Record Keeping
Author: Brad Howland
First Posted: October, 2000
Here is a list of the kinds of records the IRS requires to substantiate your return. If you do get audited, having these records will go a long way towards minimizing the damage and keeping you out of trouble!
- The number one rule in most tax books is to keep a separate bank account for your business. Reconcile your cash receipts and disbursements with the bank statement. Have all checks made out to your business account, and pay all expenses from that account.
- Now...let's have a reality-check. A separate account is a great "audit-proofer," but is it practical for all musicians? After all, your musical life is integrated with your personal life. Most of the assets you use in your business are also used for personal reasons (e.g. your car). For some people, an extra bank account is a needless complication. It should be sufficient for them to organize according to the following points. Of course, if you have employees, and must regularly calculate payroll, remit taxes, and do similar chores, a separate bank account is essential.
- Keep all your tax-deductible receipts in a file, organized in alphabetical order.
- Have a separate file containing receipts for items such as instruments or computers, on which you are claiming depreciation.
- If you are deducting expenses for business meals and entertainment, keep a record of who you dined with and what was the item of business you discussed (jot it down on the receipt).
- If you are deducting expenses for a studio or office in the home, make sure that it is used only for business. You should use it regularly to meet clients (e.g. students), or under the new expanded rules for 1999, for administration or management duties. That area where you keep a desk and filing cabinet is now a legitimate write off.
- If you are deducting expenses for business use of your automobile, keep records of your business mileage, showing odometer readings and describing the nature of the trip.
- Keep records for at least six years after you file your return.