Monday, March 23, 2015

Business Gifts & Entertainment: Use Limits to Your Advantage



Business Gifts & Entertainment: Use Limits to Your Advantage

If you sent gifts of any kind to your clients, agents, casting directors, etc., including holiday greetings, birthday cards, and so forth, you can deduct them as business expenses. There’s a limit of $25.00 per person (not including shipping) per year, so if you sent your agent a $50.00 basket of flowers, you can’t write off the whole thing. However, if you sent the flowers to the agency (several non-related people as co-recipients and one person would not personally benefit from the gift), the individual limit wouldn't apply. If you sent out inexpensive items that were of an obviously promotional nature, such as mugs or pens with your name on them, those aren’t gifts, they’re advertising, and not subject to the gift rules.  Gratuities, such as a tip to your dresser at the close of show, aren’t gifts; they’re payment for services rendered. 

Business entertainment refers to anytime you host a client or potential client, your agent, a casting director, or anyone else who might advance your career, provided that it’s not “lavish or extravagant under the circumstances” (the IRS’s words). It can include things like theatre tickets or taking someone to dinner. And as I posted a couple of weeks ago, a dinner must have a clear, specific business purpose at the time of the event and can't be essentially social in nature. If you treat someone to dinner, you can deduct your own meal (food, drink, tax & tip) as well as your guest’s, and you must have been present at the meal for it to be deductible as entertainment – you can’t discuss business if you aren’t there!

The limit on business entertainment is 50% instead of a dollar amount, so you can use the limits to your advantage. Let's say you bought a ticket for a director to see you in a show. If the ticket was $30, call it a gift and deduct $25. If it was $60, call it entertainment and deduct $30.00.

Chapter Nine of The Actor’s Tax Guide is devoted to travel, transportation, entertainment, and vehicle expenses.  Get it at www.ActorsTaxGuide.com

Tuesday, March 17, 2015

Must a child performer file a tax return?



Must a child performer file a tax return?

If you have dependent child who has worked in the business (or if you ARE a dependent child working in the business), the question often arises about whether or not the child has to file a tax return at all. The IRS says that a dependent must file a tax return if any of the following apply:

• Their unearned income was more than $1000
• Their earned income was more than $6200
• Their gross income was more than the larger of $1000 OR their earned income (up to $5850), plus $350.

Unearned income includes taxable interest, ordinary dividends, and capital gain distributions. (It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.) Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. Gross income is the total of unearned and earned income.

Clear as mud? Here's an easy way to figure it out. Take a piece of scratch paper and enter the following:

1. Enter dependent’s earned income, plus $350
2. Enter the minimum amount, $ 1000
3. Compare Lines 1 & 2. Enter the LARGER amount
4. Enter the maximum amount, $ 6200
5. Compare Lines 3 & 4. Enter the SMALLER amount
6. Enter the dependent’s gross income

If Line 6 is more than Line 5, the dependent must file a return.  

Remember that if income taxes were withheld from the child’s income, you may want to file to get a refund, even if they aren’t required to file.  

Chapter Six of The Actor’s Tax Guide is for parents of child performers.  Get the book at www.ActorsTaxGuide.com.

Monday, March 9, 2015

Social meals aren't business deductions



Social Meals Aren't Business Deductions

There’s an active rumor mill out there, and you should be skeptical of anything you hear about deductible expenses, especially if they sound too good to be true.  I heard about a tax preparer who deducted gym memberships and even plastic surgery procedures as professional expenses.  Feces of gentleman cow.  And a while back, I was horrified to learn about a persistent rumor, mostly among younger actors, that whenever you have dinner with your actor friends and talk about the business, it's a deductible business expense. More bull pucky – and it could be dangerous bull pucky if you get audited.  

To be a legitimate deductible entertainment expense, the person you're taking to dinner (or coffee, or whatever) must have the power to hire you or to provide some other clear business advantage to you at the time of your meal, and you must discuss a specific income-producing opportunity, not just your career in general. 

