EP43 - How Are Retainers Taxed? Your Creative Business Playbook

Show Notes

Retainers and deposits can feel like found money—until tax season hits and you realize you might be paying taxes on funds that aren't actually yours yet. If you've ever received a production budget in December only to pay it all out in January, or collected deposits for work you haven't performed, this episode is your essential guide to understanding when retainers count as income and how to avoid costly cash flow mistakes.

Anastasia and Myiesha break down the critical differences between refundable and non-refundable deposits, explain cash basis versus accrual basis accounting, and reveal when you might be accidentally paying income tax on money that's earmarked for vendors. You'll learn practical strategies for separating reimbursement funds from service income, discover when it makes sense to change your accounting method or fiscal year, and get actionable tips for managing production budgets, event planning expenses, and interior design client funds without draining your own cash flow.

00:00 Introduction to Retainers and Deposits

00:34 Meet Your Hosts: Myiesha and Anastasia

00:56 Understanding Deposits in the Creative Sector

01:33 Tax Implications of Non-Refundable and Refundable Deposits

04:25 Cash Basis vs. Accrual Basis Accounting

06:01 Deferred Revenue and Seasonal Business Considerations

07:25 Handling Retainers and Income Recognition

12:12 Practical Tips for Managing Deposits and Reimbursements

18:11 Final Thoughts and Viewer Q&A

19:58 Conclusion and Next Steps

Why subscribe? Every week, Let's Get Fiscal shares tax strategies and business finance advice that actually work for real entrepreneurs—not corporate-speak you can't use. You'll get specific, actionable tactics, real client scenarios, and answers to the money questions keeping you up at night. The goal is simple: make business finances less intimidating and more profitable.

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Creators and Guests

Host

Anastasia Aiello

Host

Myiesha Fisher

What is Lets Get Fiscal?

Let’s Get Fiscal is the money podcast for creative entrepreneurs who want to keep more of what they earn and grow their business with confidence. Hosted by CPA and tax strategist Anastasia, each episode makes taxes, bookkeeping, and money management simple, practical, and even fun. We cover topics like tax deductions, small business finances, creative business strategies, and how to avoid costly mistakes—without boring jargon. Whether you’re a filmmaker, designer, artist, or small business owner, you’ll get actionable tips, real-world examples, and a few laughs along the way. If you want to stress less about money and focus more on doing what you love, this is the podcast for you.

[SPEAKER_00]: Retainers and deposits feel like easy money.

[SPEAKER_00]: Until tax time, today will break down how retainers are taxed and when they count its income and how to avoid cash flow surprises.

[SPEAKER_00]: You're creative genius deserves the same precision behind the numbers.

[SPEAKER_00]: Welcome to Let's Get Fiscal, hosted by Anastasia, Maisha, and Danielle, part of the women-led team at Codary Tax.

[SPEAKER_00]: From smart tax moves to cash flow strategy, we'd decode everything it takes to run a thriving, creative business so you can scale with confidence and sleep easy at night.

[SPEAKER_01]: press play and let's grow your business.

[SPEAKER_00]: Hi guys, welcome back.

[SPEAKER_00]: I'm Maisha and I am anesthesia.

[SPEAKER_00]: I am a CPA and enrolled agent.

[SPEAKER_00]: And we like to talk about everything from money, taxes, accounting, businesses, you know, a little therapy.

[SPEAKER_00]: a little soul searching in there too, yeah, a little bit.

[SPEAKER_00]: No, great deal.

[SPEAKER_00]: So what are we gonna talk about today?

[SPEAKER_01]: So today I wanted to talk about deposits and having a production budget and all of these different types of, like it's not really income, but it is income, and it kind of sorted through all of that.

[SPEAKER_01]: All the nice little gray areas for it.

[SPEAKER_00]: Okay, well, let's start from the beginning.

[SPEAKER_00]: Why are deposits a little bit more complicated

[SPEAKER_01]: Well, because you're kind of like holding money for a future thing, so you're like, well, why am I going to pay income taxes, but I haven't done it yet, but the way that the IRS kind of sees it, and we even see it with like rental properties, is if someone gives you money, and

[SPEAKER_01]: you're not going to give it back to them.

[SPEAKER_01]: Yeah, really, you know, then that counts as income immediately.

[SPEAKER_01]: So, you know, like a nice, easy scenario is renting an apartment.

[SPEAKER_01]: So, when you rent an apartment, you have like a non-refundable pet deposit.

