As a musician, if you do any freelance or self-employed work, you’re a business. That means you need to learn how to track your business income and expenses.
Luckily, it’s not as hard as it sounds, especially if you use the right method for you. Read on to learn about some common options and why tracking your finances is so important.
But first, I’m not a financial professional, and this is for informational and entertainment purposes only. Please contact a financial professional for more specific advice.
Use a Spreadsheet
When starting your music business, you can use free tools to track your business income and expenses. A popular choice is to use a spreadsheet program, like Excel or Google Sheets.
You can create a page within your spreadsheet for each month. Then, you can add data for every income stream you have, such as ads, affiliate marketing, and your own products and services.
I’d start with a column for income sources and add another column for expenses. You can then have the spreadsheet calculate your revenue vs. profit for each month.
If you have a bit of money to spare, I’d recommend using something like QuickBooks. I’ve used this program for about five years, and it’s super helpful.
Instead of doing all of the calculations yourself, QuickBooks will do the math. You can manually enter all of your income and expense transactions.
Alternatively, you can connect to your business bank account. QuickBooks will then automatically enter the transactions, and you just have to verify that each one was for your business.
If you file your taxes through TurboTax, QuickBooks is also great. You can import your QuickBooks data into TurboTax to speed up the process.
Hire an Accountant
The most expensive way to track your business income is to hire someone else to do it. An accountant or bookkeeper can manage all of your income and expenses.
You won’t have to do much aside from tell them what you’ve earned and spent. A bookkeeper can then enter the transactions into a spreadsheet or accounting software.
Meanwhile, an accountant can help you find ways to save money and make more money in your business. But this option can cost a lot, so it’s not the best when you’re just starting out.
Why Track Your Business Income and Expenses
You may wonder whether it’s worth it to track your business income and expenses, especially when you’re just starting and not making that much. Keep the following reasons in mind.
Monitor Your Profitability
If you’re not making a profit from your business, it’s just a glorified hobby. Tracking what you earn and spend can help you determine if your business is making money.
In the US, you can claim business losses on your taxes. However, you can only do this for so long before the Internal Revenue Service (IRS) stops you and declares your business a hobby.
Tracking your business income and expenses regularly can help you ensure you’re on track to become profitable. That way, you can continue to operate your business, and you can turn it into your main income stream.
Evaluate Your Income Streams
Another reason to track your income is to see which activities are bringing you the most money. If you already have a full-time job or other responsibilities, you need to be strategic with your time.
So tracking each income stream individually allows you to see which is giving you the highest return on your investment. That way, you can adjust what services or products you offer and how you spend your time.
When you switch to more profitable revenue streams, you may see a jump in income. For example, I’ve seen an increase in affiliate income this year, so I plan to focus more on that next year.
Prepare for Taxes
Once you earn more than $400 from self-employment, you’ll have to pay taxes on that income. But if you wait until tax time to calculate your earnings, you may feel rushed.
One the other hand, you can track your business income and expenses throughout the year. That can save you a lot of time when tax season rolls around.
It can also save you from having to pay a late penalty for not paying self-employment taxes. You have to pay those taxes quarterly to avoid late fees.
Whether you’ve been in business for years or are just starting out, you need to track your business income and expenses. That way, you can avoid a surprising tax bill at the end of the year.
Consider your options for how to keep track of everything. Choose the method that works best for you, and don’t be afraid to change it up later.