Creative businesses have constant tax reporting. One month a big client pays a retainer, the next month is quiet, and the tax bill still arrives as if income were steady.

If you run an agency, a branding studio or a freelance creative practice, a few things tend to drive the bill:

• Lumpy income. Large payments late in the year push you into a higher bracket, and nobody budgeted for it.

• Contractors. Designers, writers, editors, and media buyers paid as contractors need correct 1099 reporting, or the deduction is at risk.

• Self-employment tax. Net profit in a sole proprietorship is hit with 15.3% on the first portion, which is a lot of money for a growing company.

• Spending without a plan. Equipment, software, and production costs get bought when cash is high, not when the timing helps most.

There are legitimate ways to improve this:

• Once profit is steady, an S corporation with a reasonable salary can cut self-employment tax. The salary must be defensible, and the payroll needs to be run properly.

• A retirement plan, such as a SEP IRA, SIMPLE IRA or Solo 401(k), turns profit into a deduction and into your own savings.

• Timing equipment purchases and expenses before year end can use Section 179 and bonus depreciation.

• An accountable plan reimburses you tax-free for business costs you pay personally, such as home office, phone, and travel.

• In some states, a pass-through entity tax election can help with the state tax deduction limit.

The point is not to find tricks. It is to know your numbers before December so you can plan accordingly, instead of reacting in April.

If your agency or creative business is growing and the tax bill is growing faster, let’s talk.

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Written by

Dwayne Ailey, EA, Top Notch Accounting Svs, LLC

“This article is for general purpose use only; not legal tax advice please contact us for more information to your situation."