Synopsis by Tracy Weisert
Our Casting Networks’ Inside the Industry Seminar about actor’ taxes was very helpful and enlightening on January 30. We also had some fun!
We were fortunate to have three representatives from the company, ActorsTaxPrep, Inc., as our guests-President David K. Rogers, Judy Bernstein, CPA and Ernie Dicke, EA. In addition to preparing taxes for actors, they also have many other members of show business including choreographers, grips, writers, directors, etc. as their clients, not just actors. As a former actor, David, who was our main guest speaker and colleagues, were very savvy with answering actors’ questions. When talking about actors getting audited, David broke the room up with laughter when he said, “An auditor in Cincinnati has no idea what a headshot is!” David, Judy and Ernie all complimented our member attendance at how attentive and smart they were. Below is a helpful guide, courtesy of ActorsTaxPrep, Inc. that you can save for your tax needs.
A CONDENSED GUIDE TO TAXES AND RECORD-KEEPING FOR PERFORMING ARTISTS
Prepared by ActorsTaxPrep, David Rogers
Actors basically run their own businesses–and for most actors, that business is a one-person company. That means that you have to accept responsibility for every aspect of the business–from promoting yourself to keeping good records to filing your taxes, and more. Not only are you the CEO of your own company, but the Chief Financial Officer and the head of the Tax Department as well.
Here are some suggestions on how to effectively maintain the records you need for tax purposes. You will also receive some information about your taxes and the processes of filing and paying taxes that may well help reduce the taxes you have to pay.
RECORD KEEPING
In general, you will want to keep written records of virtually every expense which will affect your taxes.
In addition to listing expenses, though, you as a taxpayer are responsible for maintaining accurate income records.
Income can come to you in many forms, including:
Money paid to you as an employee, for which you receive a W-2
Money Paid to you as an independent contractor, reported on a Form 1099-MISC
Unemployment Compensation, reported on Form 1099-G
Pension and Social Security Payments, reported on Form 1099-R
Alimony paid to you
Royalties and Rents paid to you
Interest and Dividends paid to you (on Forms 1099-Int and 1099-Div respectively)
Profit from the sale of stocks, bonds and other securities, on form 1099-B
Cancellation of debt on form 1099-C
Cash payments
Other payments
Most actors will not receive anywhere near all the forms of income listed, but can easily be paid for three or four. Because as actors, we may have multiple employers during the year–especially if we are earning residuals, it is important to maintain an income log.
That way, at the end of the year, you can verify that you have received documents needed for your taxes from each income source. If you fail to receive a W-2 from an employer, you are still responsible for reporting that income, and if you fail to do so, you may at a later date be subject to penalties and interest on the taxes due from that income. So it is definitely in your best interest to see that your income is accurately reported, in a timely manner.
An income log can be simple, showing the dates you worked, the employer’s name, and income received. This is true for both employee income and independent contractor income.
Before beginning on your tax return, you then need to check W-2s to be sure you have received one for all the income listed in your log. The same is true for 1099-Misc Forms, with one exception. A payor is not required to mail you a 1099-Misc if the income earned by you is less that $600.00 per year.
If you receive money from a government, usually that government mails you a 1099-G form. This is true for state unemployment and state tax refunds, the two most common government payments received by performers. Keep these records for your tax preparation. New York State no longer mails 1099-G for refunds, but you can get the information online if you have a NY refund for the prior year.
Interest and dividends also are reported to you by banks and financial service companies on a 1099 form, called 1099-Int and 1099 Div respectively (assuming more than $10.00 in interest and/or dividends was paid).
The law also requires you to report income from such miscellaneous sources as jury duty, election official stipends, cash payments and gambling and game show winnings. Larger gambling and game show winnings require the payor to send you a 1099.
If you sell a stock, bond or other security, that sale must be reported. If you show a profit on the sale, that profit will be subject to capital gains taxes while a loss may well earn you a deduction. In most cases, if handled through a brokerage firm, you will receive a form called 1099-B, showing the name of the security, date of sale, and proceeds from the sale. You will also need to know the date of purchase and the purchase amount, data which are sometimes provided by brokers, and sometimes not. If you have a capital loss, you can deduct for the current year and up to $3,000 for each subsequent year until the loss is fully depleted.
KEEPING TRACK OF EXPENSES
This section will detail some general rules for keeping good expense records.
First, and very importantly, you must learn to deal with record keeping on a regular basis–preferably weekly, but no less than twice a month. If you try to deal with your records every couple of months, or even at the end of the year, you’re inviting inaccuracies that can cost you money. A daily or a weekly discipline of dealing with expense records is never a truly burdensome task because it simply is too short to qualify as such.