[SPEAKER_01]: So super.

[SPEAKER_01]: And then you have your security deposit.

[SPEAKER_01]: Yes.

[SPEAKER_01]: So because you have like a non-refundable pet deposit, that's going to be counted as income immediately because there is literally no intention of ever giving this back to you.

[SPEAKER_01]: But the security deposit, that is refundable.

[SPEAKER_01]: And so yes, there are certain scenarios where, you know, like maybe there's a little bit of cleaning fee or, you know, like steaming the carpets or what have you, but in an ideal scenario, you're giving all of it back to tenant.

[SPEAKER_01]: So in that case, it's not going to be income yet.

[SPEAKER_01]: Gotcha because there really isn't any reason for you to keep it just yet.

[SPEAKER_01]: It's not until the person moves out and you see what damages are there that you can say, okay, now I'm actually going to keep this.

[SPEAKER_01]: They got a hole in a wall or whatever.

[SPEAKER_01]: You know, so that's why

[SPEAKER_01]: if you are really taking a deposit and you're just holding it with the idea that it will be 100% given back to them unless certain things apply, then that's not income.

[SPEAKER_01]: But once they're saying, okay, I'm, you know, like you're a videographer, I'm going to give you a deposit to hold my place on your calendar.

[SPEAKER_01]: even though that's a deposit and it's not the full amount, you still have to perform this services, it's still going to become income once you receive it, even if that wedding is a year into the future.

[SPEAKER_00]: Gotcha.

[SPEAKER_00]: So does like if you have the no intent of giving them money back, is the timing kind of like important then?

[SPEAKER_00]: How does that kind of like tie in?

[SPEAKER_00]: Yeah.

[SPEAKER_01]: Yep, and I see that a lot, you know, like especially with production budgets or event planning, interior designers, especially when it comes to something that's happening like right at the very end of the year in the beginning of the next, because you'll receive the production budget or the event budget.

[SPEAKER_01]: And then you still have to give it out to people.

[SPEAKER_01]: But it is still going to be income as you receive it.

[SPEAKER_01]: And then once you spend it, then you have all of the expenses that kind of decrease that income that's going to be claimed.

[SPEAKER_01]: So yeah and that's where we have the difference between kind of the cash basis versus a cruel basis that comes into play.

[SPEAKER_01]: So cash basis really is when you receive money that counts as taxable income.

[SPEAKER_01]: When I spend money that is a tax deduction.

[SPEAKER_01]: And then that's how we get it.

[SPEAKER_01]: So sometimes there's with that there's timing differences.

[SPEAKER_00]: Yeah.

[SPEAKER_01]: You know, because we also have like the idea of constructive receipts and you know, when ownership of the funds, you know, kind of transfers and stuff like that, but there's also a cruel basis.

[SPEAKER_01]: Okay.

[SPEAKER_01]: And a cruel basis is it's only income when you earn it.

[SPEAKER_01]: Okay.

[SPEAKER_01]: And it's a business deduction when

[SPEAKER_01]: you know, you're responsible for paying it.

[SPEAKER_01]: So once the service has been provided to you, whether or not you've paid for it just yet, because the service has already been provided, you've already received the benefit.

[SPEAKER_01]: It's going to count as a business deduction, even if, you know, like you write the check on the second, on January 2nd.

[SPEAKER_01]: I don't think it's like that.

[SPEAKER_01]: So sometimes those are scenarios where, you know, I have maybe you have

[SPEAKER_01]: an annual event that always happens in like the end of a January, you know, so everybody's giving you your budget in December, and then that's what you're using to kind of plan everybody out, but you may not pay the final deposits

[SPEAKER_01]: and everything until the chat you wear it.

[SPEAKER_01]: So that's where we kind of convert things over to the accrual basis and then you have what we call like deferred revenue and yeah.

[SPEAKER_01]: So it's like income that you've received, but you haven't earned it.

[SPEAKER_01]: Yeah, gotcha.

[SPEAKER_01]: Okay.

[SPEAKER_01]: So that's where we have to kind of take a look and see, does it make sense?

[SPEAKER_01]: for this seasonal kind of nature of your business to move over, or is it kind of like an anomaly?

[SPEAKER_01]: Yeah, sometimes in, you know, like in some event planning, you know, if you're in wedding planning, you're kind of always.

[SPEAKER_01]: planning another wedding.

[SPEAKER_01]: So even if you're taking money in for one, you're spending out from another.

