Each spring, you’re faced with one of the more unpleasant aspects of owning a dance studio – filing your taxes. If you think personal taxes were confusing, chances are that you’ll find business taxes even more so. There are a number of different deadlines you’ll have to adhere to and a variety of forms that need to be filled out.
If you struggle to keep your paperwork in order and get your taxes done on time, use this guide to straighten yourself out and get your studio’s taxes squared away.
Best Practices for Studio Owners
Your studio taxes will be so much easier if you stay organized throughout the year. If you throw paperwork here, there and everywhere, chances are that you’ll be scrambling to find it once tax season arrives. Make your life a whole lot simpler by setting up an organized filing system for your expenses, receipts, bills, invoices and other important paperwork. If you have office staff, train them to use the new system so that everyone is on the same page.
It’s important to save copies of other materials as well, especially if your studio isn’t making a profit quite yet. Dance Teacher magazine explained that if you don’t make money three out of five years, the IRS could deem your business a “hobby,” leading to you owing more money for losses you’ve claimed. If you’re operating in the red, save evidence that can be used to prove you’re taking steps to improve your studio, whether it’s marketing materials, new business cards, a company roadmap or your day planner.
Start getting your books in order at the end of each calendar year. As tempting as it is, you shouldn’t wait until February or March to start preparing your taxes.
What’s Up with Sales Tax?
Since your studio is an educational institution, you don’t have to charge sales tax on lessons, right? The answer actually depends on what state you live in. Back in 2014, dance studio owners across Missouri were shocked to find they owed back taxes to the state because of a legislative change. Americans for the Arts explained that the state reclassified studios as places of recreation and entertainment, which means they aren’t exempt from sales taxes.
There are actually a number of states where studios must tack sales tax onto tuition bills. DanceStudioOwner.com explained that this is necessary in Iowa, West Virginia, New Mexico, South Dakota, Hawaii and sometimes New Jersey.
“When dance studio owners don’t feel comfortable with sales tax, they’re definitely not alone,” Jessica Sheitler, owner of Financial Groove, explained to DanceStudioOwner.com. “I feel like it’s probably one of the most misunderstood aspects of running a dance studio, honestly. [Taxes are] different in every single state. Even within your state, it can be different within your county and your city.”
Chances are that you should also be charging sales tax on costumes and other merchandise that you sell. However, the regulations vary by state and jurisdiction, so figure out what’s necessary in your area.
Know Your Write-Off Options
You might owe the government more money than you’d originally thought, but the silver lining is that there are a number of expenses you may not have realized you could write off. The Houston Chronicle explained that you can write off reasonable and necessary expenses related to your profession. This means you can write off dance supplies, such as props and music or even office supplies. If you take the bus to work, you can likely file a deduction for the cost of your pass. Similarly, if you travel for the studio, track your mileage and write off the cost of gas.
Talk with your accountant about what expenses can be written off come tax time. Just remember that if you plan to write items off, it’s imperative that you keep any and all receipts related to the purchase or expense. The more detailed your records are, the more likely that the write-off will stick.
Find the Right Help
If all of this sounds overwhelming, it’s in your best interest to find a knowledgeable accountant who can help you get your taxes done right. Be sure to find a professional who has experience working with creative businesses – preferably studios – so you know that he or she can get you as much money back as possible. Once you find an accountant who is a good fit for your needs, don’t be afraid to seek advice for matters other than taxes. Chances are that he or she can help you work toward your other business goals.
“Have a dream for your studio and discuss it,” Lilia Wood, a studio owner who worked with Financial Groove, explained to Dance Teacher magazine. “Take advantage of their expertise so you can make those dreams a financial reality.”