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

Tuesday, February 3, 2015

Working with a Pro

Working with a Pro

With tax season now in full swing, one of the main decisions you’ll need to make is whether to hire a professional tax preparer, or to do it yourself. I’ve heard from more than one colleague that actors really aren't interested in working with taxes and would just as soon give a hundred bucks (or more) to a professional preparer and be done with it. If that's your choice, fine. You’re a job creator in the tax preparation industry. But you still need to think about a couple of things.

First, if you choose to go with a pro, make sure he or she is competent and experienced. Ask around and find somebody with a good track record.  And trust your gut.  If you’re not personally comfortable with the person, walk away.  After all, you’ll be sharing some pretty intimate details of your life with them.  The IRS has a web page of “Ten Tips to Help You Choose a Tax Preparer.”  It’s all pretty much common sense, but it’s worth a look.  Note also that all paid tax preparers must now have a Preparer Tax Identification Number (PTIN).  Here’s the link:  www.irs.gov/uac/Ten-Tips-to-Help-You-Choose-a-Tax-Preparer  

Also make sure your tax preparer knows about actors and how our business works. Many tax preparers are totally clueless about actors!  I’ve read some horror stories about tax preparers who completely screwed up the Qualifying Performing Artist rules, reported deductions improperly, and made other significant errors on actors’ tax returns.  Last year, I heard that a tax preparer who caters specifically to actors was deducting gym memberships and even Botox injections as professional expenses!  That's nonsense, and could trigger an audit, which would not be good news for you.

The main thing to remember about using a pro:  YOU are legally responsible for what's on your tax return, even if it was prepared by someone else!

OK, let’s say you’ve found a good tax professional.  The second thing to remember is that even when you use a pro, you’ll still need to prepare!  Accountants charge for the time they spend preparing your tax return, and if you bring in all your records neatly organized, their fee will be a lot lower than if you simply dump a shoebox full of receipts on their desk.  And when you pull your documents together neatly, you can easily answer any questions the preparer might have.  

My friend and tax maven Dean Vivian says that you should bring the following when you meet with a tax preparer:  1) Documentation for all your income – W-2s, 1099s, bank and dividend statements, unemployment statements, etc.  2) Documentation of all your expenses – student loan, medical, child care, charitable contributions, mortgage interest, taxes, etc., and all your professional expenses, preferably neatly organized.  3) If this is your first visit to the tax preparer, also bring a copy of last year’s return. 

I’ll be posting tax tips here about once a week during the tax season.  You can also find mini-tips at my Twitter site every day or so: https://twitter.com/ActorsTaxGuide.

Learn about actors’ unique tax issues in The Actor’s Tax Guide. The 2015 edition will be available soon.

Tuesday, January 27, 2015

Primer on the Affordable Care Act

Primer on the Affordable Care Act

The Affordable Care Act was passed in 2009 and took effect last year, and can affect your tax return in several ways. 

Individual Shared Responsibility

The “Individual Shared Responsibility” provision (sometimes called the “individual mandate”) is key to understanding the tax implications of the ACA. The law requires everyone in your household to have qualifying health insurance, called “minimum essential coverage,” for each month of the year. “Minimum essential coverage” includes employer (or union) provided coverage, government coverage such as Medicare, private insurance, or insurance purchased through a state or federal exchange, a.k.a. “The Marketplace.”

If your entire household had minimum essential coverage for each month of 2014, you simply check the box on Line 61 of Form 1040 and that’s it.  Easy.  If, however, anyone in your household did not have coverage for any month in 2014, you’ll have to determine if you qualify for an exemption or if you’ll have to make a “shared responsibility payment.” 

Exemptions & shared responsibility payment

There are several kinds of exemptions: some you get from the Marketplace and some you just claim on your tax return.  Some are based on your membership in certain groups, some are based on your income, and some are based on other factors. 

If you didn’t have the required coverage for one or more months and you don’t qualify for an exemption, then you need to make a shared responsibility payment.  You pay either according to a flat dollar amount or a percentage of your income.  This payment is capped at an amount equal to a national average for “bronze” level coverage.

You claim your exemption or figure your shared responsibility payment on Form 8965. 

The Premium Tax Credit

The Premium Tax Credit is an income-based program designed to help eligible taxpayers pay for health insurance premiums.  The program is available only if you purchased your health insurance through the Marketplace.  When obtaining insurance through the Marketplace, you provided an estimate of your income and chose to have all or part of your credit paid in advance to the insurance provider, or to wait and claim the credit on your tax return.  If you got insurance through the Marketplace, you should receive a Form 1095-A from your insurer, giving you the information about your credit. If you had too little of your credit paid in advance, you’ll claim a refund on your tax return.  If you got too large an advance credit, you have to repay the difference.  You use Form 8962 in both cases. 

Getting help

IRS Publication 5187, Health Care Law: What’s New for Individuals & Families covers this material in detail and is reasonably user-friendly.  It’s available at the IRS website, www.irs.gov.
The IRS also suggests using an electronic tax prep program.  I’m sure they realize how intimidating these new rules are for most taxpayers, and the e-file programs can lessen the hassle and confusion.  The program will ask questions about your health coverage, request the information from Form 1095-A (if applicable), and then use your income figures (and those of your dependents) to calculate your exemption, your shared responsibility payment, or your premium tax credit or repayment.

Be sure to assemble all your health insurance information and the income figures for yourself and everyone else in your household before you start work on this part of your tax return.  And if your health coverage situation is particularly complicated, just get your records together and bring them to your tax preparer. 

There is a whole new chapter in the 2015 Actor’s Tax Guide about the Affordable Care Act.  It will be available soon!      

Monday, April 28, 2014

Tips on Filing an Amended Return

Tips on Filing an Amended Return

What should you do if you already filed your federal tax return and then discover a mistake? Don’t worry -- you have a chance to fix errors by filing an amended tax return. Here are 10 tips from the IRS about filing an amended tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return can’t be e-filed -- you must file on paper.  Download and print out the form and instructions at www.irs.gov

2. You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.

3. You normally don’t need to file an amended return just to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Generally, you must file a 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Be sure to enter the year of the return you are amending at the top of Form 1040X.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You’ll find the appropriate IRS address in the 1040X instructions.

6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.  You can obtain forms and schedules for past years at www.irs.gov.

7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.

8. If you owe additional taxes with the 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.

9. You can track the status of your amended tax return three weeks after you file with the IRS’s new tool called, “Where’s My Amended Return?” The automated tool is available at www.irs.gov and by phone at 866-464-2050. The online and phone tools are available in English and Spanish. You can track the status of your amended return for the current year and up to three prior years.

10. To use the online “Where’s My Amended Return” tool, enter your taxpayer identification number (usually your Social Security number), date of birth, and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each. If you use the tool by phone, follow the prompts.

The current Actor’s Tax Guide is available throughout 2014 at www.ActorsTaxGuide.com.  If you need to file a corrected return for a previous year, email me at actorstaxguide@comcast.net to get past editions of the Tax Guide, going back to 2009. 

Monday, April 21, 2014

Plan Now for Next Year!

Plan Now for Next Year!

Even though you may be worn out from working on your 2013 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 go through your records for 2013, what is giving 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, available at www.ActorsTaxGuide.com