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An update to the ongoing saga of an IRS audit.
We last left you with the report on all the questions we needed to answer and report to the IRS.
We got a response that we had to prove that we took out a loan, and provide documentation. In other words, they didn't believe us. So another hour of work to get the "correct" proof for the IRS.
To add insult to injury, the City of Los Angeles sent GYST a form with estimated business taxes for 2013. They estimated that GYST made almost 2,000,000 (yes, count those zeros) in 2013. Which left the estimated tax at almost 3,500.00. I almost had a heart attach until I noticed that it was an estimate, and that the estimate was so blown out of proportion it would have been laughable, had it not been me.
This required that I go down to the City of Los Angeles Office of Finance. So, an extra three hours and found a parking structure that only charged $8 instead of the $27.00 and something max for the official city parking lot.
I was lucky to get a government worker who was really great. He explained some things I thought I would share with you.
First, even though I had sent in the form with the amount we owed in taxes, it was not recorded in the master city database, and it has been months. Hence the estimated form. We were supposed to get a card in the mail, but we never received it.
He also said that if you pay your business taxes online, they don't tell you this, but you will never get a snail mail notice in the mail again. Which was an issue for us. We attempted to login to the city to renew the license as well as fill out the tax forms but none of the passwords or logins that we were given when we initially signed up were working. Contacting them was even worse. No phone number with a person, and no email. So by the time we got the correct info the payment date was past.
For you creatives in Los Angeles who take the creative business exemption, if you send in your taxes even a day late, YOU ARE NOT ELIGIBLE any longer to claim this exemption. Something no one tells you.
So always mark the due dates for things on your calendar, and never wait until that date in case your login and/or password does not work.
The same thing goes for the State Board of Equalization, the office you send your sales taxes to. As of now, when you collect sales tax, you are no longer allowed to send in pre-payments unless you make over $100,000 a year. So you need to keep track of all your sales taxes and NOT spend it, so you have the money at the end of the year. Sometimes a hard thing to do if you need the cash. Just don't spend it.....
The IRS agent was supposed to meet with out accountant last Thursday, but she called and cancelled. She said she thinks she has everything she needs. No other additional information about when she would get back to us, so we are "cooling our jets" until we know the next move.
Feel free to ask any questions.
Written by Karen Atkinson, GYST Founder
The companion to the GYST Artist Manual on all things professional practices is our Second Edition of the GYST Teaching Manual. In addition to everything the GYST Artist Manual has to offer, we have also included a 13 week syllabus, a chapter on how to start a professional practices class or workshop for your school or organization, and each chapter has Objectives, Class Projects/Discussions, Homework and Evaluation.
We have added lots of forms and checklists, and updated every chapter. So if you are thinking of teaching a professional practices class, or workshop, or you need some additional information for the classes you teach, check out our preview.
To purchase and get more information, find it here.
Bookstores and Vendors welcome. Contact us.
Since our last update, we have answered all 27 questions for the IRS, and submitted multiple additional materials. These items have been sent to our accountant. The next meeting with the IRS is scheduled for July 19th.
Since these questions were asked in a generic way (most of them were not addressed to one of us), we needed to answer them for each of us and our businesses. So each question was answered with the following: (see previous post)
This means each question had up to four answers.
Estimated time: 6 hours. 24 pages of "new information". AND, each of them needed to be created as a pdf since most accountants use PC's.
For those of you who have commented on various sites and groups, thanks for your input.
Written by GYSTInk Founder, Karen Atkinson
So, GYST along with myself and my full household are being audited. Since so many artists are being audited these days, I thought it might be useful to share the process so you can see what it is like to work with the IRS on an audit.
We were notified by the IRS with a letter as well as an email. We were asked to show up at a specific time (no choice of appointments) with a hand-full of paperwork. We were given a month to get all the following together.
2011 Tax return
2012 Tax return
2013 Tax return
All financial records, including bank statements, cancelled checks, receipts, the whole shebang.
So first, we contacted our Accountant, who happens to also know the laws regarding artists and creatives. He said that he would go to the first meeting with the IRS agent, but we would both need to sign a power of attorney. So we spent the next four weeks, gathering everything together. Luckily, we mostly have our sh*t together, so it was a matter of finding everything as well as printing out three years of accounting.
We signed a power of attorney, and our accountant went to the first meeting with the IRS.
We found out that recently, 100 people were hired at the IRS to look into business owners who used contracted labor. That means hiring another "business or business person" to do work for you. This is different than an employee. An employee works set hours, is required to be on site, and works regular hours for the business that hires them. An independent contractor is someone who has a business license and who works in their own office or home, and works on a contract to do a specific job. Over the years, GYST has hired other artists to work with us, as we usually have small jobs that don't require a full time person. We don't have enough work for a full time employee. (see the GYST website for more information on hiring at www.gyst-ink.com/professional-practices-for-artists/)
The other reason, as a social business model and artist run art project, is that we train artists how to run their own businesses. We ask each artist who works with us to be self employed, have a business license, and invoice us for the hours worked, or the job as a whole. If we ever make enough money to hire someone full time, we would do that, but it is hard to find someone who actually knows every part of the business of business.
Things we hire artists for are editing, writing, programming, marketing, bookkeeping, teaching etc. We work as a team, but a team of independent artists.
So our accountant goes to the meeting armed with a big box of paperwork. We get an email from him yesterday that says we are required to answer the following questions for the IRS.
"The agent is going through her checklist of info questions to understand what you both do. I thought I would email them to you to answer. Some items have been blacked out to protect the innocent and to keep some things private.
I am available to discuss these when you want.
1. Did you record all sales receipts.
2. Did you record all cash sales
3. Do you have credit card receipts
4. Do you receive checks for payment.
5. Do you transfer all paypal income to your bank account as received. If not did you pick up all paypal income in then year received.
6. Do you have anyone helping you with your bookkeeping?
7. Can you explain what the individual people do ( the ones you 1099”ed)
8. How long have you been working at cal arts?
9. How many hours a week do you work
10. How many hours a week does /// work.
11. Did /// have anyone he 1099’ed
12. Do you or /// invoice for your work . if not how do you let your customer know they owe you money
13. What is the royality income from?
14. Is Karen’s paycheck direct deposited?
15. How long have you lived in your house
16. Do you have more then two cars?
17. Do either of you have a back ground in accounting?
18. Do you pay your bills by check or credit cards? Or both . any cash payments
19. Can you explain the what following categories in Karen’s business are for ( brief description why you use these people ):
Accounting, marketing, programing.
20. What is the income category “income provided”
21. What do you mean when you call income “resale Income”
22. Karen can you resend the description of what GYST does. The one you sent did not come through.
23. What was the expense diversified retirement of $/////// in 2012.
24. If you or /// invoice can we get a copy of the invoice . also if you invoice how many invoices did you issue each in2012.
25. How do you both market and get new business."
Of course, many of these answers were provided in the paperwork, if they had just looked at the accounting. And our accountant said this is the first time he has encountered all these questions.
The whole time I am thinking about all those corporations that are bleeding us dry and don't pay their share of taxes, and a tiny company of one artist and some helpers are getting audited. What is it about creatives that draws the IRS to audit us? We probably don't have any money to hire attorneys.
So far, we have spent over 20 hours, and that does not include answering questions. Time is money, so as a small company, the time is eating into our production, thereby making it harder for us to get things done.
I will keep you all posted as things go. We have one week to get these questions answered.
If anyone else has information on being audited, please share your stories. I think it is important to have some transparency as to how things work, which is the platform that GYSTInk is founded on. So sharing this information is part of the process of educating artists.
Written by GYSTInk Founder, Karen Atkinson
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