Actors, artist, and musicians hold a special place in all of our hearts. At some point in our lives we have all been touched by the performance of an actor in a movie, TV show, or on stage. All of us have felt the thrill and excitement of hearing the latest song from our favorite band or singer. Most of us have had some piece of art hanging on our walls, even if it was simply a movie poster hanging on the wall of our dorm room. The point is that we all know and love artists.
With that in mind, most artists don’t get along very well with finances. The personality of an artist rarely matches up with the rule-driven and form-dominated world of finances and taxes. As a result, far too many actors, artists, and musicians will put off tax filings until the very last minute. Then when they finally start getting ready to file their taxes the records are in terrible shape so they either can’t prepare their taxes themselves or they don’t have enough information for the tax preparer to file a return. On top of that, since everything is so out of whack it is likely that the tax returns are incomplete and incorrect.
With that in mind, here are a few tips for those performers out there when it comes to filing your tax returns. These are just some pointers and guidance for you and certainly isn’t everything you will need to know in order to complete your tax filings properly. Make sure to consult with your tax advisors when filing your tax returns for more detailed information relating to your specific situation. Everyone’s tax situation is different.
Income – What is it?
Most every adult has at least heard of the Form W-2. It is, of course, the standard form that reports the wages you receive while you are working for a company (in a very broad generalization). However, if you are like many other performers, you are “self-employed” which means you don’t get a W-2 at the end of the year. Instead of working for one organization over the course of the year you have performed in four different shows at four different theaters getting paid by four different people. You are operating as an independent contractor.
As an independent contractor, you should receive a Form 1099-MISC from anyone that pays you more than $600. This form is used by the IRS to document your income to make sure you are claiming in the income on your tax return. Even if you don’t receive the Form 1099-MISC, you are still responsible for reporting any payments you receive. So, as a working actor you just went from receiving a single W-2 to receiving multiple 1099s, all of which must be reported as income on your tax return.
All of the income that you received on Form 1099-MISCs will be reported on Schedule C of your personal tax return. The Schedule C is where self-employed individuals report the profit and losses from your business. In your case, your business is acting (or directing, or singing, or dancing, or, or, or). So now that you have made all this money (you may laugh at this statement), what can you deduct?
Expenses – What I can use to reduce my income.
When you think of a “standard” business it is easy to identify the expenses that can be used to reduce the income for tax purposes. Use an accounting firm as an example. We accountants make money by providing bookkeeping, accounting, auditing, and tax preparation services. In order to perform those services, we need things like paper, pencils, printers, internet service, office space, electricity, and other basic office needs. When it comes to a performance artist, these types of expenses aren’t as easy to identify. According to the IRS, all deductible business expenses are those that are:
· Incurred in connection with your trade, business, or profession.
· Must be “ordinary” and “necessary”.
· Must “NOT be lavish or extravagant under the circumstances”.
That means there are some expenses that you, as a performer, would be eligible for where me, as an accountant, would not. As a musician you may hire a manager to help with your business or use the services of a booking agent to get gigs. Those expenses would be a deductible business expense as “ordinary” and “necessary”.
Unfortunately, there are lots of grey areas when it comes to expenses and performers. Let’s use the easy one as an example: wardrobe. Go take a look in your closet? You may have a nice tailored suit that you purchased because you were auditioning for the part of an attorney on Law and Order: SVU. Not a bad purchase and it looks great on you. Hanging right next to that suit is a police costume that you also purchased for an audition except this time it was for Law and Order: Criminal Intent. The question is whether or not you can deduct the cost to purchase these costumes? The answer is you can deduct the police uniform but you can’t deduct the suit. Why? Because you could always wear the suit out as part of your “normal” life but the police costume typically can’t be worn as part of your “normal” life.
What about Travel?
Actors and musicians may tend to travel all over in order to get the paying gigs they so richly deserve. The travel to get to work in order to perform, not to mention to audition, can be costly but it can also be a tax deduction. If you are traveling far enough away that it is inconvenient to return home at night you can deduct all of your expenses associated with the overnight travel including hotel fees, reasonable tips, phone calls, etc. You can also deduct 50% of the cost of your meals while traveling.
It can be cumbersome to track all the meal receipts from your trip. Keeping tabs on every tip you pay to a server in New York City and every coffee you grab at Starbucks to keep you awake for your 10:00pm show can create a lot of paperwork. As an alternative, you can utilize an IRS per diem rate to calculate your expenses. The Federal Government provides a listing of daily rates, depending on where you are staying, that can be used to determine if you can deduct $74 a day for meals in NYC or $54 in Carlsbad, New Mexico. Look up the current rates at http://www.gsa.gov/portal/content/104877.
All of the travel deductions are going to indicate that you are working in different states. This is especially common if you work in a metropolitan area such as the Washington D.C. area where you may work in Maryland one night, DC a second night, and Virginia the third night. Working in multiple states means you are generating income in multiple states. Since you are generating income in multiple states you will have to start filing tax returns and paying taxes in multiple states.
That’s right my artistic friend, since you got paid $1,500 for that run of Jesus Christ: Superstar in Alexandria, VA you were noticed and now you are getting paid $3,000 to perform in Shear Madness at the Kennedy Center in Washington, D.C. All of this while you are living in Olney, Maryland. Your pursuit of your dream of being an actor earned you the gift of having to prepare four tax returns (Federal, Virginia, DC, and Maryland).
There is some relief in that many states will allow you to deduct taxes paid on your out-of-state tax returns on your home state tax return. That doesn’t change the fact that your tax preparation just got much more complicated. I’m sorry to be the bringer of bad news but that is just the way it is.
In The End…
Artists, actors, and musicians are in the profession for the love of performing and not for making tons of money (although, I’m sure they wouldn’t object). Make sure to keep good records of all of your costs associated with and all of your income earned from your art. Work hard, entertain, and if you have questions about the boring stuff like accounting and taxes, give me a call. I’ll be happy to help.