The older I get, the more fleetingly the final weeks of the year fly by—the period between my September birthday (which generally coincides with the Jewish holidays) and New Year’s is especially blurry as the days seem to recede faster and faster in the rearview mirror.
But as everyone says in his or her own way, the end of the year is also a time for reflection, peace, joy, and health. As January 1 becomes increasingly inevitable, make sure you have the following items ticked off of your to-do list. It’ll leave you in much better shape for the financial flurry that is tax season.
Get Organized
We’ve all been there: one free Friday night in March, you decide to start looking at your expenses from the previous year. After going through bundled CVS bags bursting with both relevant and irrelevant receipts, leafing through books to find scraps being used as bookmarks, and rooting through your wallet to make sure there are no stray ticket stubs that could be considered a write-off, it’s shortly before dawn on Saturday morning and the work isn’t even half over.
Do yourself a favor: spend the $8 on an extra-long accordion file from the Container Store as you make your way through your holiday shopping rounds and get started now on your receipts. Throw out or shred those that aren’t legitimate expenses for your business and separate the rest by categories such as taxi and car services, scores and sheet music, books and magazines, concert tickets, health expenses, costume and makeup supplies, and voice lessons.
As you cordon your receipts off, keep track of them in a simple Excel workbook that notes the date of the receipt, the deductible purchase amount, the place of purchase, and the category that you file it into. Keep subtotals by category so that by the time you’re ready to do your taxes, you can simply add up your deductions by type and turn that into your accountant. (I’ve said this a number of times in Classical Singer, but if you’re at the point where you’re freelancing and collecting wages from a number of companies, an accountant whose fee can be recouped by savings on your taxes is a no-brainer.)
And once you’re done with your 2012 earnings, take those receipts and put them into standard letter envelopes. Keep those in a larger manila envelope with your W-2 forms, 1099s, and actual tax returns by year, and then use your accordion file to collect receipts for the year to come.
Get Charitable
There’s something Christmas Carol–esque about making charitable contributions around the holiday season. And while it’s always a good idea to consider those less fortunate, the “peace on earth, good will to men” quotient around November and December is high enough to encourage ample Salvation Army Santas, coat drives, and food bank action.
Embrace it! Not only will you feel better and keep mind and body together in the end-of-the-year shuffle, you’ll also be able to write off any charitable donations made by December 31 for your 2012 taxes—even if you don’t actually pay the bill until after the New Year. The catch is you have to itemize your deductions on your taxes rather than take the standard deduction. As of 2012, the standard deduction amount is $5,950 for singles and $11,900 for joint filings—a number to keep in mind as you look over the rest of your deductions for the year and before you max out your credit card on charitable funds.
The IRS has some further caveats to keep in mind. If you make a donation that results in a benefit such as merchandise, goods, or services (such as buying tickets to a benefit concert or dinner), you can deduct only the amount that exceeds the fair market value of the benefit. Likewise, the IRS has some limitations on what they consider to be charitable expenses. Keep your donation domestic (there are some allowances, though, for U.S. organizations that transfer funds to a foreign organization as well as a few charities based in Canada, Israel, and Mexico).
Focus on the six major branches that the IRS considers to be qualified organizations (religious, charitable, educational, scientific, literary, and the prevention of cruelty to children or animals). Domestic war veterans’ organizations are also approved by the IRS, as are cases of donating to fraternal societies if they in turn use the money for one of the IRS’s six branches. Cemetery companies and corporations also count. If you’re short on cash, you can donate goods—such as clothes and household appliances to Goodwill, provided that they’re considered to be in “good” or better condition—though if you’re donating an item valued at over $500, the condition is immaterial.
A full rundown of the IRS’s charitable dos and don’ts can be found in Publication 526 (current as of 2011) at IRS.gov.
Get Perky
If you work for a company that offers you health insurance or a 401(k), make sure you stay on top of those benefits. This summer, the IRS and the Department of the Treasury have examined caps on employee contributions to flexible spending accounts (which allow employees to set aside money from their paycheck for payments such as health expenses payroll tax free). This may eliminate the Use-It-Or-Lose-It rule that has dictated that FSA funds be spent before the end of the calendar year.
