The 5 Biggest Money Risks for Speakers
Do you dread doing your accounting? If so, you’re not alone. As speakers, we need to know we have enough money in the bank, but we might have a bookkeeper to take care of the endless posting chores that all small businesses have. Or we may trudge through our accounting chores on our own, have our annual meeting with the tax preparer, let out a big “Glad that’s over with,” and do it all again next year.
Unfortunately, both approaches are very risky these days. My goal is to save you from five huge money risks so you can keep as much of your hard-earned money as possible.
Selling Books on Amazon
Do you sell a lot of books on Amazon? If so, do you collect, pay and file sales tax? If so, how many states do you collect, pay and file sales tax in? Here’s the issue.
The recent recession made the states more desperate than ever to balance their budgets, so they are looking for income everywhere. There is a concept in the sales tax world called nexus, which means if you have a presence in a state, you need to pay sales tax there. Amazon has warehouses in 14 states, and the courts have held that if you sell books on Amazon, you are liable for sales tax in those 14 states (Arizona, California, Delaware, Indiana, Kansas, Kentucky, Nevada, New Hampshire, New Jersey, Pennsylvania, South Carolina, Tennessee, Texas, Washington) if your books were shipped there, and whether you have any other offices there or not.
What’s the money risk? Take your total physical book sales (physical books are taxable in most states, digital books are not) for all current and prior years that you did not file taxes. Multiply it by about eight percent. If you want to be precise, take the sales for the above states and multiply it by eight percent. This doesn’t include penalties, and the longer you’ve sold books, the higher your penalties will be.
If your risk exposure is more than you are comfortable with, there are experts you can work with to “come clean” and even reduce penalties of non-filing in prior years. Do NOT try to go to the states directly.
It’s About Time
Time is money, and if you are doing your books yourself or using a bookkeeper that is not technology-savvy, then you may be spending too much time on your bookkeeping. Are you posting all of your transactions from scratch? Are you manually invoicing clients? If so, you may be eligible for a huge time upgrade.
The newer accounting systems work as browser applications where you can log in anytime and from anywhere. Collaboration is enhanced as well, enabling your bookkeeper and tax accountant to have access from their office without having to make an expensive house call.
The best part is the new bank feeds, which stream your bank account and credit card transactions right into your accounting system so that you won’t have to re-key a thing. You won’t have to pay any expensive online banking charges either.
If you’re not on the new accounting systems, it’s time to check them out.
If the word “employee” makes you even more allergic than the word “accounting,” you’re not alone. Most of us need help to take care of the administrative chores in our offices, and an easy way to bring someone on board is to pay them as a contractor.
The problem is many entrepreneurs have felt like they should be the ones to choose whether an assistant should be classified as an employee or a contractor. Unfortunately, the IRS does not agree. They have clear rules for when a worker should be classified as an employee, and when they can be a contractor.
If you have contractors working for you that should be employees, you could be liable for paying back employment taxes. Because the new healthcare qualifications require a W-2 from applicants, more contractors are suddenly going to want to become employees, increasing your risk if they turn you in.
To compute the risk, take the total of your assistants’ wages for all years, and multiply by about 30 percent. If you are uncomfortable with that exposure, then the best way to get things cleaned up is to work with an expert in tax resolution who is experienced in negotiating with the IRS. Again, don’t go directly to the IRS because you can often get a lot of the penalties and fines waived by “coming clean.”
Who Moved My Nest Egg?
Most speakers are solo entrepreneurs, and that means we don’t have a big company funding our 401(k) for us. It’s up to us to allocate a portion of our current wages to our retirement. Depending on your type of entity, you can save by contributing to an IRA, SEP, or another form of retirement account.
Check with your CPA to set one up for you.
Minding the Gap
Most speakers hire a bookkeeper or they do their own books. Most speakers hire a tax accountant or they do their own taxes. The problem is the big gap between the bookkeeper, who simply posts things and minds their own business, and the tax accountant, who is single-mindedly interested in filling out a form for you.
While large businesses have controllers and CFOs to deal with all the other accounting risks, most small businesses, speakers included, have no one to warn them about the risks I mention above. There’s a new type of accountant that can help you cover these and other risks. Ask your current accountant about these risks, and if they don’t sound too interested, you’ll know it’s time to look around for a new accountant.
It’s up to you to determine which of these five risks you want to reduce in your speaking business. Now that you know a bit more about where they might be, you can take proactive action to protect your profits.