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

Tuesday, March 3, 2015

What sorts of wardrobe & makeup expenses are deductible?

What Sorts of Wardrobe & Makeup Expenses are Deductible?

The general rule about wardrobe and makeup is that if you CAN use something for general street wear, even if you never do, then it’s NOT deductible as a business expense. If you bought a business suit to do a commercial and never wore it for anything else, it’s still not deductible, because you COULD wear it in public. A sequined, gold-lamé business suit would be a different story – it’s obviously a costume and not normal attire, and it’s deductible. Dance wear and shoes ARE deductible, even though you could wear them to the gym or even some places out in public, because they’re considered specialized work clothing -- like a nurse’s scrubs or a construction worker’s safety boots. 

Cleaning, repairs and maintenance of your clothes used on the job ARE deductible.

The same rules apply to hair and makeup expenses. Here, men have it easier, because we generally don’t wear makeup on the street, so guys can probably write off all their makeup expenses. Ladies do wear makeup on the street, so you’re probably limited to deducting only those items of makeup that aren’t suitable for street wear. Hair is much the same: even if a director or designer required you to get a specific haircut or dye job for a role, if the hairstyle is suitable for street wear, it’s not deductible. One exception to the general rule might be for hand models, who have to get more frequent manicures and take other precautions beyond normal grooming to keep their hands camera-ready.

Chapter 8 of The Actor’s Tax Guide discusses more than 25 kinds of expenses actors might incur.  Order your copy at www.ActorsTaxGuide.com