[SPEAKER_01]: So it's kind of, yeah, yeah, it can kind of even out year over year.

[SPEAKER_01]: So it doesn't necessarily make sense to spend extra to transfer all of your stuff over to a cruel basis.

[SPEAKER_01]: And also to you have to request that from the answer.

[SPEAKER_00]: Yeah, like there is there a law store.

[SPEAKER_00]: There's something to it to moving to it.

[SPEAKER_01]: Okay.

[SPEAKER_01]: Yeah, because you know, it has to be mutually beneficial for you and the IRS.

[SPEAKER_00]: Oh, okay.

[SPEAKER_01]: All right.

[SPEAKER_01]: Yep.

[SPEAKER_01]: So there are some certain situations where the IRS will say, you know, there's really not a business purpose for doing this.

[SPEAKER_01]: Mm-hmm.

[SPEAKER_01]: And it doesn't benefit us enough.

[SPEAKER_01]: So we're just not going to let you do it.

[SPEAKER_00]: So back to like deferred revenue, how does that differ from maybe like a retainer?

[SPEAKER_00]: So like if you have like income that you get, but it's a retainer, is that like either differences there or how does that kind of work?

[SPEAKER_01]: I mean, so retainer, I mean, it's technically always monthly, so really you're just kind of looking at, you know, whether you're cash or a cruel and, you know, when you're looking at a retainer, if you're getting paid on the first of the month for the work that you're doing through through the end of the month, you know, then or like you're getting paid on,

[SPEAKER_01]: the 25th of the month for the work that you're going to do in the following month.

[SPEAKER_01]: Sometimes that's not enough of a gap in like constant change.

[SPEAKER_01]: Okay, okay.

[SPEAKER_01]: Even if you say like okay in December they're paying for January, you know, but you're still based on the payment schedule, you're still always going to have 12 payments throughout the year.

[SPEAKER_01]: So it doesn't necessarily

[SPEAKER_01]: to end up with the exact same result.

[SPEAKER_01]: Gotcha, okay.

[SPEAKER_01]: Because at the end of the day, you're going to get paid for 12 months.

[SPEAKER_00]: Yeah, okay.

[SPEAKER_00]: Okay.

[SPEAKER_00]: So, like just knowing that, so that you don't think that you have to do this extra thing, really, it's just like making sure it all makes sense.

[SPEAKER_00]: Okay.

[SPEAKER_00]: Um, what do deposits like get taxed twice?

[SPEAKER_00]: Sometimes with the way things are set up, is that ever a real possibility or

[SPEAKER_00]: No.

[SPEAKER_00]: No.

[SPEAKER_01]: Okay.

[SPEAKER_01]: Yeah, because you're claiming the income as it's coming in and, you know, like I said, even even if, you know, you're an interior designer and somebody paid you to purchase a custom couch from one of the designers that you, you know, work with, you know, and they pay you on December 25th.

[SPEAKER_01]: Yeah, most likely you're gonna pay income tax because unless you purchase the couch, you know, immediately, but you still get, you still get the deduction, you know, and you'll always have like a little bit of that crossover.

[SPEAKER_01]: So that's what I say, like even though the years might mismatch because you have the same level of mismatch happening every single year.

[SPEAKER_01]: It's normally not a huge deal, but yeah, definitely if you are getting, you know, like six figures or more, and it's all going to happen at the end of the year, and then you have to pay out six figures in January or February that's definitely a scenario that you would want to talk to your accountant, just to make sure that you're not paying because the issue is

[SPEAKER_01]: you paying income tax on money that's not actually yours.

[SPEAKER_01]: Because I said, you know, like if somebody gives you $100,000 for the production budget, and you get it on the last day of the year, then you're paying income tax on $100,000, but then you turn around the next day, and you spend $100,000 on cast and crew and location fees and equipment rentals.

[SPEAKER_01]: you know everything like that that's where it kind of gets like okay so now now not only did I have to take that all of that money and pay out all the cast and crew now I also have this bigger tax bill of you know like 15-20 thousand dollars

[SPEAKER_01]: 15-20 thousand dollars that I have to pull out of it.

[SPEAKER_01]: So, you know, it's just definitely things that you want to make sure that you're communicating to your tax accountant and making sure that it's all getting kind of recorded properly and that they understand kind of what's going on because there are different businesses that are seasonal in nature, you know, like you have like ski lodges.

