Accounting Basics For Your New Career | Wendy Day

Hi guys, Wendy Day here. Thanks for tuning in. Today we're going to talk about accounting, and I know it's not fun. You know, I watch the, um, the reaction to my videos and I see that you guys really tune in for the how to make money videos. And if you only realized, like, how important an accountant is to your business, um, this would be the most important video. Um, so let's just talk about the basics because I don't want your eyes to glaze over. Um, when you start your company, and obviously you're going to set up a corporation or an LLC because you want to be protected financially from anything that could go wrong. Um, you're gonna first— the first thing you're gonna need to do after you set up your corporation is get a tax ID number from irs.gov. And then you're going to want to open a bank account, and you're going to want to open a business checking account. And I strongly suggest a business savings account. What I do for, um, my company, I keep all of my business records separate And, um, I think by law, partnerships, corporations, and LLCs are required to have separate bank accounts. If you're a sole proprietor, it's kind of your choice, but I strongly suggest that you get a business bank account because you're able to not commingle your funds. You're able to pay for stuff for the company with your company debit card or company credit card or a company check and your personal stuff you're able to pay with your personal money. You don't want those funds to ever commingle. Additionally, and that was a very hard lesson for me to learn, by the way, I also set up savings accounts with my corporations because I want a place to put money to pay taxes. You know, taxes are due quarterly, so every 3 months you have to cut a check to the IRS, um, to, to, for them to hold your money until you pay your taxes and you figure out either what to do or what your refund is going to be. But regardless, you have to cut them a check. And if you immediately move, you know, like a third of your money into the savings account every time you have income, at the end of that quarter it's so much easier to cut them the correct amount. And then anything that's left over, you can either save for the next quarter or you can put it back into your checking account. I usually put it back into my checking account. Um, but it's just been a really great way to make sure that I give the government, you know, their share. Um, another thing you want to do is keep great receipts. You want to make sure that you're keeping all of, um, anything you spend on your company. You want to track. So I use QuickBooks to keep track of the money for my company, but I use shoeboxed.com for all of my receipts. And what I do is once a month I gather up all my receipts, I send them to them in their little postage-paid, um, Tyvek envelope, and they scan them and then they send them back to me. You can choose to have them destroy the receipts. They don't have to come back to you. The IRS actually accepts scanned receipts. Um, and for tracking your expenses, not only do you want to keep your receipts, but you want to make sure that you file your tax returns every year, and you want to make sure that you set up budgets for your company so that you're not overspending. You want to make sure that you're spending, um, whatever amount you can afford to spend so that you're not going into the red with your company. Additionally, You want to pay extra special, special attention in terms of your receipts to the receipts that you have for meals and entertainment because they're in a special category. On the back of those receipts, or sometimes on the front, like at the top or the bottom, I'll write who I had the meal with and what we discussed. And it's important to do that because you're not going to remember a year from now or 2 years from now if you get audited by the IRS. You're not going to remember who you had that meal with, and you can't just write off, you know, personal lunches. Like, you take your girl or your guy to lunch, you can't just write that off. Any out-of-town business travel, you want to make sure you write exactly what you're doing, where you're going, why you're there. Any vehicle-related expense— so if you're driving to the studio and driving home from the studio, you should keep track of your mileage because you can deduct all of that. Any gifts that you buy for people, you know, we're in an industry where you might want to buy drinks for a DJ, or you might want to give them a gift card to the Nike store in lieu of buying him drinks. You want to keep track of all that. If you do something with the DJ where you're present, like you buy him drinks or you have a meal with him or her, that is a a meal expense, that's not a gift. If you give somebody a gift card, or if you buy somebody an iPad or a phone or whatever, that's a gift, and that gets written off differently to, you know, meal— a meal and entertainment expense. If you give somebody tickets to a concert, it's a gift. If you go with them to the concert, it's an entertainment expense. And they're two completely different expenses, and they both are deducted differently from your taxes. Also, if you work out of your home, you want to save the receipts for your home office. Anything, you know, ink that you buy for your printer or anything that you have to do separately for your home office. Your home office is going to be a percentage of your rent or your mortgage depending on the size of the room that you use as your office. You can't write off your whole house, but you can certainly write off your office. And if you have a studio at home, you can write off the studio that's in your home, whatever percentage of, um, uh, floor space that that takes in your house. You know, if it's a quarter of your house, you can write off 25%. So it just really depends on the size and, um, what you own and what you do. If you're buying equipment, you can write that off. All of your office supplies, you can write that off. You want to develop the bookkeeping system. I mentioned QuickBooks, but there's, you know, other companies out there that also offer software for your company. There's Wave. You can use a simple Excel spreadsheet if you're really proficient at Excel. You can get a part-time booker— bookkeeper that you outsource, like through Bench Accounting, or Or if you're big enough, you might want to hire an accountant to do your books. You can have the bookkeeper keep the day-to-day stuff and then send them to the accountant at the end of the year to do your taxes. You know, the thing about the music industry is our system is very unique. We've got— especially if you're selling music, you know, you've got to account for royalties, you've got to pay your producers, you've got to pay your features. For the publishing that they own. It's so much easier if you hire an entertainment accountant to do your accounting for you. And then the last thing is, you know, payroll. How are you gonna get paid? How are you gonna pay other people? Here in my company, everybody gets 1099'd. They're all basically outside vendors that I hire. My accountant, um, when I pay him, um, my, um, street team, when I pay them, it's all 1099. So I'm able to write all of that off of my taxes, um, without having to worry about payroll. I don't really have anybody on staff, um, except myself. And of course, um, there is payroll for myself, and I'm a deduction for the company because I have to pay myself to work. So these are all things that you need to take into consideration when you're starting a new business, and there are just a lot of different resources and apps and software that you can use to help you do this. I know this isn't a, um, interesting topic compared to some of the other ones that we cover, but it's really important to your business. The last thing you want to do is be making money and not account for it and not have deductions. So many times I will go to lunch with somebody and we'll be talking about the music business, and then, you know, they'll pay for lunch and get up and leave the receipt on the table. And I'll think to myself, wow, they just blew $50 that they could write off as an expense because they were seeking my counsel and asking me questions about the music business. And it's really kind of unfortunate, you know, any trade show that you attend, you can write off. Music that you buy, you can write off. Any magazines or, um, learning that you do— if you're a producer and you take a course to be more proficient in Pro Tools, you can write that off. Anything that helps you do business better is part of the business expense, and you just need to keep track of it. Again, I use Shoeboxed to do that. I can send in my receipts, they scan it, and then I can If I need to look for a receipt, I can go to the Shoeboxed app, I can find it on my phone, and there it is. If I need to send it to somebody, I can. And if the IRS ever calls into question any of my tax returns, I've got everything, you know, in the cloud, so I don't have to worry. And there's a lot to be said for peace of mind and not having to worry about your business running and running smoothly. So guys, that's my talk for today. It's accounting, and make sure that you set up a system, keep it up to date. If you can't do it, hire a bookkeeper to do it, outsource it so that you don't have payroll. And, um, I post these videos every Monday, Wednesday, and Friday at 11 AM. Tune in for the next one. Tune in Wednesday night at 7 PM Eastern Standard Time, and I'll answer your questions live. Okay guys, take care.