It's time to start thinking about taxes whether we like it or not.  Magicians, just like any business, have to pay their fair share.  While many of these tips may not help you immediately, they will hopefully provide some ideas for the future and maybe make next year's tax time, not so taxing.

Please note: This is a US centric article although some content may be useful to others.

Keep Excellent Records

Get a record of everything you purchase and keep records of all your revenue. Just because you paid for it doesn't mean it is tax deductible, but as long as you have a record, you can figure out the details later with your accountant or tax advsior.  Get a simple accounting program such as Quicken or Quick Books to track money coming and going.  If you don't have a flare for this thing, think about hiring someone to set it up for you. Why would you want to do that instead of just handing your shoebox of receipts to your accountant at the end of the year? This will put you in better touch with your income and expenses and hopefully will help you manage better by having up-to-date information.

Contribute to a Retirement Plan

You can't work forever, so putting money away is always a good idea.  You can also defer the tax which means you pay tax when the money is withdrawn rather than the year it is earned.  There are a number of options for small businesses: Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees or SIMPLE IRA, and Qualified Plans also referred to as Keogh plans.  The rules differ for each so you need to do your research to figure out which is best for you.

Pay Your Self-Employment Taxes and Estimated Taxes

Four times per year, self-employed individuals are required to pay estimated income taxes and self-employment tax.  Self-employment taxes are for social security and medicare taxes. Employees don't need to worry about these taxes as they are automatically deducted from an employees paycheck or paid by the employer.  Make sure you keep on top of your estimated tax payments to avoid penalties and interest.

"It's Deductible" Doesn't Mean Free

There are some people who think that because you can get a tax deduction for something, you should buy it.  While the rule of thumb for the IRS, is whether an expense is "ordinary and necessary", think hard about what you need and don't go crazy with thinking, "Heck, it's a tax deduction."  If you have excess cash and want to reduce you taxes, contribute more to your retirement plan.

Deduct Business Use of Your Home

You may have an area of your home, you use for an office or for storage of your magic gear. If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to IRS publication 535 for more information.

Deduct Business Use of Your Car

Unless you perform all your shows at your home, you probably use a vehicle for your business.  The easiest way to do this is to track your mileage and deduct the official IRS mileage rate.  You can also keep track of your actual car expenses and then prorate your personal vs. business expenses. Your strategy may also depend on the type of car you drive since the standard mileage may be a better deal than the actual expenses for a more modest vehicle.

Take Advantage of Tax Deductions

The IRS says "An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary." So what does this mean? Expenses such as memberships to magicians societies, magic magazines, and other related expenses are probably tax deductible.

Consult an Expert and Learn from It

You should always consult an expert on taxes and accounting when in doubt. My suggestion is to use the expert as a resource to learn as much as possible.  You may find it beneficial to have someone prepare your taxes for you.  You may also find that an expert can set you down the right path and you can take control of the finances yourself. Tax software and a good bookkeeping system a must.  It's really a matter of personal preference and whether you have the time or not. But if you are organized, it may not take as much time as you think.  There is only one person who really cares about your business and that is you.  

Year-End Tax Planning - Defer Revenue, Incur Expense

At the end of the tax year, there are some opportunities to defer taxes into the next year.  This can be done in 2 ways by pulling expenses forward and pushing revenue out until the next year.  Most people base their taxes on a cash basis, which means you pay tax on revenue when you receive the cash and recognized expense when you pay cash. If it makes sense to defer receiving payment for December work until January, you can use this strategy.  You can also pull forward expenses into December for items you will need to buy anyway.

Please Note: Always consult an expert on tax matters as the answer often depends on the details of your situation.  This article is for information only and should not be relied on or substituted for tax advice from a qualified professional.