Trish and Harold's Weblog

News, information, and random thoughts from the busy lives of Trish Egan and Harold Phillips.

Sunday, January 22, 2006

Don't Be A BBBP!

Hi Everybody!

So, Trish and I went to a "Taxes for Performing Artists" seminar yesterday.

Yeah, that's right... It's only January, but these little seminars are starting to pop up all over. They're usually FREE (a very good price) because they're presented by tax preparers who are trying to get your business. I'd seriously recommend to any of you that you go to one of these presentations - you won't generally get the "hard sell" from the preparer, and you can get a TON of good information that you can use if you prepare your own taxes or use a TurboTax-type software package.

This seminar was hosted by our agent at Murphy Management, and the presenter was David K. Rogers from Actors Tax Prep in Burbank, CA. David is an actor himself (he had a recurring role on homicide), and his company specializes in the "special circumstances" that we show-biz types find ourselves in when tax time comes around.

Some items of interest from the presentation I thought I'd share with you actor-types (with the standard disclaimer that I'm not a tax professional, so don't take my word for things - if you have questions spend a little cash to ask a tax preparer like David or Trish and my tax preparer, Sandra Vincent , about your specifics. It's worth the money):
  • First and Foremost The title of this post comes from his name for a certain type of client that David sees every year... the Big Brown Box People. Don't be one of these guys, folks - the type who just carries in a big box full of receipts during tax time and dumps it on your accounant's desk. Do yourself a favor and come up with a record-keeping system so that when April comes around you can actually find and prove all those expenses deductible from your taxes. Trish and I track all our expenses in Quickbooks (though any financial management software works, like Quicken or Microsoft Money... best of all, the data you put into these programs will often automatically interface with tax software like TurboTax or TaxCut), and we use an A-Z accordian file to save our receipts in categories so we can easily find them later. Write EVERYTHING on a calendar that you save for at least 7 years (the magic number of years they can go back in an audit) - Trish and I keep palm pilots, but even a wall calendar with your information will help. David mentioned a software program called ActorTrack which not only tracks expenses and tax information, but other aspects of an actor's career... we're looking into buying that ourselves.
  • Acting income usually comes in two flavors - wage or "w-2" income, and independent contractor or "schedule C / 1099" income. You can tell which category you fall into on a given job by the paperwork they have you fill out - did they ask you to fill out a form w-4? Then you're a wage-income employee of that production company, and the government will withhold some taxes, social security, etc from your pay check (which means you'll pay less at the end of the year). You'll receive a W-2 form at the end of the year listing how much you were paid, what was withheld, etc. You report this income on your usual tax form (Form 1040), and you treat it like the income you get from your day-job in a restaurant or office or whatever.
  • If you DIDN'T fill out a w-4 when you went to work for a company, and they just gave you a check at the end of the performance, you've got to report that as Schedule C / 1099 income (You get a form 1099 at the end of the year reporting what you were paid - hence the name). This is the majority of income that we, as actors, tend to get. 1099 income has an up-side and a down-side. The Up-side is that nothing is withheld from our pay check for the government, so we get the whole amount of our contract fee. The down-side is that nothing is withheld from our checks by the government, so we have to pay the tax on that income at the end of the year (remember what Twain said about Death and Taxes? You can't get around that). This means that you'd better have saved what you're going to owe in tax, or you're going to be in a big hurt. One way to ease the pain is to pay quarterly estimates to the IRS - if you use TurboTax or have a tax preparer, they'll usually prepare quarterly invoices for you so you know how much in estimated taxes to pay every three months. It hurts to pay your taxes four times a year, but let me tell you... it hurts a lot MORE if you don't and have to pay the full amount you owe in tax on April 15 - do yourself a favor and pay your quarterly estimates!

Breaking out of the bullet-points for a moment, this distinction is very important. When you receive w-2 income, you're an employee of another company. When you receive 1099 income, however, you are a business who is subcontracting to another business. That means that YOU, Joe or Jane actor, are the CEO of that business, and all your legitimate expenses to run that business are deductible.

David said something very pertinent to this in his presentation: "remember that in 'SHOW BUSINESS,' 'Business' is the bigger of the two words." We as artists tend to pooh-pooh business-oriented thinking - we worry that "business" thinking will corrupt our integrity as artists. It's important for everyone to remember, however, that we live in a capitalist society. No matter how important or deep our art is, we have to make and use money to survive. That means that we, as professionals in our chosen field, need to pay attention to the business of acting. Otherwise the IRS (and many other people) will consider what we do a "hobby," with all the negative tax and social connotations inherent in that label.

