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[Obligatory Disclaimer: I am not an accountant. The information in this article is general and based on my experience. Please seek the advice of a qualified accountant when making important decisions about your taxes.]

You had great year. A few of those bookings really paid off – residuals, holding fees, plus more session pay for rewrites, demos and new spots. You locked in your union health benefits for next year, and you finally bought that big screen TV you’ve had your eye on. Best of all, all the money came through a payroll service, so your taxes are already paid, no need to send in any quarterly estimated payments. In fact, you’re expecting a big refund…

So, you go to your tax appointment in high spirits, thinking about that Caribbean vacation you’re going to take with your refund check.

Not gonna happen.

Your accountant runs the numbers. You owe BIG TIME. What happened?!?

According to my accountant Joe Howard at Chuck Sloan & Associates, this is a fairly common scenario. And the simple reason is that a number of the talent payment services (Talent Partners, for one) don’t make adequate deductions when processing payments. Of course, what is adequate depends on your individual situation, but I’ve found that most payroll services typically only withhold about 10-15% for federal income tax, which is pretty low if you have any kind of substantial income.

So be aware of this potential problem. Check your paystubs and look at how much money is being withheld. Talk to your accountant about what your potential tax liability may be, and plan ahead. You can contact the payroll services and ask about submitting a W4 that stipulates additional withholding (preferably as a percentage of gross wages, rather than a fixed amount). You’ll have to keep an eye on subsequent payments, however, to make sure that your request is being implemented. Also, subsequent W4 submissions by you, your agent or a producer may supersede any on file.

You can also simply send in both federal and state quarterly estimated payments to help make up the difference, or just put extra money aside in a bank account (but be careful, the government may require certain minimum quarterly payments depending on your income). I find it useful to set up a separate account and call it “Tax Fund”; it’s easier to see how much you have and you’re less likely to dip into that account ahead of time.

Be aware, plan ahead, and consult with a qualified tax professional to be safe. And don’t worry – the Caribbean isn’t going anywhere.

See also my previous article Taxes For Voice Actors

Tax resources online:

2011 Federal 1040 ES Forms

2011 California 540 ES Forms

IRS Withholding Calculator

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[Obligatory Disclaimer: I am not an accountant. The information in this article is general and based on my experience. Please seek the advice of a qualified accountant when preparing your taxes.]

As an actor – voice or on-camera – you may be able to take certain deductions against your business expenses. These can include expenses specific to acting such as audition mileage, your demo reel, head shots, recording equipment & software, acting classes etc; as well as more general expenses like mobile phone, automobile maintenance and home office supplies. Which expenses – and how much of them – are deductible is specific to your situation and should be determined by a qualified accountant. There may also be certain credits and deductions available specifically to performing artists, so you might want to use or consult with an accountant who specializes in that field.

I have had my taxes prepared by Joe Howard at Chuck Sloan & Associates for over 10 years now and am very happy with the service provided. This office is in North Hollywood, California and specializes in tax prep for “actors, performers and other members of the entertainment industry”. They provide a downloadable tax packet PDF that breaks out expenses into various categories. I’ve made my tax prep considerably easier by setting up the same categories in Quicken. Assuming I’ve kept up on my weekly bookkeeping, all I need to do before my tax appointment is spend 2-3 hours generating reports and taking care of a few odds and ends, and I’m ready to go. Using this system, my tax appointments are relatively quick and painless.

When I started out, I kept track of my expenses and income in a paper ledger. At tax time, I would transfer the data manually into Excel sheets by category. This was very time consuming and cumbersome. Do yourself a favor and DON’T DO IT THIS WAY! If you don’t already have one, get a personal finance software package and learn to use it. There are many out there; I have been using Quicken for 4 years now and love it. I use the Home & Office edition, but there are other versions which may suit your needs as well – none are that expensive. Quicken allows you to customize your categories, so you can set up business expense categories to match your accountant’s, as I have.

Do yourself an even bigger favor and stay on top of your bookkeeping throughout the year. By “bookkeeping” I mean data entry – entering your expenses and income into your software. Do this on a weekly basis and you will avoid the classic tax prep nightmare – 3AM, April 15th, passed out at your kitchen table amid a mountain of receipts, invoices, statements and tax forms – which the cat is happily rummaging through as you sleep.

Good luck!

JM

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