Take a look at the following article, by Mark Bradley, to see if YOU are making any of these mistakes when filing your tax return.
Mistake #5: Bogus Tax Deductions
Actors are great talkers, and we love to spread rumors. Unfortunately, sometimes the rumors that get spread around about tax deductions are just plain wrong. Three immediately spring to mind.
First, I’ve heard some actors say, “Oh yeah, I deduct all my clothes.” No can do. The rule is that clothing is deductible only if it isn’t suitable for street wear. If you bought a business suit and never wore it for anything but auditions and commercial shoots, it’s still not deductible, because you could wear it on the street. The only exception to this rule is dance wear. You can wear it on the street, but it’s considered specialized work wear, like a nurse’s scrubs. (Cleaning and maintenance of your clothes used on the job are always deductible.)
Second, unlike classes, health club dues aren’t deductible professional expenses. If an agent or director told you to get in better shape, even for a specific role, a gym membership is still considered a personal expense.
Third, I was horrified to learn that a lot of actors were telling each other that they could deduct ALL their restaurant meals, as long as they talked about the business over dinner! This is total, utter, absolute nonsense. To be deductible, you must have a clear, current business relationship with the person you’re hosting and you must discuss a specific business opportunity, not just the business in general. Even if at some time in the future, your dining partner may hire you for a job, going out for dinner with your friends is essentially social in nature and should not be deducted as business entertainment.
Mistake #4: Missed deductions
The flip side of taking bogus deductions is missing legitimate ones. A couple of deductions that shouldn’t be overlooked are items for research and expenses that are deducted from paychecks. Many items that would simply be entertainment for the general public are deductible by actors as ordinary and necessary professional expenses. Books, movies, subscriptions, and so forth keep you up-to-date in the profession. Theatre and movie tickets are also absolutely legitimate deductions as professional research, along with a reasonable portion of your cable bill. And don’t overlook expenses that are deducted from paychecks. Two that come to mind are Equity working dues and commissions withheld by agents.
Mistake #3: Deducting business expenses on the wrong form
Most actors have two types of income: employee income, reported to you on a W-2, and independent contractor income (self-employment), which may be reported on a Form 1099. (If you got paid less than $600 by an employer, they don’t have to send a 1099, but you still have to report the income!) Your self-employment income and expenses should be reported on Schedule C (or C-EZ), and employee business expenses on Form 2106 (or 2106-EZ). Some folks have told me that their accountants deduct ALL their business expenses on Schedule C, even those employee expenses that aren’t attributable to 1099 work. I think that’s completely improper, and could be dangerous. Maybe those accountants figure they could bamboozle an IRS auditor, but I’d prefer to report expenses properly.
Mistake #2: Forgetting about local transportation
A professional tax preparer friend of mine says that the most-overlooked business deduction is local trans- portation. Be sure to record your car mileage, bus fares, parking, tolls, etc. for your local trips in pursuit of your career. Transportation to job-seeking and career-building activities is always deductible. These activities 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 expenses, and this is probably most of your mileage. A singer probably wouldn’t forget to deduct the cost of voice lessons, but might overlook the cost of getting there. This may be because you usually won’t have receipts for these local transportation costs. And that leads us to:
The Number One mistake actors make about taxes: Failure to keep good records
The best thing to do to maximize your tax refund is to keep good records of your activities. This means that you should write everything down, and keep those records as you go along. From the example above, when you go to an audition or interview, write down your car mileage and what you paid for parking, or make note of the fare for public transportation. You won’t have receipts for these things, so contemporaneous records are essential. You can’t just make things up at tax time! I also heard an accountant point out that if you just guess, you’ll probably underestimate. So keep accurate records.
The most credible records are written in your own hand, so I keep an old-fashioned paper date book. If you prefer to keep track of things electronically, make a printout at least once a week and hand-sign and date it.
Remember — as a professional in our industry, YOU are a little business, and keeping accurate records is an important part of your job!
Mark Bradley has been acting on Twin Cities stages for more than 35 years, although he is now mostly known as “Katie Bradley’s dad.” For several years, Mark provided individual tax help to performers through the Volunteer Income Tax Assistance (VITA) program, and also presented income tax seminars for actors, partnering with CPA Paul Mount. He is a graduate of the H&R Block tax course, maintains the Actor’s Tax Tips blog and authored The Actor’s Tax Guide.