For example:  you take your agent to lunch and talk about signing an exclusive contract and how they might then promote you more actively.  That’s a clear, current business relationship and the conversation is about a specific business activity that is of potential advantage to you, and the meal would be deductible.    

On the other hand, let’s say you have dinner with an actor friend and talk about a certain play you both like. Even if he or she eventually directs that show and casts you in it, the meal in question is essentially social in nature and isn't deductible. 

There's a detailed discussion of travel, entertainment, and vehicle expenses in Chapter 9 of my Actor's Tax Guide, available at www.ActorsTaxGuide.com

Tuesday, March 3, 2015

What sorts of wardrobe & makeup expenses are deductible?



What Sorts of Wardrobe & Makeup Expenses are Deductible?

The general rule about wardrobe and makeup is that if you CAN use something for general street wear, even if you never do, then it’s NOT deductible as a business expense. If you bought a business suit to do a commercial and never wore it for anything else, it’s still not deductible, because you COULD wear it in public. A sequined, gold-lamé business suit would be a different story – it’s obviously a costume and not normal attire, and it’s deductible. Dance wear and shoes ARE deductible, even though you could wear them to the gym or even some places out in public, because they’re considered specialized work clothing -- like a nurse’s scrubs or a construction worker’s safety boots. 

Cleaning, repairs and maintenance of your clothes used on the job ARE deductible.

The same rules apply to hair and makeup expenses. Here, men have it easier, because we generally don’t wear makeup on the street, so guys can probably write off all their makeup expenses. Ladies do wear makeup on the street, so you’re probably limited to deducting only those items of makeup that aren’t suitable for street wear. Hair is much the same: even if a director or designer required you to get a specific haircut or dye job for a role, if the hairstyle is suitable for street wear, it’s not deductible. One exception to the general rule might be for hand models, who have to get more frequent manicures and take other precautions beyond normal grooming to keep their hands camera-ready.

Chapter 8 of The Actor’s Tax Guide discusses more than 25 kinds of expenses actors might incur.  Order your copy at www.ActorsTaxGuide.com

Tuesday, February 24, 2015

Cell Phone Costs: What's Deductible?



Cell Phone Costs:  What’s Deductible? 


Almost everyone has a cell phone these days, and it’s an essential communications tool for actors who need to stay in touch.  It certainly passes the IRS test of an “ordinary and necessary” business expense in our profession.



There may be some confusion if your cell phone is your only telephone service.  IRS rules say that you can’t deduct the base costs of your first phone line.  But the rules are pretty specific that this refers to a LAND line, so your cell service should be deductible even if you’ve ditched your land line and use your cell phone exclusively.



So how do you deduct your cell use?  We all use our cell phones and their associated data plans for personal as well as business matters.  Here’s the method I use.  It’s a little tedious, but it gives you an accurate deduction for the business use of your cell phone, and differentiates between those calls made for W-2 work and those for 1099 work.



Your cell phone bill should detail every call you make. Every month, go through your cell phone bill and highlight your business calls, using different colors for W-2 and 1099. (Doing it monthly makes it easier to remember the specific calls.)  At tax time, first add up the W-2 business minutes each month and divide that by the total minutes used that month.  Second, multiply that month’s bill by the resulting percentage.  Include the added charges for text and data in the total bill, but if you have a family plan, be careful to use the charges for your cell number only.  Then do the same for the minutes related to 1099 work.  Finally, add up all the costs for each month for W-2 and 1099, and voilà! -- you have dollar figures for W-2 and for 1099 that reflect your actual cellular business use for voice, which also gives reasonable prorated amounts for text and data. 



In a tax seminar I gave last year, there was a CPA in attendance who said this was a rock-solid way to calculate your cell phone costs. 



Learn about all your business deductions in The Actor’s Tax Guide.  The 2015 edition is available at www.ActorsTaxGuide.com.

Tuesday, February 17, 2015

Deducting your internet service costs



Deducting your internet service costs

We all pay a substantial amount every month for internet service, and actors use the Internet for lots of business purposes. I subscribe to a couple of online casting services; I get theatre audition postings from a local website; I get my radio audition copy by email and submit my voice auditions by MP3; I submit my pic and résumé to producers and directors electronically; I even use online maps to figure out where an audition is! So it's legitimate to claim part of your internet bill as a business expense.

