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magicman
04-23-2009, 10:59 AM
For being self employed, there is the Schedule C for expenses/losses.

When filling that out, what can be put on it? I am a magician, and have items that get replaced often, examples being streamers, flash paper, and other items.

I would also have new tricks added to the show every once in a while to keep it fresh.

When they say itemize deductions, what does that mean?

Is it listing each individual item, or categorizing them, or what?

Can I put down:

New Tricks - $xxx.xx
Supplies - $xxx.xx
Advertising/Marketing - $xxx.xx
Equipment - $xxx.xx

Or does it have to be like this:

Magic Wand - $25
Magic Box Trick - $65
Flash paper - $20
Newspaper Ad - $300
Wireless Microphone - $250

If I put down some of the items that I use (magician terms) I am guaranteed to get questioned as to what some of the stuff is. "What is a cube zag?" "Color block escape, huh?"

Thanks in advance!

vangogh
04-23-2009, 11:44 AM
Odds are all the things you mentioned would fall under the category of commissions and fees, since they're all fees you incur in order to do business. If you're not sure if they belong there you can place them in the catch all other. You can be somewhat general in what you list. You probably won't have to specifically list magic wand, though you could. Somewhere the form is going to ask what kind of business you have. Magician may not be on the list of choices, but something like entertainer probably is.

You mention advertising. There's a specific box for advertising expenses.

One thing I would say is not to worry about all this stuff so much. You probably aren't going to understand every little thing now about how to fill out your taxes. However if you spend all your time right now trying to the you aren't spending time getting your business going.

The taxes will work themselves out. The worst case is you'll hire someone to fill out the forms and it won't cost that much. You're never going to have all the answers for your business in advance. You have to do things and figure much out on the fly.

You're trying to solve a problem you don't yet have. Until you start making money you won't have to worry about the taxes you'll owe on that money. Make the money first. You have till next April to figure out the taxes.

magicman
04-23-2009, 01:18 PM
Okay. Thanks.

So for the 2009 year, I don't have to worry about the estimated taxes, since I don't know the previous year. 2010 I would work off of 2009's taxes?

EDIT: I got the answer in the other thread. Thanks.

vangogh
04-23-2009, 05:01 PM
Glad to help

Evan
04-23-2009, 09:31 PM
I'd recommend having a professional prepare your tax return. While running your own business as a sole proprietor isn't a red flag in itself, those who file Schedule C are more likely to be audited.


When filling that out, what can be put on it? I am a magician, and have items that get replaced often, examples being streamers, flash paper, and other items.
These are supplies, which is on line 22 of Schedule C. It is probably better to put these purchases under Cost of Goods Sold on page two as "Purchases". If you have any left over, that is inventory. If not (which is fine), the entire amount of purchases becomes an expense which is then transferred back to page 1, line 4.


I would also have new tricks added to the show every once in a while to keep it fresh.
If you attended a magician's conference, or purchased a book of tricks, those are deductible expenses.


When they say itemize deductions, what does that mean?
Are you referring to Schedule A? Instead of taking the standard deduction, you are able to itemize your deductions instead. For many people, unless you own a home you won't find itemizing advantageous. Charitable contributions, mortgage interest paid, real estate taxes, state income taxes withheld, medical expenses, etc. are all on that form. Documentation needs to be kept in order to itemize your deductions.


Can I put down:

New Tricks - $xxx.xx
Supplies - $xxx.xx
Advertising/Marketing - $xxx.xx
Equipment - $xxx.xx

Or does it have to be like this:

Magic Wand - $25
Magic Box Trick - $65
Flash paper - $20
Newspaper Ad - $300
Wireless Microphone - $250
Use categories. The wand, box, and paper would be "Purchases" or "Supplies" as I stated earlier. The newspaper ad would be advertising. Your wireless microphone should probably be depreciated and not expensed out. The tax software would be able to calculate this for you.


