Being in the photography industry, I see a lot of mentors give tips on how to land their ideal client. I wanted to also help photographers become the ideal client to their tax professional. You see, aside from being a photographer, I am an accountant and CPA by day. So I know first hand that building a strong relationship with your tax and accounting professionals is important for longevity. They are your best ally when it comes to an audit, so here are a few easy tips to keep them happy and to help keep you audit ready:
1.) Receipts, Receipts, Receipts
Providing sufficient appropriate audit evidence is key! From an accounting perspective, a receipt is the best way to validate an expense. Receipts prove that the transaction existed and they are ideal audit evidence. So, even if you are paying with a credit card, it is best to save the receipt as well. In fact, according to PUB 463, the IRS requires that you save receipts if the transaction is over $75, no matter if it was paid with a credit card or not. If you have your accountant do your books for you, they will love you if they are able to reconcile your credit card or bank statements to your receipt copies. Trust me, this one is good for you and for your relationship.
2.) Reconcile Monthly
Speaking of reconciling, you should be doing your books monthly. Or, better yet, hire a CPA or bookkeeper to do your monthly books and reconciliations for you. The worst thing you can do is wait until the end of the year to do all of your accounting for the prior year. How else will you know if the projects you are taking on are profitable? What about that mini session that you hosted? You spent a lot on props, didn’t you?! Well, did you make a profit? If not, I bet you won’t do any more mini sessions. You can make better business decisions if you have the right information. Plus, nobody likes a procrastinator. That leads me to my next point.
3.) Do not procrastinate!
You don’t want to be that person…the one that put all their receipts in a shoe box and hands it to your accountant at the end of the year. We in the Accounting industry lovingly refer to this as “shoe box accounting”. The truth is that accountants are under time constraints at the end of the year. Imagine if everyone waited. If you have your CPA or bookkeeper work on your books throughout the year, they will have more time to dedicate to your business. Sure, they will probably get it done if you give it to them at the last minute, but will they catch all your deductions? Will it be the quality of work that you deserve? Will you remember what happened in January by the time December rolls around? Most likely not.
4.) It’s all in the Details
Accountants and tax professionals live and breathe for details. They want to know when, where, what, how many, how much. And guess what, so does the IRS when they audit. So, write on the receipts.
Seriously, you can not include too many details!
If you pay for a meal, jot down the name of the person and their business name on the receipt. If you make a cash deposit at the ATM, write down the name of the customer so you can link it back to their invoice. Make a note if you bought a solo meal while traveling. These are important details because they determine how much revenue or deduction you get at tax time. All the details are the building blocks to your financial statements and your “Bottom Line”.
As a side note, you should be keeping a detailed mileage log if you are using your car for business travel. Pub 463 shows an example of a sample mileage log in case you need one.
5.) Keep in touch
Just like with any good relationship, it’s important to keep in touch with your accountant or tax professional. Treat them just like you would a high value client and maybe ask them to lunch once in a while. If you pay, don’t forget to keep your receipt! Or, just give them a call or shoot them an email. Keep in touch especially if you lose a job, get a new job, a new boat/RV/car, have a baby, adopt. These are all triggering events which means they could potentially effect your tax return if the tax professional is made aware of the event. Most tax professionals send out a questionnaire at year-end, but I’m sure they wouldn’t mind if you informed them sooner so that you can tax plan together earlier in the year. Knowledge is power!
The relationship that you build with your tax professional can play a vital role in the future of your business. Just imagine, if you jump from one accountant to another throughout the years; the knowledge is lost. They can also help guide you in future decisions as you grow your business. In my opinion, the best decision you can make is to invest in your business by hiring a professional and maintaining a good relationship.
Disclaimer: I am a CPA by profession, but this blog should not be misconstrued to be tax advice.
IRS CIRCULAR 230 DISCLOSURE:
Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.