Ask Amy Post Tax Season Edition


by Amy Smith for The Dance Journal

This column in the Dance Journal seeks to improve the financial literacy of dancers and artists in all creative disciplines, so that they may develop sustainable practices and further expand the reach of their creativity. Questions for Amy may be mailed to [email protected] for consideration.

Sorry — it has been a while since my last column.  Juggling my tax preparation work and multiple artistic projects was crazy this season!   I missed our virtual (one-way) chats!  So here we have a Random Assortment of Questions, Mostly Pertaining to Quickbooks, Answered by Amy Smith, Who Has A Post-Tax-Season Umbrella Drink In Her Hand.

1. What is the best way to track donors and donations in Quick Books? Do I need to have the non-profit edition?

Dear Donor Tracker,
When I enter Headlong donations into QB, I separate the large donors from the small.  You can use any threshold that makes sense to you.  We use $1000 as the threshold, but you could use $500 or $100 or whatever.  When I enter a large donor I enter their name as payer into the deposit entry, but then I just add up the many small donations and put in the total with the account Individual Donation and no payer.  I don’t think you need the Non-Profit edition of QB to be able to do this.  We also use database software to track who gave how much each year, but if you wanted to use QB for this purpose, you would probably want to enter each donation as a separate line on the deposit and capture the donor’s address as a “customer”.

2. Hi there! I loved this article! Lots of useful information that I had no idea I could use legitimately. So my questions are, how do you organize your information on Quickbooks if you are running a dance studio? I have been sitting on my mac for hours trying to figure QB out and how to make accounts, which accounts I need, etc. Any information would be greatly appreciated. From one dancer to another, Amanda Owner Of A Newly Opened Private Dance Studio in Westchester County.

Dear Amanda,
Thank you!  The QB accounts you need are the ones that make sense to you.  QB comes with some preset ones, but whenever I’m helping someone set up their Chart of Accounts I usually start from scratch.  As bills come in and you pay them, you simply set up a new account for that item if it isn’t in there already.  As a dance studio you may not be receiving donations, so all of your income is “earned”.  Therefore, you probably don’t need to create sub-categories for income.  But for expenses you’ll set up rent, utilities, equipment, costumes, etc.  If you are paying people through a payroll service, the QB entry gets a little more complicated (I use a General Journal Entry for payroll, which I think is standard practice), but if you are paying them as 1099 independent contractors you can just create subcategories under Professional Fees.  That will make it easier to create 1099s next January.  As time goes on and you are looking at your Income and Expense (or Profit and Loss) reports, feel free to make changes to your chart of accounts.  Whatever chart of accounts helps you keep good records and get the information you need about your business is the right chart of accounts for you.

3. We received a donation/grant and the use of the funds is restricted. How do I enter it as restricted? do I set it up as an income account or an equity account? Or should I be doing something completely different.

Dear Restricted,
A restricted grant is one that is restricted by time or purpose.  In other words, you have to use those funds for a specific project or in a specific time period.  A restricted grant should be recorded in its own category, and it’s an Income Account.  I personally use three sub-accounts under Grants:  Government, Restricted and Unrestricted.  This helps me sort them out for the CDP and the 990.  The next step is to figure out how you are going to track the funds spent on the project, so that you can report to the funder and prove to an auditor or outside financial reviewer that you spent the funds as promised.  In rare cases with multi-year, big projects (like our piece “This Town is a Mystery”), I will set up a Class in QB, making it easy to track the income and expenses just for that project.  But the simpler way to do it for smaller projects is just to simply put an abbreviation in the memo line of the checks you are writing, or even to use what you know about the time period you were working on the project to track the expenses.  For example, if you were rehearsing the piece in January and February and performed it in March, you could print up a P&L for the first quarter of the calendar year and see how much you spent on dancer rehearsals, designers, studio rental, etc. for that period.

4. What is the best way to develop a fiscal budget for my company? Is there some guidelines somewhere or something you recommend reading? Do I just base it off of previous years income and expenses. We have never really done this as an organization.

Dear New Budgeter,
Mazel Tov!  You are entering organizational adulthood!  Creating a budget before the beginning of the fiscal year, and having it approved by your board, and then STICKING TO IT is a real sign of organizational maturity.  It’s also a ‘best practice’ of accounting and organizational management, no matter how young or how small your company is.  In answer to the question about whether or not to base it off of previous years, in general the answer is “yes”.  But there also may be reasons why the projected budget might be significantly larger or smaller than the previous years.  Two habits that I would recommend you adopt right now: 1) Create scenario budgets.  Three columns: Best, Medium and Worst cases.  Your board will likely approve the Medium case budget, but this way you will have an idea of how to deal with either a windfall or a significant decline in income, BEFORE IT HAPPENS.  2) Rather than spending every penny every year, budget for a small net profit each year that will just stay in your bank account to create a cushion of cash.  Try very hard to protect this cushion.  If you want to be fancy, call it a “cash reserve”.  This cushion can be used in extreme circumstances, and you should pre-decide what those circumstances are.  It took me 20 years to realize that we needed to do this, but I wish someone had told me sooner and that I/we had had the fiscal discipline to do it years ago.

5. I have read some of the other posts, but I guess I am still confused. We are relatively small dance company. Our dancers are paid but for performances only and not rehearsals or other activities. So are they considered W-2 employees or 1099-MISC subcontractors? And when I enter this on quickbooks how do I make the distinction?

Dear Still Confused,
You can look at the IRS form SS-8 if you want to use their criteria for determining whether someone should be considered an employee or a contractor.  But at first glance I would say that these dancers are probably contractors.  That certainly simplifies the QB entry.  Just create a category called Professional Fees and have Dancer Fees as one of the sub-categories.  In QB you can ‘mark’ it as a 1099 item, which will make things much simpler next January.  Remember, 1099s are for fees only, so if you reimbursed travel or costumes, or whatever, in addition to their fee, “split” the entry so that only their actual fee is reflected on the 1099.




The information provided on this site and accompanying material is for informational purposes only.  It should not be considered legal or financial advice.  You should consult with an attorney or other professional to determine what may be best for your individual needs. Neither, The Dance Journal or Amy Smith does make any guarantee or other promise as to any results that may be obtained from using this content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. To the maximum extent permitted by law,, The Dance Journal or Amy Smith disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.

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