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Financial Advice

Not-So-Happy Returns

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Not-So-Happy Returns
The IRS recently announced that the average tax refund this year was about $3,000. If you received less than that, reading this kind of announcement may make you wonder what went wrong with your own return and if you were shortchanged. What if you aren’t getting a refund at all—or worse, you owe a few thousand dollars? What the H-E-double-hockey-sticks went so terribly wrong? Most of us immediately want to blame our tax preparer. But if that person has done right by you in the past, the problem probably lies elsewhere.

The most likely blame should be placed on your employers. Have you worked for catering companies or at other survival jobs, and did they used to take out taxes but are now paying you in cash or non-taxed money? The term “non-taxed” is a misnomer. It doesn’t mean you don’t have to pay taxes on that income. As with any earnings, you owe federal, state/city, Medicare, and Social Security taxes. But with “non-taxed” income, you may owe twice the amount for Medicare and Social Security.

Even “taxed” income often doesn’t have enough withheld, given that most actors have several employers, and each one bases its withholding only on the amount it is paying you. That means only you can know how much you are receiving in total and, as a result, in which tax bracket your combined income places you. Earnings of perhaps $8,000 from one company will usually be taxed at 10 percent (or probably less) for federal obligations, but when you combine that money with several other jobs that paid you a few thousand each, you may find that you are in the 25 percent tax bracket. That means you may owe an additional 15 percent to the feds alone at the end of the year.

Suppose you booked a commercial or have a few that are running on national network, cable, Internet, billboards, and radio, and you just earned $90,000. I promise you that commercial payroll company is not withholding enough. Even if you called the payroll companies and corrected under-withholding from last year, you have to stay on top of it this year. And next year. And the year after that. Pay attention.

The next potential problem areas are deductions. Now that most casting is done electronically, you no longer have to print up thousands of headshots; consequently you aren’t getting reprints done as often. While there is a cost to upload them online, that’s a fraction of the old duplication costs. Since we don’t have to run in to our agents every few months to drop off headshots, we often don’t think about giving them yearly gifts, or meals.

Perhaps you are staying in and watching Netflix or Hulu instead of going out to films and plays. Driving less can significantly impact your tax return. If you have kids, at some point they will be too old for you to claim.

It is possible the blame lies with the preparer. You may have decided to prepare your own return, or you put yourself in the hands of an accountant who doesn’t thoroughly understand the entertainment industry. In either case you may be missing deductions that actors are allowed. That’s why this column exists—to help you understand the tax process and have greater control over it.

So if you don’t like your tax bill’s bottom line, it’s probably something only you can fix.

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