You have just filed your taxes and you breathe that sigh of relief. It’s over for another year. Or is it? The answer is NO, or at least it should be, because tax season is just about to begin. That’s right. The organization it takes to make the most of your taxes begins now. As actors it is essential to understand that, regardless of your current income, if you actually intend to make money from your craft, there are ways in which you must treat it like a business. There are two critical concepts you must become familiar with to be fully prepared to do your tax return. Without them, you are not running a business – you are engaged in a hobby – and should never expect that hobby to be financially profitable (For more on this, visit us at AbundanceBound.com - Financial Education and Planning for Actors and Artists for more information and a free CD).
The first is you MUST be organized. Organization means being sure you have all the documentation you need and that you have a place for everything and have everything in its place. You might find that a computer-based program is the answer to keeping all your records in order. If you are more comfortable with paper then be sure to get a paper organizer that is efficient and easy to use. Find tools that work for you and USE THEM throughout the year to keep the records you need to efficiently and effectively file your taxes.
The second important concept is to keep your business finances separate from your personal finances. Have one bank account for your acting career and use this account to deposit all of your acting income and to pay all your acting expenses. This is essential to legitimize the business deductions you take on your tax return. If you want the IRS to recognize your acting career is a business, it should be run out of a separate bank account – not co-mingled with your personal finances. Real businesses do not pay for business expenses out of personal accounts. If you do not have funds in your acting account then you can “loan” your acting business some money from your personal account. Just be sure to keep careful track. Your acting business will pay you back as you start earning a steady acting income.
Become familiar with the tax system and how you can maximize your return. Learn which deductions are allowable to you as an actor so you can ensure you are keeping appropriate records throughout the year. Do not assume that something is deductible simply because you have heard that it is from other actors! The best thing to do is hire a tax professional to handle your taxes, someone who will be able to answer your questions and maximize the amount of money you can save. Remember, you have to spend money to make money. There are, for example, accountants that focus on preparing tax returns for actors and/or other entertainment industry professionals. An accountant that specializes in filing returns in your area of expertise may be your best choice.
The key is to know your options, be organized, and conduct yourself in a professional manner. A very helpful resource to understand taxes better is the book http://abundancebound.com/resources.htm">Lower Your Taxes – Big Time! Wealth-Building, Tax Reduction Secrets from an IRS Insider by Sandy Botkin, CPA, Esq. You will find valuable tips and rules explained in a way that completely non technical people can understand. The chapter entitled “How to Shield Yourself from the IRS Weapon of Classifying a Business as a Hobby” is absolutely critical and will pay you back for the cost of the book many times over.
Whatever you do, do not leave your tax preparation until mere weeks before your return is due to be filed. This will cause you an un-necessary amount of stress and may cause trouble for you with the IRS if you do not have your documents in order. It may also cost you money you can’t afford to pay.
