We know that if you are reading this, you are among the best of the creative people who make up the Portland production community.
How do we know this?
As an independent producer, director, writer, or skilled member of a crew, you are truly gifted at telling a compelling story. We've seen your work. We understand why clients want to hire you.
But based on our experience, creative people who excel at their craft are often not as strong on the "business side of things."
They may even be great at making money. But their passion for their creative work doesn't spill over into things like business structure and taxes.
Obviously, YOU personally do not have any of these problems. You were probably one class away from becoming a CPA before you found your true calling in production.
However, you might want to read on just in case you pick up any tips to help your less-informed friends.
Where Do Creatives Usually Go Wrong?
When you ask business planning professionals about where independent creative people go wrong most often, they'll talk about money.
Our community is quick to believe that a great idea doesn't really need a formal business structure or a cash flow plan or a tax strategy. But they're wrong.
For instance, if you solicit investors for an independent film, you are required to comply with state and federal laws governing the sale of securities. Otherwise, you're walking the yard with Bernie Madoff.
On the other hand, it might be your partners who get you into trouble.
As attorney Robert J. Labate says, "Keep in mind that if an investor has enough money to fund you, she probably has enough money to sue you."
The Problem With Taxes
But let's say you're just interested in making a living as an independent creative. Where are you most likely to go wrong?
We put that question to Debbie Oglesby of Business Services Northwest, who has helped many independents stay on the IRS's good side. She had a surprisingly simple answer.
In her experience, independent creatives most often get into trouble when they do the following three things.
1. Not keeping track of income.
If you just pay your taxes based on the amount of income on your 1099s and don't track or report other income, it's going to get ugly if you get audited. The IRS will look at ALL your accounts for several years back, and you better be able to identify all incoming funds or else (see above reference to exercise time with Mr. Madoff).
2. Not keeping a mileage log.
At fifty seven cents a mile (it changes each year), the driving you do for business can be a big deduction. But you can't just say, "I drove 12,000 this past year and 80% was for business." You have to have a record of the date, purpose, and mileage for each trip. There are apps that do this. A dollar store daytimer will work. Just write it down.
3. Not issuing required 1099s.
Did you know that you are required by law to issue a 1099 to any sole proprietor (independent contractor) you paid more than $600 to? If you don't, you risk a $500 penalty. It's up to you to take care of this one.
Based on her many years of experience, Debbie recommends that you do everything you can to make yourself audit-proof.
"An audit," she says, "is brutal."
How They Finally Got Al Capone
It's amazing how many people we talk to who play a little fast and loose with the business side of things, especially on taxes.
It reminds us of a little story about a gangster.
At the height of his empire, notorious mobster Al Capone seemed to be untouchable. Even though he was known to have openly broken every law from drug running to mass murder, he had the Chicago political structure in his pocket, and for years the FBI couldn't find a way nab him.
You know what they finally convicted him of?
You don't want to mess with the IRS.