CPA Practice Advisor

JUN 2018

Today's Technology for Tomorrow's Firm.

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22 JUNE 2018 ■ BUILDING YOUR NICHE PRACTICE Each month we explore the advantages and intricacies of developing and growing a niche practice. This month we're examining what it takes to serve artists and musicians. RESOURCES FOR SERVING ARTISTS & MUSICIANS • Taxes 101: What Self- Employed Musicians Need to Know: • Top 10 Accounting Tips for Artists: • How to Inventory an Art Studio: • How to Make a Business Plan for Artists: • Simple Bookkeeping for Creatives: • Tax Deductions for Performing Artists: Building Your Niche Practice is sponsored by Intuit QuickBooks. Getting Artists to Buy-In to Your Accounting Firm's Services By Becky Livingston MARKETING YOUR FIRM'S accounting services to an artist may feel like an up-hill challenge, but a challenge, none-the-less, that can be conquered. Helping artists perceive the connection between their art and financial planning to help them be successful, is the key. With potential big highs and deep low in their income stream, it's important for accounting firms to focus on the pain points artists feel and provide them with information they can use and easily understand. Take away the stigma that numbers are not what artists "do." HYPOTHETICAL CASE STUDY Amy is an actress who performs part time at her local theater. It's her dream, but it doesn't pay the bills. So, she waitresses to keep a constant stream of cash on hand to help her get to and from her dream job. One day, her mid-morning replacement doesn't show up. She's in a bind because her boss won't let her leave a room full of diners. When she is able to leave, she has enough cash on hand to put gas in her car and get to the theater before the opening curtain call. As her day winds down, she thinks about all the money challenges she has in her life and hopes there are some remedies. Enter from stage left, an associate from your firm, Ed, who tells her about the tax benefits she can claim when she's looking for work, including pictures, resume writing, transportation, and other costs. He also mentions how she can create a monthly budget to know where her money is going and how, by saving just a little each month, she can get ahead. He suggests that she get a free consultation at your firm for more insight. The moral of the story is to consider the pain points unique for artists and to identify specific ways you can help them to overcome it, in areas such as: ■ Budgeting ■ Financial Planning ■ Taxes The 20% Pass-Through Deduction for Musicians By Scott Stratton, CFP®, CFA AS A TAX professional, you surely know about the new 20% tax deduction for "Pass Through" entities under the Tax Cuts and Jobs Act (TCJA). If you have musician and other performing art clients, you may have wondered if (and how) they qualify. For those who are self-employed (1099, not W-2), here are five frequently asked questions you should be prepared for your clients to ask: 1. Do I have to form a corporation in order to qualify for this benefit? No. The good news is that musicians and artists simply need to have Schedule C income, whether they are a sole proprietor (including 1099 independent contractor), or an LLC, Partnership, or S-Corporation. 2. How does it work? If the musician or artist reports earnings on Schedule C, their Qualified Business Income (QBI) may be eligible for this deduction of 20%, meaning that only 80% of their net income will be taxable. Only business income – and not investment income – will qualify for the deduction. Although we call this a deduction, please note that the taxpayer does not have to "itemize." Instead, the QBI deduction is a new type of below-the-line deduction to taxable income. The deduction starts in the 2018 tax year; 2017 is under the old rules. There are some restrictions on the deduction. For example, the deduction is limited to 20% of QBI or 20% of the taxpayer's household's taxable ordinary income (i.e. after standard/itemized deductions and excluding capital gains), whichever is less. If 100% of their taxable income was considered QBI, the deduction might be for less than 20% of QBI. If they are the owner of an S-corp, they will be expected to pay themselves an appropriate salary, and that income will not be eligible for the QBI. If they have

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