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'Tis the Season to Get Prepared
Put all of your financial information in one place. If you spent money on your career, then you will need to have the paperwork to back up your expenses. That includes all your receipts, bank statements, credit card bills, and the like. If there is any question about a piece of paperwork having a possible tax value, include it.
Go through your daily schedule for the year to make sure you have a complete written record of where you went for classes, auditions, meetings, and purchases—essentially, anything you did for your career. This may be the most important data you keep. That schedule not only supports your travel expenses (car, cabs, and public transportation); it further substantiates how you spent your time and money.
If you use a PDA, then print out your schedule for the year and mail it back to yourself (don't open the envelope!) so you'll have proof that the records were saved contemporaneously (at the same time as the event or transaction occurred), rather than manipulated just before an audit. You should do this every few months.
List everyone who paid you during the past year, so you know which employers should be sending you tax forms. If you moved in the last couple of years, go back into your tax records and be sure every employer you worked for knows how to get tax forms to you. Informing the unions of your move is just the beginning of this process.
The most frequent problem I see among my clients is when they don't receive all of their tax information because their employers mailed it to the wrong address. There are few things more frightening than receiving a letter from the Internal Revenue Service, particularly when it ups your tax bill due to income you neglected to include on your return.
You might consider using a mailbox for all your professional contacts. With a mailbox, regardless of how often you move around, you never have to change your contact address. It also provides an additional layer of personal protection.
If you own an automobile, go out to your car right now, write down your mileage, and put that number with the rest of your records.
Make your charitable contributions before the end of the year. Cash contributions require corroboration through financial records. For donated goods, list everything you are giving away—or better yet, try to find a charity that provides you with a signed and itemized receipt (rather than simply noting "three bags, one box"). In an audit, the IRS will want to know exactly what you gave away and its "street value."
If you made good money in 2010, consider prepaying for some future expenses. You can deduct the cost of next year's acting classes or headshots if you pay for them before the end of the year. Just make sure you don't spend that money unless you are certain you will be using those services in 2011.
Get good advice! Don't listen to your peers or trust others without tax experience who claim to "know it all." Just the other day, I had to prepare four years' worth of tax returns for an actor whose father told her she probably didn't make enough money to bother filing. Based on his advice, she had kept no records. I had to tell her that she now owes more than $10,000 in taxes. Fines, penalties, and interest may cost her an additional $4,000 or more.
No one wants to start a new year with that kind of news.
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