Now -- your internet access is basically a communication device, right? So I would tend to think of it somewhat like your telephone service. In the Instructions for Schedule C, it says that you can’t deduct the base rate of your first phone land line. But you can deduct costs over and above the base rate of the first line, such as call waiting, voice mail, and other service enhancements, or the business use of a second line, including its base rate. Therefore, it’s reasonable to look at your internet service as a "second line."  Alternatively, you could think of it like your cell phone -- a separate communication device.  So you should be able to claim a reasonable portion of your internet bill as a business expense. 

The trick is, what's reasonable?  You also use your internet service for personal emails, playing games, wasting time on social media sites, etc.  It would be impossible to figure the amount of time you spend in personal vs. business activity.  In terms of time spent, I'd bet it's more personal, but in terms of individual internet searches and log-ons, I would think the business percentage would rise substantially.  I suppose you could look at your email records and figure out the percentage of personal vs. business and extrapolate from that.  But let's just go half and half, which is what I advise for deducting the cost of telephone service enhancements. 

Start with half of your 2014 internet bill.  Deduct the portion of that expense that’s attributable to your self-employment (1099) work on Line 25 (Utilities) of Schedule C, and include the W-2 portion with “Other” expenses on Line 4 of Form 2106. 

There’s a complete discussion of other allowable deductions (and my unique system for allocating this type of expense between 1099 and W-2 work) in Chapter Eight of The Actor’s Tax Guide, available at www.ActorsTaxGuide.com.

Tuesday, February 10, 2015

Deductible Mileage



Deductible Mileage



I think I’ve heard more anxiety expressed about deducting mileage than any other topic, specifically what is commuting and what is not.  Here’s the scoop.



The basic rule is that mileage for job-seeking and career-building activities is always deductible.  These would include actual auditions and interviews, but also meetings with your agent, trips for coaching and lessons, union meetings, and errands to photographers, studios and printers to get your head shots, demos, and résumés.  All these activities are ordinary and necessary in the course of pursuing an acting career, and this is probably most of your mileage. 



Driving to a regular job, including a theatre job, is commuting and is not deductible. We encounter a grey area when it comes to driving to temporary (“freelance”) W-2 jobs.  The Instructions for Form 2106 say that if you have at least one regular work location away from your home and you travel to a temporary work location in the same business, that’s not commuting – and is therefore deductible.  So let’s say you’re doing a show in a theatre (a regular workplace), and then you get a radio spot.  It would seem that your radio spot is a temporary job in the same business.  But what if you’re not doing a “regular” job when you do the radio spot?  Some would argue that since the work is temporary in nature, it should be deductible.



Other people are much more restrictive.  They say that if you’re driving to work, no matter how temporary it is, it’s commuting and non-deductible.  But what if you have a studio in your house?  Then your home is your principal place of business (at least for voice work), and your commute would therefore be zero, and any driving you did away from home would be deductible…..for voice work.  I have a very simple set-up in my house just to record voice auditions, but if I book a job, I go and do it in a studio.  So do I have a workplace in my house or not?



See how iffy it can get? 



Two instances of driving to a job that would be deductible are when you travel to a job outside your regular metropolitan area and when you drive from job to job.   I would also include driving between a job and a job-seeking activity.  That last point is probably the source of what you may have heard about deducting everything except your first and last trip of the day. 



The foregoing discussion applies to W-2 work. The rules for self-employment business mileage as outlined in the instructions for Schedule C are much looser, and I think you can make the case that all your driving is deductible. Again, most of your driving is for job-seeking and career-building, not for shoots and sessions. I can’t give legal advice here.  I would advise you to keep your records as regularly and as accurately as you can, so that whatever choices you make in claiming mileage deductions will be logical and consistent.



Mileage and other deductions discussed at length in The Actor’s Tax Guide:  www.ActorsTaxGuide.com