[SPEAKER_01]: Yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah

[SPEAKER_01]: Oh, so now you can have, you know, you can do like cash versus a cruel or you can say instead of my tax year ending December 31, you know, kind of moving forward because of the seasonality, I'm going to have the tax year and February 28 every single year and then that way you don't have that crossover between the two years.

[SPEAKER_00]: Is that another scenario where you have to do kind of like a form in the iris and determine if it fits for them as well similar, okay, okay, so like it's usually that you're a calendar year and then you have to request if you want to do anything outside of that.

[SPEAKER_00]: Okay, let me send and show kind of the reasoning why and all that fun.

[SPEAKER_00]: So what about um, because I know what happens in life happens and everything like that, but like to posit that um, creators may get, but it's for unrelated expenses to like maybe like the business or whatnot or maybe it's just like a mistake like what are your usual tips for those types of things of like the deposit is coming in, but it's not actually income and it's not even related or anything like that like how to handle those types of things because you know, life happens.

[SPEAKER_00]: You give someone an account and you realize it's the wrong account and you're like oh,

[SPEAKER_01]: Hmm, do you mean like, you know, like if you're receiving somebody's deposit and then you have to pay it out to a vendor just making sure that it's separate from your operating costs for that you're not using your, you know, you're not using other people's money to pay your business.

[SPEAKER_00]: Yes.

[SPEAKER_00]: Yes.

[SPEAKER_00]: Sorry.

[SPEAKER_00]: Yes, that was not a great way me explaining it, but yes, yes, yes.

[SPEAKER_01]: Yes, that's okay.

[SPEAKER_01]: It's so like is that in the case of, you know, like maybe film production, you know, word like, you know, commercials, what have you where you have to pay casting crew and

[SPEAKER_01]: they're giving you the budget for that and that's like a specifically earmarked for it or you're an interior designer or an invent planner and they're paying you specifically for you to pay this vendor this amount.

[SPEAKER_01]: It's really good to make sure that as the income is coming in.

[SPEAKER_01]: your separating out the funds that are really those reimbursements for those future expenses.

[SPEAKER_01]: Okay.

[SPEAKER_01]: So you want to separate out what is the amount that's actually kind of my profit and the income that I get from my services that I'm providing and what is the portion that is actually reimbursement for things that I still have to pay for.

[SPEAKER_01]: and keeping them really separated that way you're not, you know, like I said, eating into the design budget, you know, like paying the monthly rent for your studio.

[SPEAKER_01]: Yes, things like that.

[SPEAKER_00]: I'm glad that you understood what it was that I was trying to ask.

[SPEAKER_00]: So that is very helpful.

[SPEAKER_00]: So what a good way of helping to separate things out, be maybe on your invoiceing, like with your in like have your services as one line and then like a specific things for it's like, okay, a couch purchase.

[SPEAKER_00]: It's a completely separate line item, or really depends.

[SPEAKER_01]: Okay.

[SPEAKER_01]: Because every business is going to be slightly different.

[SPEAKER_01]: So like in interior design, because sometimes, you know,

[SPEAKER_01]: your pay, they're paying you to design the space and then they also are paying you a feed to collect the items, have it delivered, get it set up, style, all of it, but sometimes you have to be very specific about the cost of the individual items because

[SPEAKER_01]: the client could also just go to the designer themselves and get the, you know, like I've had that happen where, you know, they're like, okay, well, if I add, you know, if I add a mark up to this couch, the client's just going to turn around and go to the people and say, hey, can you match the, you know, like the discount for, you know, designers and then they just get it on their own.

[SPEAKER_01]: So there's some scenarios where yes, it is separated out so that the clients can see, you know, even if they were to go on their own and get this item, it's the same cost.

[SPEAKER_01]: So it doesn't really matter or sometimes there are scenarios where it's all just jumbled up together.

[SPEAKER_01]: You know, so it really depends on, you know, what kind of services, what industry you're working with and all of that fun stuff on whether you separated out on the invoicing.

[SPEAKER_01]: But in a lot of cases, there are, you know, systems that kind of on the back end and for you, separate it out.

[SPEAKER_01]: So I mean you have like your production budget, whether production assistant is writing in like here's all the You know here's the original budget here's all the costs that are getting spent against the budget and things like that So that you know the cost of the full production Got you know, so there's just different ways the different industries are doing that, but it's just the key is to actually do that

[SPEAKER_00]: Yes.

[SPEAKER_01]: Yeah.

[SPEAKER_01]: Yeah.

