secretary of state’s website and it’s free to register–besides the registration fee of course, but you don’t want to have to pay more than that when you certainly don’t have to!
How do I know how much I’m going to pay in taxes?
Tax planning is essential for a business like this, (similar to freelancers).
Bigger profits usually equals a bigger tax liability so you have this balancing act of keeping money in your pocket but also keeping your taxes owed low.
Here’s the thing, employees pay taxes throughout the year in the form of withholding. But as a business owner, you are not paying taxes throughout the year and so at year end, you have to pay up. But keeping track of your expenses and income will help you plan for this.
Keep this in mind: You’ll pay 15.3% of your profit. If you live in a state that has income tax, you’re going to want to save a little bit more. If you bank on that, you’ll be good.
Want to know the first things you should do as a business owner?
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Alexis is a CPA, the founder of Advance Accounting, LLC, and the creator of BossLady Academy. She is dedicated to helping fast-growing businesses as well as startups to maximize their business profits. Using easy to understand methods, Alexis has helped women gain confidence in their business finances and has helped them scale to the next level. She provides comprehensive trainings and setup services for startups to be able to maintain their own accounting easily, and provides fast growing companies with complete outsourced solutions so they can focus on what they do best. Through her training and services, she saves entrepreneurs tons of time, money, and stress.