Tax season can be an oftentimes-stressful experience for the average taxpayer, but for freelance performers, it can be especially … well, taxing. After all, the work of an actor, singer, dancer or stunt person is different from other occupations, and for many, practicing their profession is as much of an investment in time as it is in cost.
To help, the New York Local’s MORE Committee held its annual Tax Returns & the Working Actor seminar on Feb. 4. The workshop was led by Sandra Karas, with attendees participating via teleconference from the Los Angeles, San Francisco-Northern California, Philadelphia, New England and Atlanta locals. Karas is not only an attorney and tax accountant, but a working stage and screen actor and the director and chair of the Volunteer Income Tax Assistance (VITA) program, which offers tax services to performers, as well as members of SAG-AFTRA and Actors’ Equity Association.
Here are some of Karas’ vital tips to help you prepare for tax season, both now and into the future.
Don’t begin filing your taxes until you have all of your materials.
Recordkeeping is an essential part of filing your taxes, but this is especially true for freelancers. Remember, working for several different types of employers throughout the year means that you’ll likely receive several different types of tax statements when the season begins: W-2s, 1099s and more, depending on your work status, age and benefits received.
Karas points out that a good way to know what to expect, and from whom, is to keep your paystubs on record. Also, be proactive: If there’s something you are missing from work that you’ve done, reach out to your employer or contact their payroll company.
“Don’t assume if you didn’t get a form, you’re not expected to report those earnings,” said Karas. For information on who to call for W-2s, click here.
When it comes to your professional expenses, don’t guestimate.
When we’re talking about professional expenses, we’re really referring to your tax deductions, defined as costs that you, the taxpayer, have incurred throughout the year that can be applied to figure out how much you owe in taxes.
As important as it is to report all of your earnings, it’s also helpful to identify any expense you’re taking on as a freelancer: agents’ fees, audition costs, makeup purchases for work, tips and gratuities, acting classes and even your union dues, to name a few. As Karas emphasizes, don’t underestimate how much you are investing to promote yourself.
At the same time, there are things that cannot be expensed — for example, the dry cleaning bill for clothing you wore to your most recent audition and your gym membership do not count as tax-deductible expenses.
It’s also better to not guestimate your expenses. Rounding numbers to the nearest tenth may lead to further questioning from the IRS and additional scrutiny, such as an audit. The best policy to take when calculating expenses is to keep a careful record of your receipts throughout the year.
To that end …
Credit card statements are not an acceptable proof of your expenditures.
Karas’ stance on this is clear: “No auditor is going to accept a [credit card statement], because it does not point out the exact expenditure of each purchase.”
Simply put, a credit card statement lists a charge at a merchant site; it does not identify the specific item. In order to declare it as a business purchase, the actual receipt must be retained.
Record-keeping is crucial, and Karas recommends photographing or utilizing a cloud-based system to scan and save your receipts. Bookkeeping programs like Quickbooks Pro can make the process easier for those who want to keep records that can be reviewed at any time throughout the year. However you choose to keep your expense records, be sure you can organize them by category when gathering materials for your tax preparer. Most entertainment tax preparers will have worksheets to help you organize at tax time.
When it comes to certain expenses such as phone, internet, cable and/or streaming services, you must allocate how much usage went to business use versus personal use.
Believe it or not, your phone, internet, cable and streaming services can be considered business expenses. However, because these types of programs and devices are also used personally, it’s important to determine how much of that usage — and cost — went toward your professional work.
Karas said this simple math equation should do the trick: Total $ x % of use = Total Business Expense.
Simply tally the total amount of your phone or internet bill for the year, and determine the overall percentage of use that went toward doing things like updating your website, gathering research materials or making business calls. Be sure to express the percentage of use in decimal form (for example, “30%” should be written as “.30”).
Be mindful how you determine expenses for meals, out-of-town expenses and automobile usage.
Automobile usage, audition costs and out-of-town travel, including meals, are among the most important expenses a freelance performer assumes. After all, not every gig is close by, and when work takes you away from home and requires an overnight stay, those expenses tend to add up.
As noted previously, determining the business use of expenses is important. Meals, automobile use and other travel costs are considered expenses — but the caveat is, not every expense you incur or every mile you drive will be deductible on your tax returns unless you are out of town on business overnight.
For example: meals. Picking up the drink tab after a night out with your fellow actors doesn’t count for a deduction, as it’s considered to be a personal expenditure; however, paying the bill for lunch with your representative or a producer does, because it can lead to employment.
The same is true of out-of-town expenses: If the reason for travel is to work or look for work, the costs you incur during that time will be deductible. Karas notes that this does not apply if your travel costs are being covered while you’re working.
“If a production flies you out and puts you up for lodging and meals, you may not have [many]taxable deductions. Still, if you make an unexpected [business]purchase for yourself during that time, make note of that.”
She also recommends getting in the habit of keeping tabs on your automobile mileage. Mileage records are required if you’re audited. Using your calendar or an app helps when it comes to tracking total miles, business, commutation, charitable and medical miles. Although commuting costs are not deductible, business mileage can be claimed when your car is used for work (i.e., background), auditioning, going to and from classes, doing research and driving between two jobs on the same day.
While these tips can help make organizing your records and filing taxes easier, there are many more nuances to keep in mind. The best course to take when you’re getting ready to file taxes is to talk to a professional. Click here to find a VITA site near you and find out what materials you will need to bring to an in-person appointment.