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Financial Advice

Don't Estimate Your Expenses

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Don't Estimate Your Expenses
I was recently watching TV, and I saw an ad come on for a major tax company promoting its home software. The actor in the spot said, "Just get some estimates together and hope you don't get audited." What? Did I actually hear that? I'm stunned that any professional tax organization would suggest that all you have to do is "just get some estimates together" before it does your taxes. If I offered that kind of advice in this column, I am sure it would be the last time I was allowed to write it.

The IRS is specifically targeting individuals, such as actors, who use significant amounts of miscellaneous deductions on their return. It expects you to be held accountable for the figures you put on your tax return. If you can't prove your expenses during an audit, you lose them. I can't tell you how important it is to take a few hours, one day a year, to put your tax information in order to prepare a correct return.  

A fairly successful actor friend came in to our offices to get his taxes done. When we finished he learned that he owed money to the IRS. I was aware that as his income had increased through the years he had simply been estimating his expenses by a similar percentage. Despite my urging he couldn't understand why it would be worth his time to actually add up his costs instead of estimating them. He considered it beneath him and a waste of his precious time. 

But I knew that in comparison with other actors with whom I'd worked, the numbers he was giving me were substantially less than they should have been. Primarily because he didn't have the money to pay the taxes, he went home and did the actual work of adding up his expenses. When we punched in his new numbers, not only did he not owe anything, but he was now going to receive a fairly significant refund. In his excitement he said he wanted to go back to prior years, but even with what appeared to be a guarantee of getting back a few thousand dollars more from the IRS, he just couldn't get it done.

It never fails to astonish me that actors who shell out thousands of dollars in expenses to pursue a career, undertake hours of training, and struggle for every single audition they can find will throw away their hard-earned income in taxes because they won't sit down and add up their receipts properly.

Even forgetting taxes for a moment, the important information you can glean by keeping your records in order year after year is invaluable in your career. I know actors who can tell you how many auditions they have had each year, which casting offices they visited, and how many times each year. This tells them who hasn't seen them, and they know they should learn why.

Another actor discovered she worked all the time playing a businesswoman but couldn't get a callback for a mother role. She suggested to her agents it was wasting her time and money to pursue anything but the business parts. They were both happy with the results.

Take the time to prepare your return properly. You get much out of it, including better refunds, less worry about a possible audit, and valuable data about your career. That's why I say over and over again, the eight hours or so it should take you to prepare for your taxes is the best-paying day you will have during the year.

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