And doing it regularly helps ensure that your paperwork doesn’t get lost or misplaced and your memory about the items involved is clear and accurate. Who can remember a year later the business purpose for a lunch, or where you started from when you drove to see your agent?
Many actors are finding that a good software program, such as Performer Track, eases the job of keeping records. Such a system not only provides good financial records, but promotes good record keeping for every other aspect of the acting business–tracking auditions, call-backs, wardrobe, headshots, etc.
In addition to recording your expenditures, either via a computer or in writing, you need to maintain the paper work, such as receipts. A good accordion file, with multiple folders generally makes this pretty easy. You can also use the accordion folder to file items by category. You set up such categories as Office Supplies, Photography, Agent Commissions, etc. and maintain the files accordingly. Just label internal slots, which come numbered from 1 to 31, with the category labels you use most. Keep one for tax documents, where you can put your W-2s, etc. when they begin to arrive.
WHAT RECORDS SHOULD YOU KEEP?
The answer to this question varies by category. Let’s take them one by one.
General expenditures. For most of these, you will want to keep a cancelled check, a receipt
and/or a credit card receipt. Statements from banks and credit card companies can sometimes be used, but the entries printed on them must be linked to an explanation of what the entry is for.
For most expenditures of $75.00 or less, the IRS does not require a written receipt so long as the expense is logged in your business log, which can be a daybook, a software program, such as Performer Track, a ledger, or a calendar. The entry should identify the expenditure, the cost and the business reason, if needed.
Some sensitive expenditures–for example, the research costs involved in movie admission fees should have receipts, even though they are below $75.00.
In fact, it is a very good idea to keep ALL receipts, regardless of the dollar amount. That shows the IRS that you maintain excellent, business-like records.
Some expenses cannot be receipted–for example, a quarter in a parking meter at an audition, a bus fare, stamps from a machine, etc. But if these are properly logged, they are fully deductible and will not be missed out. What seem like trivial expenses add up to big bucks over the course of a year.
Most actors, especially those in Los Angeles, drive their cars a lot for business purposes, and most actors find the Mileage method of computing a tax deduction easiest to employ.
To do so requires maintaining a mileage log, which shows the date you drove, where you went, and total mileage from beginning to end, plus the business reason for your trip. You will also need to note your odometer readings at the end of the year and the beginning of the year.
Remember, commuting miles, that is, miles driven to and from a job, are never deductible.
ASSESSING WHAT IS DEDUCTIBLE
In general, a deductible business expense must be ordinary and necessary. An ordinary business expense is one that is common and accepted in your field of business. A necessary business expense is one that is helpful or appropriate for your business, trade or profession. An expense does not have to be considered indispensable to be considered necessary. Further, you cannot deduct expenses that are considered to be lavish or extravagant under the circumstances.
Attached is a list of potential deductions commonly available to entertainment professionals. But IT IS IMPORTANT TO NOTE THE FOLLOWING DISCLAIMER: Qualifications on all deductions may apply, and differing circumstances may qualify or disqualify an expense for deductibility. In every case, consult your tax advisor for determination.
QUALIFIED PERFORMING ARTIST
About the only break that the US Congress has given to performing artists is this arrangement, which has sadly outdated income levels, but if you do qualify, it can be most helpful. To file as a QPA, you must have adjusted gross income of $16,000 or less (even if you file jointly.) You must also have at least two W-2s that are for $200 or more and are from entertainment sources.
If you meet these criteria, you get a very meaningful position that cannot help but lower taxes. You are permitted to take the standard deduction (which for 2009 is $5700) AND your business expenses from the performing arts. Most taxpayers can only do one or the other, but QPAs can do both.
WHERE DO I GO FROM HERE?
This guide is not meant to enable you to complete your own tax return as a performing artist. Every year, the tax code becomes more complex and adds additional detail, and unless you have a professional’s knowledge of the code and a clear understanding of the entertainment business, dealing with it is difficult at best. What we hope this guide provides is some insight into the more important aspects of taxation.
Working with a tax pro who has a clear understanding of the entertainment industry is, in our modest opinion, a smart decision which will pay off in keeping your tax obligations as low as legally possible. The website for our company has substantially more information which may prove to be helpful for you, so please feel free to consult it if needed.
Thank you David, Judy and Ernie of ActorsTaxPrep, Inc. for your helpful, terrific seminar!
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Seminar Recap