A Taxing Situation: Mailbox

The Back-to-Business Series: Index

Hello again folks! We got a lot of visits to the blog this week from people with tax-related questions and comments... such as:

... I heard that I could deduct my cable TV from my taxes... KD (Nashville, TN)

... what about hair cuts? I have to get my hair cut to look like my head shot, right? AS (Baltimore, MD)

... movie and theater tickets should definitely be on your list! That's a research expense! SB (Portland, OR)

There were a host of other ideas for acceptable expenses - such as gym memberships, dietary supplements, clothes and shoes...

Now, as I said in my previous post, I'm not a tax professional. Specifics questions like this should be addressed to an expert in the field - someone who'll stand by his or her answers if you get audited. Because, in the final analysis, that's what it's all about... you can put whatever you want to on your tax form. The big issue is whether or not you can defend them in an audit - if you can't, you're going to be in for the expense of not only paying back the amount you didn't pay on this year's taxes, but whatever fees and penalties are associate as well. If you're unsure, by all means, find a qualified tax person in your area who understands the oddities that show up on an actor's tax form.

I can tell you what I've heard from one such expert in the field... a few years ago I went to a tax presentation put on by David K. Rogers - President of L.A.'s Actors Tax Prep (the folks who put together that handy list of deductible expenses I linked to in the last post). Now, David passed on a lot of useful information at that presentation, but he kept coming back to one guiding principal again and again, and it's always stuck with me - "be reasonable," he said. Our jobs as actors require us to invest in things that non-actors purchase and don't deduct (movie tickets, hair cuts and the like). The IRS doesn't like to give one class of people "special treatment -" they're uncomfortable with you writing off your cable bill while your neighbor the electrician can't.

Now, the argument can be made that you really need to watch Big Love to research that religious extremist role you'll be playing... but can you argue that 100% of the television you watch is for the same purpose? Probably not - there's a lot on television that doesn't have to do with our particular field (more and more in these days of "reality" TV). So, if you're going to deduct your cable bill, be reasonable - deduct the percentage you use for research. If you're going to deduct your movie tickets, be reasonable - don't deduct some of the movies you've taken in for sheer entertainment. Haircuts? Just deduct the ones you get specifically for a role... in the event that you get audited, the argument you make about the business purpose of those expenses will be a lot stronger if you can show some expenses that weren't deducted.

Again, though, I'm not a tax professional. If you have a question then please, PLEASE consult a licensed tax pro. It's worth the investment... and it is, indeed, a legitimate deduction :)

... I understand the difference between 1099 and W-2 income. I've done a lot of 1099 work over the last year, but only a couple of the companies I worked for sent me a 1099 - I don't have to put the income from the ones who didn't on my taxes, do I? (I'm not even going to put initials and location on this one :) )

Ok, not only am I not a tax professional... I'm not a lawyer. Don't take my word as legal advice - and this question definitely falls into the realm of tax law!

The safe way to play it is to report all your income; you may not have received a 1099 from the companies you worked for, but that doesn't mean that they didn't report the money they paid you as an expense to the IRS... and if they reported and you didn't, that could end up being a "red flag" that brings your return to the IRS' attention. Again, you can put whatever you want to on your tax form - but you have to be prepared to defend what you put on that form in the event of an audit.

My general policy is better-safe-than-sorry; I report everything I make as an actor on my taxes; aside from the fact that it's the honest thing to do and the safest way to go, it's good for the self esteem - the amount you've made in a given year can really help to pick you up when you're feeling blue about a dry spell you happen to be going through. The total amount you made as an actor in a given year can be a happy surprise when you actually run the numbers!

... I get tired of hearing about actors being paid as indepdendent contractors. They're working for the production companies who hire them - and as such, they should be paid as employees with benefits, and with taxes taken out of each check! TW (Seattle, WA)

That may be true, TW. There's been a lot of press in recent years about various Departments of Labor around the country citing theater and film production companies for paying their actors as contractors rather than employees... until every acting job is a W-2 job, however, actors will need to know how to file a Schedule C. As I said above, we're supposed to report all income we bring in during a given year; if that's 1099 income, we need to report that, too.

... I can't afford to pay estimated taxes - they send them to me every year, but how am I supposed to pay the goverment when I'm trying to pay my rent? RS (Austin, TX)

Yeah, I know. It's not easy, is it RS? As I'm sure you know (if you haven't been paying your estimated taxes), there's a penalty assessed at the end of the year if the government doesn't get your quarterly payments. You have to look at how much that penalty amounts to and make a choice - are you out more money by paying every quarter? Or by paying the penalty in April?

There's usually a break-point... when I was making a couple thousand dollars a year as an independent contractor, and the majority of my income was W-2, I did the same thing... I skipped the quarterly payments and just paid a little extra when I filed my taxes (it usually amounted to $20 or so). Once I started making more money on my Schedule C, though, the penalty moved into the hundreds - and now I'm looking at a lot of money out the door if I don't pay those estimated taxes!

We're going to focus on structuring your business to make next year's taxes easier next Monday, but one thing you can do to ease the pain is open a savings account. Put a percentage of every pay check into that account (30% to be safe). When it comes time to pay your estimates, take the money out of that savings account, rather than your checking account. It won't ease the pain of your not having 30% of your pay check to spend when you get it... but it'll sure make those estimates a little easier to manage (and it'll reduce the bill you pay in April).

Ok, folks, that's it for now... As I said above, next Monday's post will be focused on making next year's tax season easier - by setting yourself up to track your income and expenses throughout the year.

Let's go to work!

-Harold