BY GREG MERMEL, C.P.A.
Every once in a while, I like to step back from specific tax and personal finance issues and talk about the fundamentals of record keeping. Keeping track of your finances is not exciting, but it is important. "Knowledge is power," goes the popular cliche, and if you don’t know what you have, you can’t know whether things should be changed. Another old expression goes, "I couldn’t have said it better myself." In this case, I said it well a while back, and this column is a rerun.
The Paper Trail
In the world of record keeping, many people swing between polar extremes: starting from no system whatsoever ("It’s here someplace!" does not count) to designing an elaborate and comprehensive system for tracking every possible bit of financial data. Unfortunately, to actually maintain the latter system, one must not only have way too much free time, but be obsessed with details to the point of derangement. That is probably not you. But almost anyone can devise a simple system focused on the important matters.
Let’s start with expenses, specifically your business expenses because they’re the most important ones. You need these in an organized format both to deal with your income taxes, and to evaluate your spending (unlike, say, rent or car insurance, which you know without looking). You probably keep receipts. Receipts are good. Always get one if you can, and make the appropriate notes on it if it is for a business meal. Internal Revenue Service agents want to see them if you’re audited. But receipts are messy, and hard to organize, and almost never complete. Some you never get; some go through the washing machine with your trousers.
So another way to track business expenses is with one of the three C’s: check, credit card or cash. Checks and credit cards automatically leave a trail. When you write a check for a business expense, note the purpose on the memo line. At the end of the month, make the same notes on your credit card bill.
Cash expenditures require a bit more work, for which I generally suggest using the fourth C, your calendar. You surely have your appointment calendar with you at all times. Just take a corner of the page for each day and jot down the cash you spent on business that day: "Pay phones, $2.30; parking $8.50."
Now your data is already half summarized, and it’s easily pulled together at year-end for tax preparation.
Where Did That Money Come From?
Many people are amazingly lax about keeping track of their income. They don’t even write down who paid them when they make bank deposits. These folks figure that the payers will keep records for them, and that all they need to do is wait for the W-2s and 1099s to come drifting in after year-end.
I wish it were that easy.
Not everyone who paid you a fee is required to send you a 1099; it’s required only if they paid you more than $600. Not everyone who is supposed to send you a 1099 will. Not everyone who sends a 1099 will send it to the correct address. And not every 1099 you receive will bear the correct amount.
Did you really think that you’re the only one in the world with sloppy records?
W-2s are more likely to be correct, and to actually be sent. But sent to the right address? Dream on. How often have you moved? That residual check came to you through SAG; the W-2 may have gone to whatever your address was when you did the film, or to whomever your agent was way back then. Even if you haven’t changed agents, many agents are haphazard (I’m being charitable) about forwarding W-2s.
Something’s Missing
If you keep your payment stubs (or photocopies of checks that didn’t have stubs), it’s easy at the end of the year to compare them to the W-2s and 1099s. You also know who to call if the forms are wrong or missing. (Unlike W-2s, missing 1099s are not ordinarily a problem so long as you are honest and report the income.)
What you might be missing is your money. If a check was lost between the payer and you, the 1099 or W-2 will differ from your stubs. But if they just plain never paid you, your stubs and tax forms will agree. You should keep a work log, showing what you did, when you did it, the fee you expected, and the date you were paid. If you haven’t been paid in a reasonable time, a firm but polite phone call is in order. That’s just being professional.
The Fifth C
Many of you have an object on your desk with a keyboard and monitor. You use it to write scripts, and maybe to e-mail Mom. But it’s called a computer–it does math, too! There are simple, inexpensive programs (Quicken is the most popular) which you can use to quickly do much of this record keeping and organizing; one may even have come free with your computer.
Try it. You may never be a computer dweeb, but you can play one on television.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area).
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He also sometimes produces theatre.