What Interior Designers and Creative Business Owners Should Know About Bookkeeping and Taxes
We talk to designers every year who paid themselves everything the business made, felt confident heading into tax season, then filed and owed a number nobody had prepared them for.
It's rarely a tax problem. It's what happens when the books weren't set up to catch it months earlier.
This happens constantly in our industry, especially for firms doing their own bookkeeping or working with someone who isn't design-specific. And it's why we're expanding into tax services this year: for design firms, bookkeeping and taxes aren't two separate jobs. They're one conversation, and most firms only get half of it.
Design Firms Are Harder to Keep Clean than Most Small Businesses
A retail shop sells a product, collects the money, done. A design firm collects a deposit for a sofa that hasn't shipped, a retainer for a project that's 30% finished, and a check from a client who thinks they've already paid for something they haven't.
Some of that money may not be fully earned yet. If your books treat every dollar that enters your account exactly the same, your P&L may not show an accurate picture of how the business is actually performing. And when your financial reports are misleading, tax season can bring an unpleasant surprise.
Then there's markup versus margin. A designer buys a sofa at $2,400 trade and sells it for $3,360. She'll tell you she marked it up 40%. Her bookkeeper will tell you the margin was 28.6%. Both are right. But if she's budgeting like she keeps 40 cents on every dollar, she's off by more than 10 points on every piece of product she sells. Multiply that across a year of purchasing, and it's the difference between a real profit and a number that only looks like one.
Sales tax adds another layer. Product is usually straightforward: it's tangible, it's taxable. Design fees and labor are murkier, and the answer depends on your state. Some states tax the installation labor on that wallpaper. Some don't touch your conceptual design fee at all. If you're working across state lines, this isn't a once-a-year question.
Four Things to Get Right Before Tax Season Ever Starts
Reconcile every account, every month. Bank, credit card, loans. Not in December. Monthly.
Keep business and personal money separate. This isn't a bookkeeping preference. It's legal protection for your LLC or S-corp status.
Track unearned revenue on its own. Deposits and retainers for work you haven't finished yet are not the same as money you've earned. Your books should say so.
Collect W9s from subs as you pay them. Not the week before 1099s are due, when your wallpaper installer has moved and isn't answering texts.
One Number, Two Seasons
The number your bookkeeper reports to you in March is the same number that lands on your return in April. If it's wrong all year, tax season doesn't create the problem. It just makes you look at it.
That's the thinking behind bringing tax services in-house. You shouldn't have to translate between a bookkeeper and a CPA who've never spoken to each other. The people who watch your numbers monthly should be the same people helping you plan for what you'll owe.
Sherry & Morgan lead Business by the Book, a women owned bookkeeping and accounting firm serving interior designers and creative businesses nationwide.
