Success With Jewelry Podcast - Episode 122 Summary

Release Date: March 17, 2025
Host: Liz Kantner
Guest: Hannah Cole, Professional Artist and Tax Expert

1. Introduction and Personal Updates

In Episode 122 of the Success With Jewelry podcast, hosts Laryssa Wirstiuk and Liz Kantner welcome Hannah Cole, a professional artist and tax expert. The conversation begins with personal exchanges about living in Asheville and recent challenges faced by the community, including the impact of Hurricane Helene.

Liz (00:59): "We’re not okay."

Hannah (02:04): "There’s still a lot of cleanup that needs to be done and a lot of people who still really need help."

2. The Intersection of Creativity and Taxes

Hannah introduces herself as a painter with two decades of experience and explains her transition into tax expertise driven by her own struggles with tax management as an artist.

Hannah (03:00): "I went back to school to study accounting and taxes because taxes hit me like a shovel to the face."

She emphasizes the lack of preparation creatives receive regarding the business side of their work, particularly taxes and financial management.

Hannah (05:13): "Creative people are doing what the world needs so, yeah."

3. Common Tax Mistakes for Creatives

Hannah outlines prevalent tax-related mistakes made by creative professionals, primarily those who are self-employed.

a. Misunderstanding Self-Employment Taxes

Creatives often underestimate their tax obligations, not realizing that self-employment tax adds an additional 15.3% to their federal and state income taxes.

Hannah (07:52): "Self employment tax is a thing... it applies. It's 15.3% of your profit on top of your federal income tax and state income tax."

b. Ignoring Quarterly Taxes

Many creatives neglect to pay quarterly taxes, leading to substantial tax bills unexpectedly at year-end.

Hannah (09:37): "Knowing it's coming, knowing how it works... can help empower you and keep you ahead of things."

4. The Importance of Quarterly Taxes

Hannah explains why paying taxes quarterly is crucial for self-employed individuals to avoid large, unexpected tax bills and reduce stress during tax season.

Hannah (09:37): "Quarterly taxes is your path out of the tax stress."

5. Understanding Business Deductions

Hannah delves into allowable business deductions for jewelry businesses, highlighting the generosity of the IRS in permitting deductions for ordinary and necessary expenses.

a. Typical Deductions

Expenses such as materials, tools, workspace, software, cell phone, internet, mileage for business purposes, and half of business-related meals are deductible.

Hannah (14:36): "Any of the expenses that are ordinary and necessary are deductible... materials, tools, workspace."

b. Overlooked Deductions

Creatives often miss deductions related to mixed-use expenses like cell phones, internet, and business mileage.

Hannah (17:07): "Things that are mixed use between business and personal are often overlooked."

6. Handling Sales Tax

Sales tax management is a significant concern for product-based businesses. Hannah provides best practices for collecting and reporting sales tax, emphasizing the complexity due to varying jurisdictions.

Hannah (18:46): "There are over 10,000 different sales tax jurisdictions in the United States."

a. Determining Nexus

Understanding where a business has a sales tax nexus is essential. Nexus is triggered by having a physical presence, significant sales volume, or conducting business frequently in a state.

Hannah (19:37): "Start where you make your most sales and then go to the second most, etc."

b. Tools and Resources

Hannah recommends utilizing state Department of Revenue resources and software like TaxJar to manage sales tax compliance effectively.

Hannah (21:37): "TaxJar is a good service... they have a Nexus finder."

7. Documentation and Bookkeeping

Proper documentation is vital for simplifying tax processes. Hannah outlines a three-system approach:

a. Receipts Management

Keep physical receipts in chronological order in a file folder and digital receipts in designated inbox folders.

Hannah (23:44): "Dump them in a file folder with those receipts in the front."

b. Tax Documents Storage

Designate a specific place for tax documents like 1099s and W2s to prevent loss and ensure organization.

Hannah (25:00): "Have a place designated in your house where you put them all."

c. Bookkeeping Practices

Maintain a separate business bank account to create a clear paper trail, making bookkeeping more manageable.

Hannah (26:38): "Do bookkeeping off your bank statement, that's a way for it to be neat and clean."

8. Business Ownership Structures

Understanding different business ownership types is crucial for tax and legal purposes. Hannah explains the distinctions among sole proprietorships, LLCs, and S Corporations.

Hannah (26:55): "The IRS sees you as a business starting when you first advertise."

a. Sole Proprietorship

Default status where income is reported on Schedule C without formal business structure.

b. Limited Liability Company (LLC)

Provides legal liability protection without altering tax obligations. Essential for those needing to shield personal assets.

Hannah (28:00): "An LLC's purpose is for legal liability protection."

c. S Corporation (S Corp)

Potentially reduces self-employment taxes for profitable businesses but comes with additional administrative responsibilities.

Hannah (29:18): "The purpose of an S corp is to potentially save you some money on self employment tax."

9. Worker Classification: Contractors vs. Employees

Misclassifying workers can lead to severe legal and financial consequences. Hannah emphasizes adhering to IRS definitions based on the level of control over workers.

Hannah (32:42): "If you control somebody's hours, workspace, you provide the tools... that's an employee."

a. Independent Contractors

Suitable for specialized tasks where the contractor retains control over how the work is performed.

Hannah (34:00): "A plumber is the perfect case scenario for an independent contractor."

b. Employees

Require payroll management, including withholding taxes and contributing to Social Security and Medicare.

Hannah (35:00): "You have to set up payroll... you have to pay into their Medicare and Social Security."

10. Handling Taxes for Unprofitable Businesses

Operating at a loss is common in the startup phase and can provide tax benefits if properly documented.

Hannah (36:42): "Having a loss on your schedule C is absolutely legal and fine so long as you have a genuine profit motive."

However, persistent losses may trigger IRS scrutiny to verify the business’s profit intent.

Hannah (39:00): "If you have losses for too many years, the IRS can question your profit motive."

11. Resources and How to Connect with Hannah Cole

Hannah encourages listeners to access her resources for further assistance with taxes:

• Website: sunlighttax.com
• Podcast: Sunlight Podcast available on major platforms
• Visual Guides: Available in show notes for tax deductions and business structures

Hannah (40:19): "Visit sunlighttax.com for lots of resources... and the Sunlight podcast is also available."

12. Closing Remarks

Liz expresses gratitude to Hannah for her invaluable insights and encourages listeners to reach out with their tax-related stressors.

Liz (40:52): "Thanks for being a part of the Success with Jewelry community."

Key Takeaways

• Understand Your Tax Obligations: Self-employed creatives must be aware of both income and self-employment taxes to avoid unexpected bills.
• Implement Effective Bookkeeping: Separate systems for receipts, tax documents, and bookkeeping streamline the tax process.
• Choose the Right Business Structure: Decide between sole proprietorship, LLC, and S Corp based on liability protection and tax benefits.
• Proper Worker Classification: Ensure workers are correctly classified to comply with IRS regulations and avoid penalties.
• Utilize Available Resources: Leverage tools like TaxJar and consult with experts like Hannah Cole for tailored tax advice.

This episode is an invaluable resource for jewelry designers and creative entrepreneurs seeking to navigate the complexities of tax management and achieve business success.