Saturday, February 23, 2013

Standard Rates Are Much Easier to Use

Standard Rates Are Much Easier to Use

When you figure your deduction for automobile mileage and out-of-town business meals, the IRS will let you use EITHER your actual expenses, substantiated by receipts, OR a standard rate. In both cases, the standard rates are much easier to use, and I think it's usually to your financial advantage, as well.

For vehicle expenses, you can add up all your costs for gas, oil, repairs, insurance, registration, and depreciation, or you can use the standard rate for 2012 of 55½ cents a mile. Using actual cost may be to your advantage the first year you own the car, because of the depreciation, but there’s a catch: if you use actual cost the first year, you have to use actual cost every year you own the car. With an older car, the standard mileage method almost always exceeds your actual cost. Again, the mileage method is a lot easier, and it takes into account a reasonable average cost to operate and maintain your vehicle.

For meals, you can also use your actual cost for meals when you travel out of town, or use the standard per diem meal allowance rates which have been established for every city in the country. For 2012, the standard nationwide rate for meals and incidental expenses is $46.00 a day, but most larger cities have rates higher than that, ranging to $71.00 and above. Like vehicle expenses, the standard rates are easier to use, you don't need receipts, and they will probably exceed your actual costs in most cases.

Chapter Eight of The Actor’s Tax Guide discusses these expenses in detail.  Get it at

Monday, February 18, 2013

Key Concept for Deductibility: "Ordinary and Necessary"

Key Concept for Deductibility: "Ordinary and Necessary"

Whenever they talk about business expenses, the IRS applies the test of “ordinary and necessary.” If the type of expense you’re claiming is something that your professional peers usually incur in their work, and if the amount of the expense is in line with what others at your level in your profession can be expected to spend, then the expense can be considered "ordinary." If the expense is helpful in maintaining or advancing your ability to pursue your career, then it can be deemed "necessary." Here’s how the IRS describes "ordinary and necessary." This paragraph (sometimes with slight variations) appears in many places in IRS forms and publications:

“An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.”

For example, if you or I were to hire a limousine and a driver to get to a voice job, that’s not necessary and it certainly isn’t ordinary. But the late great voice talent Don LaFontaine used to do just that. He hired a limo to take him from job to job, because he was so busy that he didn’t have time to park his car! In his case, I’m sure he could demonstrate that to pursue his career at that level, it was necessary for him to pay for that special transportation assistance. Later on, of course, Don installed a state-of-the-art studio in his house – another reasonable and increasingly commonplace expense for successful voice talents.

As you go over your professional expenses, keep in mind that to be deductible, your expenses must meet the tests of being both ordinary and necessary.  Chapters 7 and 8 of The Actor’s Tax Guide discuss an actor’s deductible expenses in detail.  Find it at