If this isn’t your first rodeo in the tarot business, then everything provided here is going to be familiar to you. However, newbies might be able to get some pointers from this post, so I write this for you, dear professional tarot newbies.
Once you decide to go professional as a tarot reader, even if it’s a side business you do a couple hours every other day, it’s still a business. You’ll want to decide on the form of that business, whether it is a sole proprietorship, limited liability company, partnership, or corporation. I talk about that a bit in a chapter of my forthcoming book Holistic Tarot (due out January, 2015, though you can pre-order it now, here from Random House or here from Amazon or here from B&N; what, you didn’t think there’d be a shameless self-promoting plug somewhere in here?).
The following info would generally apply no matter what business form you take. Even if you’re doing your tarot business as you and are just filing a Schedule C with your personal tax returns, this information here will apply.
This post will cover your NAICS code (and what that is, if your mind is already drawing a blank), an overview of your deductible expenses as a tarot professional, and record-keeping. Oh, and it applies only to tarot professionals working in the U.S.
Know Your NAICS Code
The first step to filing your Schedule Cs (or IRS Form 1040, which is the schedule a sole proprietorship, meaning your small business that isn’t registered as a corporation, files to report income and losses: see here for more information about the form) is to know your NAICS Code. Every business no matter what form it takes will be assigned an NAICS Code.
The NAICS Code (North American Industry Classification System) is the federal standard for classifying businesses, and is used by the IRS and other government agencies to catalog your business. As a rule of thumb, NAICS categorizes psychic services under NAICS Code # 812990. (See here; run search for “psychic services.”) I would think the majority of tarot professionals, especially the ones holding their services out as psychic, would use NAICS #812990 (also titled “All other personal services”).
Categorizing your tarot business under “Other personal services,” NAICS Code # 812190 is also permissible, as is “All other professional services,” NAICS Code # 541990. Both codes also apply to tarot professionals who teach tarot or offer intuitive, spiritual, or life coaching services. Since the bulk of my tarot work involves writing and how I am paid for the work is as a writer, I categorize myself under “Independent artist, writer, or performer,” NAICS Code # 711510.
If your professional tarot business is a little bit of all the above, which it most likely is, select the Code that best represents what you do.
Know Your Deductible Expenses
As a professional tarot business, you need tarot cards. This may be the best news ever. All those tarot decks you’ve been buying are now considered capital expenses, and are thus tax deductible. And you need more than one deck to be a professional tarot business (*wink, wink*) because you need an assortment of decks to choose from on a client by client, question by question basis. Just remember that the IRS requires exclusivity, a rule you can learn more about here so for example, your personal reading decks that you never use for professional readings won’t count.
Tarot professionals need (yes, we’re going with that, we need) tarot reading cloths, incense, candles, crystals, and gemstones (what, you didn’t know every tarot professional needs these as part of our business services?) to properly provide our tarot readings so yes, suddenly all of these [often very expensive] items are now tax deductible. All the paraphernalia you need to give your tarot reading space “ambiance” as a professional reader are now tax deductible. Stationary, office supplies, your computer, the cost of your website and webhost services, Internet service provider, etc. are all tax deductible as your business capital expenses.
Again, exclusivity is the key test. If the Internet service provider you use at home isn’t used exclusively for your tarot business, that’s okay– determine the percentage of use devoted to your work as a tarot business. Remember that reading tarot blogs, visiting tarot forums, and using your e-mail service to converse with clients or prospective clients are now all part of your business expense. Reading tarot blogs and visiting tarot forums is market research and professional development. So. With all that in consideration, what percentage of your home Internet service is used for your tarot business? About 50%? Yeah? Then 50% of your Internet bill is tax deductible.
Business Use of Your Home
As a tarot professional, I’m assuming you now have a home office, or space in your home that is being used for your tarot reading work. Business use of your home is tax deductible. You’ll want to consult your tax professional on how exactly to calculate it, but here are the basics. There are two ways, the simplified method and the regular method.
The simplified method, at least as of this writing, is to deduct up to 300 sq. ft. of your home at $5.00 per sq. ft. Let’s say you use 300 sq. ft. of your home for your professional tarot business. That’s $1,500.00 in tax deductible expenses you can report each year. If you are only using 150 sq. ft., that’s $750.
The regular method is to determine the percentage (%) of your home used and to calculate the dollar cost of that based on the actual expenses of your home, which you have to be able to document with records.
