Dumb business expenses & other freelancer tax tips…

I woke up this morning at 5Am and decided ” its time to do my taxes!!!” . Actually my wife wasn’t sleeping well either, and there’s nothing worse than two people in the same bed who can’t fall back asleep.  And my one brilliant solution got turned down, so here I am.  So since taxes are on my mind this morning, I figured I’d jump over here to the blog and put it on your mind too. But with good reason, because I think I do have some decent tips….

Tip #1. Get an accountant. If you don’t go to one already, it might seem fancy or even unnecessary at your level of income to go to one, but trust me, its not. And accountants don’t cost a lot (probably $100-$200 at most). You’ll see him or her once a year probably, and in my case its just to drop off a list of everything you’ve spent money on for the year & how much you’ve made. And boom, a week later, they’ve figured out your whole world, and you just write a check. And I like knowing that if a mistake was made, and the IRS is ever like “wtf, Justin?!”, I can just point to my accountant and say ‘he did it!!” 

Tip #2. Itemizing isn’t always the best thing to do. I have a designer buddy that doesn’t do that much side freelance work, but he considers it “his business”. Which is fine, but for what he does do, he can’t really justify too many business expenses ( for example he’s had the same computer and software for years, he doesn’t advertise,  he works from home, etc). But every year he thinks that itemizing his deductions is gonna be this huge amount, and to date I don’t think its ever been higher than the standard deduction. The standard in 2007 was $5,350 for single status, and $10,700 for married filing jointly. So thats pretty high, and for him to itemize an amount higher than that would take a lot of stretching the truth… With that said, definitely itemize if it makes sense to. But…

Tip #3. Don’t make the IRS go “wtf is this?”.   Definitely deduct as many legit business expenses as possible. If you itemize, its your right to do that. That’s how the system works. But don’t get crazy and think that new Plasma TV in your living room was a business expense because, uh… the back ports had cool interface design, and you needed some reference for a web development project. If you ever get audited, like seriously audited, those expenses from Best Buy will stand out.  And one thing I’ve never done is claim a portion of my home as my office. If you ever look into how to do that right, like measuring square footage and that nonsense, it just seems fishy to me. I know plenty of people that do it, and more power to them, but I think if an agent ever wanted to mess with them, thats an easy place to start. 

Tip#4. Don’t pay cash for anything.  We live in a pretty cashless-friendly world already, so this is very easy to do. Even on small things, like $5 worth of postage, just put it on the card, because at the end of the year you won’t remember that $5 you paid 11 months ago. Last year my bank starting compiling these massive PDF’s of my entire year’s worth of expenses broken down by category, and those are incredibly useful. I used to have to print PDF’s of statements from each month. Now with the Year End statement, everything is in one place, and it takes maybe 20 minutes to go through and make sure everything was a business expense.  

Tip #5. Go through previous year’s expenses. I just looked at my 2004-2007 spreadsheets of expenses to remind myself what my biz-costs usually are. Now probably I would have seen those same usual things on my credit card statement too, but I think its smart to do both. Probably your expenses won’t change that much from year to year. But that leads me to these rarities…

My dumbest business expenses….

A Serbin Directory of Illustration ad… ARG!! Why did I do this…WHYYY!!!???  Serbin directories are these huge hardcover books of ads for illustrators. Yep, just an entire book of ads. And every page costs about $2500 ( I bought two ) So what kind of dope was I smoking when I dropped cash on this? Good question. I was coming off an ego-high of just having done a bunch of illustration work for a magazine ( ironically, High Times magazine) and I thought “wow, I’m a real illustrator now, I should advertise myself as one.”    Now, I shouldn’t knock Serbin too hard here, because I made a big mistake. These books are only printed once a year, and I reserved my ad early in their print-cycle. So many months later when it came time to deliver the artwork for the ad, I decided I wanted to advertise CartoonSmart more than my illustrative abilities. And they let me. But I had zero tracking in this ad to see if the money was well spent or not. Maybe it was, maybe it wasn’t. These books are definitely a Who’s Who of great illustrators, so plenty of college-aged aspiring designers spend time gawking at the work in there, so my ad might have stuck out (being an ad for a website in a book of ads for illustrators).  But best case scenario, maybe I got 1000 visitors to the site from that ad. So $5 a head. …. And the epilogue:  I get a nice reminder of this mistake every couple months because once Serbin gets your phone number they won’t stop calling. Ever.

Some SEO company :  Here goes a 3 grand mistake, and all because of some cold-caller on par with the brokers in Boiler Room. I didn’t know much about search engine optimization at the time, and instead of just going to Borders and buying a For Dummies book, I let this company into my life.  They didn’t do much for the money, and I’m pretty sure what they did do is now very frowned upon by the engines. 

Various ads in design / animation magazines: None of these were nearly as costly as the Serbin ad, and all of them had better tracking to see if the ads paid off  or traffic was even generated… But the lesson here is that if a magazine has a readership of say, 25,000, maybe 1 in a 500 will actually see an ad, then travel over to their computer (if they are even near one), and then go to a website.  And from my experience, only about 1 in 200-1000 visitors ever buys anything.   So a lot of these print ads were only sending over 50 to 100 readers,  at a cost of about $5 a visitor.  

Countless domain names. I’m a recovering domain name addict. I used to buy 1 ever 2 weeks or so. Some of them kinda made sense, like I didn’t want someone else to get the name CartoonSmartSucks.com , but most of them were just dumb. 

Stamps. I noticed between 2005 and 2007, I spent about $3000 a year on shipping expenses to mail out CartoonSmart lessons on CDrom or DVD rom.  This last year was only  around $1000. Why the difference? Because I discourage shipping now!  It takes way too long to rip a disc or discs, print labels, print postage (or worse, go buy postage in person), then pack everything up and send it out.  Oh and then there’s always a chance that the disc gets lost in the mail, and usually at my own cost, I have to reship it. And for all this work, who benefits?  Not I.  Even with “handling fees”,  to ship out a package I probably just broke even. Basically I was just doing work for the post office to make a few bucks. 

So my solution (somewhat inspired by this guy’s book… http://www.fourhourworkweek.com/ ) . Discourage shipping, without discouraging a sale. Buyers get the download version first, THEN if they have trouble downloading and feel shipping is necessary, they can add it on later. As it turns out, most people have zero trouble downloading their products, and when the buyer realizes the files have been self-delivered right to their computer, going back and adding on hefty fees for a disc copy is pointless. And every CartoonSmart buyer is more than welcome to back up their copies on DVD rom themselves. 

Alright, I’ve typed WAY too much. But if I think of more bad-biz expenses, I’ll try to add them on later.

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4 thoughts on “Dumb business expenses & other freelancer tax tips…

  1. b1tzmast3r says:

    GREAT ARTICLE!!
    Thanks for sharing these tips! ~ first time I’ve ever heard of a Domain addiction though :O)

  2. jegcreations says:

    Thanks for the tips on bad business expenses! Sorry to hear that you got stuck with those, but at least we all learned something from it!

    I have to agree on the itemization thing as well; I seem to waste my time every year trying it, only to fall back to the standard deduction anyway!

  3. love your article. found you by googling “WTF is up with ‘directory of illustration'”. hahaah they keep harassing me via email. glad to know the inside scoop on that place. also really good tips — thanks!

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