  • Actors can deduct many many MANY expenses from their taxes. Click here for a list from David's site. A lot of the expenses listed on that page are things that everyone spends money on... because of the special circumstances of our work, however, we can deduct those costs in most circumstances. The reason for that caveat is fairly simple - the IRS hates to give special treatment to one profession over another (unless you're a CEO, but we won't go into that). Because of this, certain rules apply. For instance, you can deduct the cost of costumes, but not if you could wear them on the street (whether you would wear them is irrelevant - if you can wear that bright sea foam green jacket, it's not deductible). You can deduct hair cuts and styling If it's for a specific role. You can't, however, deduct your regular appointment at the barber. There's several more caveats like this that a tax preparer would know about... that's why it's worth the money to ask specific questions (see the email links above).
  • As you know, homeowners can deduct the interest on their mortgage. You can also deduct business-related interest on your credit card. That means that if you have a credit card that you only buy acting-related items with, you can deduct that interest.
  • Yes, you can deduct film and theatre tickets from your taxes as a "research" expense. As I said above, however, the IRS doesn't like you doing this, and if you get audited they'll try like hell to deny that deduction. Always keep a copy of the ticket stub and write the legitimate business reason for seeing that film or movie (and if you're just seeing it for fun, don't deduct it. It's really that simple).
  • Mileage for business purposes is deductible, and you should log every mile you drive for theatrical purposes (as well as the total miles driven on the car for the whole year). Most people know this. However, there are special rules governing what you can claim and what you can't. Essentially, you can't claim "commuting miles" (ie miles from your house to your place of work), but you can claim mileage between work-places. If you're working a W-2 job (see above) your mileage from home and to home is not deductible - that's "commuting mileage" to and from your place of work. If, however, you go from home to another place of business (like your post office box, or your Agent's office), then go to your set or rehearsal hall, that mileage is deductible. If you're working a 1099 job and you have a home office (see below), then all mileage from home to another place of work is deductible, because every time you leave home you leave one work-place (your home office) and go to another.
  • Other automobile expenses may be deductible (gas, repairs, etc), but it's an either/or formula: You can either take a percentage of your total vehicle cost (the percentage is based on how many miles you drove for business out of the total mileage for the year), or the number of miles you've driven for business purposes X the mileage deduction allowed (for miles driven 1/1/05 - 8/31/05 that's 40.5 cents per mile. For miles driven 9/1/05 - 12/31/05 that's 48.5 cents per mile - they raised the allowance to offset the gas price spike we went through last year. For miles driven in 2006, it's 44.5 cents per mile). In David's experience, the mileage deduction is usually better... but it depends on how many miles you've driven for business purposes.
  • Sorry, your gym membership is not deductible unless you can prove you were told to go to the gym for a specific role. Get it in writing.
  • Per Diem is a term you've probably heard a lot over the years... I never really understood it myself until yesterday. Basically, when you travel to another city for work (you have to be there specifically for work-related purposes), you can deduct a specific amount per day (per diem, in Latin), depending on where you're at, for "Meals and Incidental Expenses." You can find the specific per diem rates at the IRS web site. You have to be in this other city specifically for business (no going off to visit your sister and seeing a show while you're there, then trying to claim the whole trip. They'll get you for that), and the Per Diem rate doesn't include lodging and transportation costs.
  • Home Office Ok, this is a biggie, and kind of a murky area for us actors. Essentially a home office is an area in your home set aside, in square feet, exclusively for your business work (no, your guest room doesn't count. The square footage of your desk in the guest room might count, though). If you have a home office, you get to claim the mileage to and from job sites (see above), as well as a percentage of all your home-based costs. That percentage is based on the number of square feet your home office occupies... your home office is x percent of the total square footage of the entire home. A very big deduction, but the catch is that you have to use that space exclusively for business. If you do anything personal in there, the IRS won't allow it.
  • Here's news for all you folks who have traded in your land-line for a cell phone: The IRS won't allow you to deduct the cost of your primary phone line (i.e. your "home phone number") from your taxes. They will, however, allow you to deduct your second "business" line. If you don't have a home phone number, and instead use your cell phone exclusively, they won't let you deduct that cost. If, however, you DO have a primary residence phone line and a cell phone, you can deduct a portion of your cell phone bill. That portion is, of course, based on the percentage of your cell phone used for business purposes.

So, that's the nutshell (nutshell hell! I wrote a full page!). Again, I really strongly advise all of you to go to these free tax seminars... you won't usually be made to pay for someone to do your taxes, and they're full of lots of good information.

Off to an audition... hope you're all doing well!