Let’s say you’re paying $2,000.00 in rent each month for 1,200 sq. ft. of living space and you have your lease contract plus rental payments to prove it. Of that 1,200 sq. ft., say you’re using 150 sq. ft. of it for your tarot readings and professional tarot work. This is that desk space you’re doing your Skype readings, where you’re laying out your cards, where you’re doing most of your tarot blogging (which is part of your marketing and branding work), etc.
So you’re using 12.5% of your rented home for your professional tarot services. 12.5% of your rental cost is $250. Oh, and hey, these are all provided as samples only. My math sucks. I could have gotten the calculations totally wrong. Just get the main point out of this, please.
The IRS lets you decide whether to use the simplified method or the regular method. So run the math for both methods as applied to your business situation and go with the one that is most advantageous to you.
Remember that to deduct for business use of your home, that area you’re deducting for has to be used exclusively for your business. Otherwise, it doesn’t count. So you can’t use your family room, for example, especially if it’s being used by…um…your family. Now, one exception is if you’re using that part of your home for storage or inventory. For example, you store your tarot cards and all the paraphernalia you need for your tarot reading services in a particular area. That’s tax deductible. For more information, see here.
Business Use of Your Car
You should be logging your mileage whenever you drive around town for tarot related services or professional events. Continuing education as a tarot professional is important, so the mileage accrued for driving to and from tarot classes counts. Driving to and from tarot readings, of course, counts. From now on when you drive to and from cafes, bars, and anywhere you’ll be doing tarot readings for the public, log your mileage. Driving to and from psychic fairs, tarot conferences, and other professional tarot reading events all count. Parking and generally all costs of travel are tax deductible (plane tickets and hotel stays for attending tarot related events are tax deductible business travel expenses, since you’re now a tarot professional).
When it comes to mileage, you take the mileage and multiply by 56 cents per mile (at least as of this writing; note that the dollar amount changes year to year). That means if I logged 250 miles driving to and from a psychic fair where I was offering tarot services at, that’s $140 of tax deductible business expenses. You’ll want to keep a log of your business mileage in the glove compartment of your car. A sample log table is provided in my free download here (you can find it under the Tarot Worksheet Downloads tab on this website).
Business Related Entertainment
This one is fun, too. You can deduct entertainment expenses that you incur from the ordinary course of conducting business as a tarot professional. Most professionals and business folk at some point need to wine and dine their clients and potential clients, so those are considered entertainment expenses that are tax deductible. For tarot professionals, your entertainment expenses could be that luncheon with your tarot mentor or mentee, or a tarot colleague. It can be that [professional!] get-together of all local tarot readers at a nice restaurant.
Just remember that the entertainment expense has to be reasonable, and it has to be something most tarot professionals would do as part of developing and nurturing their tarot business. It has to be directly related to your professional work as a tarot reader and at that event, there must have been substantial discussion about tarot and tarot business. Seriously, though. Not hard guidelines to meet for most tarot folk, amiright?
Other Professional Deductions
Don’t forget that the costs you incur for tarot conferences, psychic fairs, tarot professional association fees and other related membership dues, tarot classes, buying tarot books (to further your tarot education) and other educational books you buy to develop your tarot business are all tax deductible professional expenses.
Keep Copious Records
The key is to keep copious records. From now on, save all receipts related to what you do as a tarot professional. I have file folders and a filing cabinet where I keep my records, but I’ve seen small businesses get away with literally a shoebox. Whatever works. The point is to be able to document every one of your claimed business expenses. Keep receipts, invoices, canceled checks, contracts, and billing statements.
Worst case scenario, keep flyers or well-recorded information on the who, what, where, when, and why of a particular expense. Typically that is also acceptable. Also, generally speaking, if the expense is less than $75, then no one is going to send you to jail for not having documentation.
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If you’ve ever wondered how and why so many of these mega corporations that you hear of are making loads of money end up legally paying zero tax, it’s in significant part because of these tax deductible business expenses. Now most tarot professionals won’t be operating at that scale, but knowing these basics will still be a huge benefit to even the small tarot proprietor.
Note: This blog post does not purport to give legal, business, or tax advice. It is written as a starting point for obtaining information relating to law, business, or tax for tarot professionals. While the author may be a business lawyer, she is not a tax professional and is not qualified to give tax advice. Situations can also vary on a case by case basis and the general guidelines provided above might not apply to your specific situation. Moreover, the information provided could be out of date by the time you read this. Please always consult with your tax professional.