Good Questions About Income, Expenses & Audits

Hi June,

Just finished listening to your CD and I thought it was good but rather short. I had hoped it would have been more of a version of your book less the worksheets. I much prefer an audiobook since as an indie I spend most of my time in the car and like to use the time to learn.

You have a great reading voice and may want to consider a more extensive audiobook version.

I do have a question I hope you may be able to answer. When one receives large amounts of cash as a gift at various times of the year how can you deposit this and make sure it is seen as personal? With a large immediate and extended family this can add up to thousands of dollars and I am not comfortable asking family to write notes saying they were nice enough to give me and the kids generous gifts.

Also, when I quote a job I include all expenses and there may be many varied expenses to complete the job ranging from nails to build a set to nail polish for a model sitting in the set.

I keep a docket for the jobs but an auditor who did not understand my indie lifestyle seemed to think the invoice should have had every nail and screw on the invoice and if I bought lunch for those at the shoot I should have the client and those around sign a meal log.

There is no indication in the code that this needs to be done and in the end I won in the appeal but the blood, sweat and tears only made me resent the CRA/IRS more.

The other issue I had was with unique gifts I give clients as a thank you for the work. If a client tells me they love hockey I will send an expensive stick to them and so on. What I have learned from an audit is if you think some accountants don't understand the work of an indie it pales in comparison to a government auditor.

Last question is if an indie is audited do you suggest they go it alone or get a representative to deal with the government. I understand if you can not answer all or any of my questions but they may make for good blog posts for you.

All the best,
Cliff


Dear Cliff,

I am trying to catch up with a huge backlog of emailed questions and some of this I may have dealt with already. But, a refresher never hurts.

First of all, thank you so much for your comments on my CD -- and my reading voice. I cannot do a CD of my book -- publisher constraints and the like. I do have additional CDs in the works but time is limited and client work comes first. I do have a new petite publication -- 75+ pages -- coming out very very soon -- The Confident Indie: Five Easy Steps. More about it soon.

On to your questions ...

Family gift money coming in: Make copies of the checks. Keep a list with specifics -- from whom, why, date -- of gifts by check or cash. Get pictures of family members. Make copies. Staple the family member's photo to the copy of the check. Save the birthday cards or anything that would help you prove where the money came from. And, I'm sure you always send a thank you note -- mom brought you up right! Well, copy the thank you note, or keep the dated emailed thank you. If the money was not a gift and not income, then send an acknowledgement of receipt of the money and keep a copy. That way you don't have to request anything from the giver.

If you are asking about reimbursed expenses, there's a lot on this blog about reimbursed expenses -- expenses -- reimbursed . If you are asking about expenses in general: Save receipts, of course. Photos do wonders as proof. Take a picture of the model with the polished nails sitting on the thing that was built with nails. Make notations -- including the date -- on the photo. Keep it with your receipts. Use your creativity in your recordkeeping.

No matter how much you spend on a hockey stick you may deduct only $25 as a business expense.

In an audit it depends on the tax pro and the taxpayer as to which one, or both, should handle the audit. I've had some clients who, with my coaching, did great by themselves. Other clients I would not let near the IRS. Years ago a client went to her own audit. She told the IRS auditor that she paid more in taxes in a year than the IRS auditor earned in a year. That audit did not fly well.

-- June