Don’t forget these tax write-offs in 2023
Maximizing your tax return is tricky for anyone — but especially so for creators!
Is your home office a write-off? What about your internet bill? That expensive pink rhinestoned jumpsuit you used in your music video? Business manager Belva Anakwenze is here to explain what you can and can’t write off on your 2023 tax return.
This video is intended as knowledge-sharing, not tax, financial, or legal advice. Always consult with tax/financial/legal professionals to determine what's best for your business.
If you're a creator, your tools and supplies might be a little bit different than those of an office worker. You might need a new set of drill bits one day and a cash cannon the next. But here's the thing, both of these could be a tax write-off for you, provided you're filing your taxes with the IRS.
Now, don't go out and start buying currency cannons or power tools just yet. There are some rules and guidelines around what you can and cannot write off for your business. But I'm here to guide you through it.
I'm Belva Anakwenze and I work with creators every day, helping them with financial and business decisions including tax write-offs. And just remember, this show is for informational purposes only. Everyone's financial situation is different, so make sure to consult with legal and financial professionals to figure out what's best for you and your business.
If you run a bonafide creative business, you're likely to qualify for tax write-offs. The good news is you can deduct eligible costs associated with your creative works as long as those expenses are actually part of your business. According to the IRS, deductible expenses have to be ordinary and necessary for your business. So in essence, the expenses have to be really in line with your creative ventures.
But here's the caveat: if your creative work is considered a hobby and not a business, you will not be able to write off those expenses. But you'll still need to pay tax on the money you made from those creative endeavors. So what's the difference between a business and a hobby? Let's go straight to the source on this one.
“When your business is creative, the cost of making creative things is a business expense. What you can and can't write off varies depending on your business.”
According to the IRS, a hobby is any activity that a person pursues with no intention of making a profit. On the other hand, if you're creating something and sharing with others in order to make money, you're on track to having a full-fledged business. Advertising, bookkeeping, and formally registering your business such as S-corp or an LLC can really help your business become more official.
I go in-depth in these different business structures in another video, and I'll link that below.
Now, the IRS also says that a business has a presumed profit for at least three of five years. So if your business is running a loss on a continuous basis, you actually have a hobby, at least in the eyes of the IRS.
Okay, so if you're confident your operating a bonafide creative business, what are some of the things that you can write off? Well, normal business stuff that applies to most creatives, your business cell phone, equipment like computers and tablets, and event and creative space rentals if you use them for your business.
If you work from home, there are deductions for you too. You can write off a portion of your rent and utilities that applies to your work area. I've got a video that provides some additional insight on this. Check out that link below.
Now depending on your particular situation, you might be able to write off other business expenses as well. Business meals and travel expenses, internet fees, business-related insurance premiums, some tax payments, office supplies, marketing and promotional materials, and professional development costs like magazines, classes, and memberships. Okay, so back to my drill and my cash cannon here. Are these legit write-offs? They could be. It really depends on what it is that you create.
Let me give you a few examples. Let's say you're performing as a recording artist. You can typically write off expenses like recording and film equipment, instruments, stage makeup, and wardrobe.
I'm not talking about jeans and T-shirts; more like sequins or costumes that are needed for a specific production. And finally, props. So yeah, if you need to make it rain for a music video, this money cannon is a write-off.
Now if you're a visual artist or a builder, you might be able to deduct tools like paint, pens, and paper, and safety equipment. Creators may also be able to write off costs for things like personal assistants and schedulers, agent fees, and more.
But remember, you are a business owner, so you may need to 1099 these people to be able to write off those costs in the first place. Additional write-off costs could be self-tape costs, union dues, submissions, reading fees, and the postage and shipping it takes to get your physical work to customers. For a more in-depth list of possible write-offs, check out the resources linked in the description below.
To wrap up with a tongue-twister, when your business is creative, the cost of making creative things is a business expense. What you can and can't write off varies depending on your business.
A financial tax professional can help you figure out those write-offs. What questions do you have around tax write-offs and other financial considerations for your creative work? Let me know down in the comments and be sure to like and subscribe for more information. And as always, you know the drill. Go be creative with your business.