I filed a tax extension in April to give myself more time to ignore properly deal with my taxes. When I finally filed, I quizzed my CPA on several things including the concept of branching out and including more freelance audio work and film making in my repertoire.
My concern was that these other activities might be classified only as “hobby income” by the IRS, thereby nullifying any deductions I might be entitled to take otherwise. My CPA advised me that several things I was already doing in my freelance writing and editing work would apply for this new possible source of freelance income.
What follows SHOULD NOT be considered any form of advice from me to you, it’s just me musing out loud about what I’ve been told.
For example, I am told that “hiring” someone to work for me on a freelance basis as needed and issuing a 1099 for them is a signal to the IRS that you’re doing much more than just hobby work. This establishes a paper trail that hobbyists would not bother with. Joining a professional association for the type of work represented by my new income streams–live sound, field recording, film making, editing audio/video–would also go toward convincing the IRS that it’s a serious concern.
That move I’ve already made–I’m a member of ASCAP (The American Society of Composers and Performers) and a member of the Audio Engineering Society. I actually belong to more recording associations than writing-related ones!
My CPA told me the standard practice of keeping a separate credit/debit card for your business and maintaining a separate personal account is crucial, as is keeping careful track of your business spending versus personal spending. It’s one thing to take a “draw” on your business account, it’s another to buy groceries with your “corporate card”. These practices only make sense to me, and they are the kinds of details that do get more complicated as you get more successful…but the rewards are well worth it.
Keeping the IRS happy is one of my priorities–it’s a standard part of doing business AS a business. Keeping it all above board, moving in the right direction and maintaining your records is just as important as finding new clients and keeping ’em.