If I put down some of the items that I use (magician terms) I am guaranteed to get questioned as to what some of the stuff is. "What is a cube zag?" "Color block escape, huh?"
And certainly no business lists each thing. Walmart certainly doesn't put on their tax return that they paid Rent of $X at Y, $Z at B, etc., etc. It's all lumped together, and if there are questions the IRS will notify you.


Odds are all the things you mentioned would fall under the category of commissions and fees, since they're all fees you incur in order to do business. I
Commissions and fees isn't as broadly defined as you put it. It's more or less for agents who help you get business, such as a "finders fee".


So for the 2009 year, I don't have to worry about the estimated taxes, since I don't know the previous year. 2010 I would work off of 2009's taxes?
That is not correct. If your estimated tax liability is $1,000 or greater, you need to make estimated tax payments to avoid penalties.

vangogh
04-23-2009, 10:31 PM
Evan I would think some of those items would count as fees, though you're probably right that they would be included more as supplies. I would think a finders fee would be a commission, but I see a fee as something you have to spend as part of doing business.

magicman
04-23-2009, 10:37 PM
I do not understand why they would be under "Cost of Goods Sold." I do not sell them, they are items that are part of my show that can only be used once.

Evan
04-23-2009, 11:08 PM
vangogh -- The emphasis is on commissions, not the fees, and in any event they are both related. Those costs certainly aren't "fees" in the traditional sense that most consider it. For example, bank service charges (your monthly account fee) still would not be lumped in that category.

magicman -- Don't let the phrase "Cost of Goods Sold" detract you from using that section. COGS can still exist even in service busineses.

magicman
04-23-2009, 11:18 PM
So they can go under either?

vangogh
04-24-2009, 02:17 AM
Evan when I read through the section on Costs of Goods Sold instructions on the schedule C seem to be about inventories. I've taken that to mean cost of good sold is related to inventories and being a service based business I have no inventory.

The commissions and fees box is naturally one of the few where the IRS decided to skip instructions. I looked at things like bank fees and hosting costs as fees for running my business.

I really wish the IRS would take the time to give instructions for everything on the forms. If they did there would probably be a lot more forms filled out correctly

Of course in the end, regardless of which category they go into the end result would be the same. It would be the same amount of expense and in both cases it's a direct subtraction from your income.

Evan
04-24-2009, 10:45 PM
So they can go under either?

Yes.


Evan when I read through the section on Costs of Goods Sold instructions on the schedule C seem to be about inventories. I've taken that to mean cost of good sold is related to inventories and being a service based business I have no inventory.

Correct. But in his case, let's say he purchases a ton of confetti (just an example) that is worth $1,000. If he doesn't use it all at year-end, the remaining value certainly IS inventory.

It is a minor distinction, and with small amounts it is fine. But in some industries it is significant and makes a difference.

vangogh
04-25-2009, 12:31 AM
Makes sense. Guess I was thinking of it in terms of my business instead of magicman's

phanio
04-25-2009, 08:28 AM
I really wish the IRS would take the time to give instructions for everything on the forms. If they did there would probably be a lot more forms filled out correctly

Of course in the end, regardless of which category they go into the end result would be the same. It would be the same amount of expense and in both cases it's a direct subtraction from your income.

I personally think the IRS does offer a lot of information regarding their forms and processes - it is just that the information is not all in one place. I use the IRS's website a lot - they have really improved it over the years - you can find direct information or download publications at no cost.

But, you are right - from my experience - for the most part - it does not matter what line or bucket the revenue of expenses go into - just as long as the bottm line is correct (meaning you pay what you owe).

Many people do not know that they have a local IRS office in their city. You can also set an appointment with your local office and ask them these questions. Some will tell you more than others - but all will point you in the right direction - even in directions you did not know you had to go.

vangogh
04-25-2009, 11:53 AM
I think they provide a lot of info too. I just think if they provide instructions for box 10 and box 12 there's no reason they should skip the info for box 11. I don't get why it's just a random few boxes on the form that have no info. It leads to open interpretation and confusion. But overall I do agree they have plenty of information in their forms.