Sunday, April 19, 2015

Plan now for next year! Tax Guide available through 2015



Plan Now for Next Year!

 
Even though you may be worn out from working on your 2014 tax return, now is a good time to plan for next year, especially in the area of keeping good records of your business activities. As you went through your records for last year, what gave you difficulties? Are there some expenses you forgot to record, or receipts you wish you had saved? While these things are fresh in your mind, use your experience now to make things easier for next time.

If you've had trouble accounting for expenses, maybe you need to figure out a new way to keep track of things. I've always been an advocate of hand-written, on-paper records. Even in this new age of electronic record-keeping, the most compelling evidence of your business expenses is old-fashioned: written in your own hand, and at the time the expense was incurred. If you're audited, that kind of record carries the most weight. 

As a tax preparer friend of mine says, "You can't write it off if you don't write it down!"

The process of preparing your tax return also gives you a good opportunity to analyze your business activities and plan for the future. Take another look at your professional expenses. Analyze which expenses were effective in getting work. Are you overspending in some areas that don’t really advance your career? Should you be spending more to promote yourself? 

Now that you’re thinking about what kinds of things qualify as business expenses, you can be on the lookout for deductions. At a SAG Foundation tax seminar in January of 2013, Actor and Tax Practitioner Beth Lynn Kelly said that you should always be thinking, “Is this for my career?” It’s remarkable how many of your regular day-to-day activities are also legitimate business expenses.

Get more ideas from The Actor’s Tax Guide, which will be available through 2015 at www.ActorsTaxGuide.com

Tuesday, April 14, 2015

Eight facts on late filing & late payment penalties



Eight Facts on Late Filing & Late Payment Penalties

April 15 is the deadline for most people to file their federal income tax return and pay any taxes they owe. The IRS may assess penalties for both failing to file a tax return and for failing to pay taxes by the deadline.

Here are eight important points from the IRS about penalties for filing or paying late.

1. A failure-to-file penalty may apply if you didn’t file by the deadline. A failure-to-pay penalty may apply if you didn’t pay all of the taxes you owe by the filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement with the IRS to make payments, which will reduce the interest rate.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of one-half of one percent (.005) of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you requested the six-month filing extension in a timely fashion AND paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the half-percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.

More information is available at http://www.irs.gov/taxtopics/tc653.html  

Get The Actor’s Tax Guide at http://www.ActorsTaxGuide.com

Tuesday, April 7, 2015

Tips on deducting charitable contributuions



Tips on deducting charitable contributions

Donating to charity makes you feel good and can help lower your tax bill. Here are some tips to help ensure your contributions pay off on your tax return.

1. You must donate to a qualified charitable organization. You can’t deduct contributions you make to an individual, a political organization, or a political candidate.

2. You have to file Form 1040 and itemize your deductions on Schedule A. 

3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event, a dinner, or other goods and services.

4.  You can deduct your mileage (at 14 cents a mile) and other out-of-pocket expenses you incur in charitable activity.  

5. But you CANNOT deduct the value of your donated time. 

6. Donations of stock or other non-cash property are usually valued at their fair market value, which is the price you would get if you sold the item on the open market.  For household items and clothing (which must be in good condition to be deductible), think of what they would fetch at a garage sale.  If your total deduction for all non-cash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.  Special rules apply to vehicle donations.

7. You must have a written record of your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution.

8. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

Bonus tip:  Report only those contributions you actually made in 2014. If you pledged $100 to an organization in December, but didn’t actually pay until January, your deduction will be for 2015, not 2014. However, if you paid by credit card in December but didn’t actually pay your credit card bill until January, you can still deduct the $100 for 2014. Same goes for a check mailed in December that didn’t clear your bank until January: you can deduct it for 2014. 

For more information on charitable contributions, see Publication 526, Charitable Contributions, available at www.irs.gov.  For information about noncash contributions, see Publication 561, Determining the Value of Donated Property.

A CPA told me, “Your explanation of the charitable gifts [in The Actor’s Tax Guide] is probably the clearest, most concise explanation I have ever read.”  Get the book at www.ActorsTaxGuide.com.

Tuesday, March 31, 2015

Best way to pay your taxes due: electronic bank draft



Best way to pay your taxes due:  electronic bank draft


If the bottom line on your tax return is bad news and you owe a balance due, the question is, what’s the best way to pay? 


There are three ways to pay:  You can mail a check, payable to “United States Treasury” (not “IRS”) and enclose the little voucher, Form 1040-V, which isn’t legally required but will help them process your payment.  You can also pay by credit card, which isn’t a good idea, because there’s a 2.5% “convenience” fee.  The best way to pay your balance is by electronic debit, which you can schedule for precisely on April 15. You can hang onto the money until the last minute (or give yourself time to make deposits).  There’s no paper check to get lost and no credit card fee, and the responsibility for timely payment is the bank’s, not yours.



If you can pay in full, bite the bullet and do so.  If you can’t pay the whole amount, pay as much as you can by the due date. The IRS will bill you for the balance and charge interest. You can also set up periodic payments.  You can apply for an online payment agreement or you can set up a payment plan using IRS Forms 9465 and 344-F.  Here’s the link for information:




If you’re in a real hardship position, they’ve shown some flexibility in the past few years, since so many folks have been in a similar situation. The important thing is to contact your local IRS office right away and discuss your situation with them.



Under certain circumstances, if you owe a significant amount, you’ll have to pay a penalty. (It’s Line 79 of the Form 1040.) Even the IRS admits that it’s a bear to figure this out, so pay the balance due and they’ll bill you. If you file your return on time, you won’t owe any additional late penalty.



Finally, if you do have a huge balance due (or conversely, a really outlandish refund coming), you may need to adjust your withholding with your employer(s) and/or change your quarterly payments for your self-employment work.  The Treasury Department has an Electronic Federal Tax Payment System which makes it easy to set up your quarterly payments. You can also have your payments automatically debited from your bank account. Here’s the link: https://www.eftps.gov/eftps/.  To adjust your withholding, file a new form W-4 with your employer(s) and decrease your exemptions and/or request additional funds to be withheld from your paychecks.    



Further discussion about these matters is in Chapter 14 of The Actors Tax Guide, available at www.ActorsTaxGuide.com.

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