Regardless, if you’re behind on your doctor’s visits, now is a good time to get your annual physical, check in with your allergist, or take care of your routine blood work. As you play through the pain that comes with the holiday season, checking in with yourself health-wise will keep you balanced. Speaking of which, now’s not a bad time to also schedule in an extra yoga class, do a charity run, or forsake the elevator for the stairs. As you course through parties, also be sure to alternate your alcohol intake with water at a 1:1 ratio and also keep a log of the baked goods you consume. That’s not exactly financial budget advice, but it’s the sort of budgeting that’ll help you survive the holiday season without feeling worse for the wear come January 1.
Now’s also a good time to check in with your 401(k) if you have one set up. Ask your HR department to see how much you’ve contributed, and see if you can make a one-time contribution to get yourself closer to the maximum annual limit if need be.
Get Schooled
If you’re a student, FAFSA should be at the top of your priorities list, right below finals. Most filing deadlines (which vary by state) for the Free Application for Federal Student Aid hover around the summertime, with the federal FAFSA deadline occurring on June 30 of the following year—giving you a grace period of 18 months. However, you can file for student aid for the school year ahead as early as January 1.
This is a clear-cut case of the early bird getting the worm: the closer to January 1 that you file, the closer to the front of the line you are for grants and scholarships. And that’s the free money. This is also an instance in which having your tax information at hand will help with filing; you don’t have to file your taxes before filing for FAFSA, but you do have to estimate your earnings for the last year (and subsequently file any corrections once you’re sorted with the IRS).
Get Savvy
Yes, opening up an opulently wrapped package is all well and good, but chances are you love seeing a check fall out of a holiday card just as much. It’s tempting to sink such unexpected windfalls into something off of your Amazon.com wish list, but you are likely also going to receive presents this year. So resist the urge to add more to your pile and stow that cash like a squirrel hoarding nuts for winter.
Practically speaking, I prefer to take that cash and put it toward what I’ve spent on holiday presents for the year, a means of balancing out my checkbook after all the stockings have been hung by the chimney with care. The other smart thing to do is to stick that money into a savings account or a certificate of deposit, accessing it once April 15 rears its ugly head.
With smaller amounts, savings is your better bet, unless you want to make sure that you don’t touch your money until a certain date. Banks like Ally offer CDs for as short a term as three months; the benefits you reap become more substantial the longer you keep your money locked into the deposit (as of this writing, a $500 CD kept with Ally for three months would yield approximately $0.54 interest; keep it for a year and you would earn $5). Keep in mind too that a CD cannot accept continuing deposits and can be funded after the initial deposit only after the term is up.
Sure, it’s not as exciting as an indulgent massage or a new high-definition television, but when you have to cut a check to the IRS come spring and you realize it’s either partially or fully taken care of from several months before, you’ll feel like Tiny Tim after Ebenezer Scrooge’s change of heart. And if you do have cash left over after you’ve paid your taxes, a nice meal out or a new hardback or two never hurt anyone.
Get Prepped
Start looking at the year ahead, and consider it beyond nutshell resolutions like practicing more, spending less, or going to the gym at least three times a week. Consider the year ahead as a chance to re-evaluate (or create) your business plan as an artist. Document your known performances and engagements and get a sense of where and when your most profitable periods will be. Freelancers (and I count myself as one of that fold) tend to be surprised at the end of the year when they see their total earnings added up. What seems like a pittance when the checks come in will invariably look more substantial when seen in the larger, year-end picture.
Your goal as the sole proprietor of your business—that is, you, the singer—is to not be as surprised by those numbers. Use the new year as a clean slate, to create a system of checks and balances between your income and your expenses. What assets are you bringing into this year? What funding will you need for the next 365 days, especially in terms of coachings, student loans, voice lessons, travel expenses to and from auditions and gigs, and the basic human needs of rent, utilities, and groceries?
Treating your career as the business it is means fewer instances where you run your debit card at a Starbucks and pray that it isn’t rejected. And, really, you deserve that level of confidence regardless of what stage you’re at as a professional.