[SPEAKER_01]: Yeah.

[SPEAKER_01]: Yeah.

[SPEAKER_01]: Yeah.

[SPEAKER_01]: Exactly.

[SPEAKER_01]: Exactly.

[SPEAKER_01]: And then also, you know, like I said, if somebody gives you money that is earmarked for a very specific thing and you have to pay it out to another person, just having all of that in a completely separate bank account.

[SPEAKER_01]: That way you're not touching it because then you get into like weird situations where, you know, like I said like you use their cash to pay the rent For your office space and then you use your credit card to pay for the vendor And then it things get a little convoluted and you end up with like a really high credit card bill

[SPEAKER_01]: like you can't really get ahead of.

[SPEAKER_01]: So just making sure that you keep your reimbursement funds completely separate from that service question come and you know like like I said like having that income account, having your operating account in the you know and the budget account, completely separate.

[SPEAKER_01]: It's really helpful tracking.

[SPEAKER_00]: Yeah, no, that makes sense.

[SPEAKER_00]: For the deposits that are service-based and they're actually not bringing reimbursement or anything like that, is there a percentage that creative should kind of like um kind of like try to stick to whatever to like, you know, put away, put aside or anything like that and because in that scenario, it is income.

[SPEAKER_00]: Oh, okay.

[SPEAKER_01]: So you just treat it like you would anything else.

[SPEAKER_00]: Okay.

[SPEAKER_00]: Okay.

[SPEAKER_00]: He's in really easy.

[SPEAKER_01]: Yeah.

[SPEAKER_01]: So like in the case of a wedding photographer, you know, somebody gives you a deposit to, you know, hold their place on your calendar.

[SPEAKER_01]: You would just treat it like any other income.

[SPEAKER_01]: So you're saving, you know, 30% of whatever that is and putting that in your tax account.

[SPEAKER_01]: And, you know, saving is account.

[SPEAKER_01]: And then the rest of it goes to normal operations.

[SPEAKER_00]: So if someone's gonna take a look at their stuff today and check it all out in what the top like three things to kind of look for or to just like be aware of.

[SPEAKER_01]: I mean, you know, like I said, having a system where you're not, you know, eating into that reimbursement budget is always good, you know, but that's just, you know, kind of like a general business practice.

[SPEAKER_01]: Um, and then the rest of it is if there are timing differences, or you have a seasonal business, bringing that up to your tax account and to your tax planner, so that they're able to accommodate you and your business, um, because again, the IRS wants their money.

[SPEAKER_01]: Mm-hmm.

[UNKNOWN]: So.

[SPEAKER_01]: They recognize that different businesses have different levels of income at different times of year.

[SPEAKER_01]: So they're going to do whatever gets them their money the fastest.

[SPEAKER_01]: That's a good joke.

[SPEAKER_01]: Yeah, you know, like I said, if the year sees it, you know, if your major part of your season is through the, you know, the traditional calendar year,

[SPEAKER_01]: You know, they'll say like, okay, we'll wait two more months to get extra money, that's totally fine.

[SPEAKER_01]: You know, so there are different situations that can help business owners, you know, like I said, either cash or cruel or adopting a fiscal year, calendar, then that's totally fine.

[SPEAKER_01]: It's just another planning tool that has to be communicated out to your tax support team.

[SPEAKER_00]: No, I'm excited.

[SPEAKER_00]: I mean, having a good plan improves most of most things, having thing and then, you know, consistency, like we always say, like, whatever you're going to do, be consistent and keep a track of that.

[SPEAKER_00]: Yeah.

[SPEAKER_00]: Right.

[SPEAKER_01]: So, yeah.

[SPEAKER_01]: So, if you have any questions, kind of about how to handle retainers and deposits and budgets and all of that fun that does feel free to put a comment below or send us an email and we are more than happy to help you

[SPEAKER_01]: It's a particular situation.

[SPEAKER_01]: Bye, guys.

[SPEAKER_00]: And we coughed once that episode.

[SPEAKER_00]: We're doing good.

[SPEAKER_00]: Okay.

[SPEAKER_00]: That's it.

[SPEAKER_00]: Let's get this go.

[SPEAKER_00]: Ready to stop guessing and start saving.

[SPEAKER_00]: Click the link in the show notes.

[SPEAKER_00]: Grab your console.

[SPEAKER_00]: And let's make your business work for you.

[SPEAKER_00]: Not yet.

[SPEAKER_00]: The way around.