The 2000 tax filing season is upon us and with it comes a variety of changes and modifications that affect everyone. As the season rolls on, we will attempt to explain how these changes work and what you can do to pay as little as possible, while preparing your taxes in a correct and prudent way.
Our goal is to inform you of the changes that will most affect you in the entertainment business. We want you to come away with an understanding that will allow you to make wise decisions regarding your taxes, whether you prepare them yourself or go to a professional preparer. We promise not to be overly technical (a promise that is hard to keep, considering the complexity of the laws and regulations). As we have said in the past, we want you to pay your taxes taking advantage of every legitimate deduction allowed to people in our industry. Pay the correct amount, yes, but not a penny more.
Use Our Guide
We want you to use this column as a guide to where your money goes and how to save as much of it as possible. If you've been one of our loyal readers over the years, then some of the things you read in this column may sound familiar. We feel they bear repeating.
Newcomers: take heed. The things we write about can affect you where it hurts the most—in your pocket. We do not write nonsense. We write common sense. We try to impart some of the most basic concepts of how one goes about filing a tax return. The things we talk about are said specifically to save you money and headaches. So, let's begin.
What Is Taxable
A question asked every year is, "Just what income is taxable to me?" The answer is quite simple: just about everything is taxable. To be specific, you are taxed on practically everything you receive from your work, whether paid in cash, property, or services. Taxed pay includes: commissions, sick pay, certain reimbursements, jury duty pay, honoraria, salaries, severance pay, tips, vacation pay, and, of course, wages.
What about money paid to you "under the table," you ask? Answer: THERE IS NO SUCH THING! Whether payments to you are by check, green dollar bills, or any other mode, they are fully taxable if they are for a service rendered by you. I can't tell you how many times during the year I am required to explain that all earned income is taxable to you no matter how it was paid to you. In future columns, I will elaborate on this subject and some of the less obvious pitfalls.
During the season, you will be informed of every business and professional expense you are entitled to as a theatre person. This is in addition to the personal expenses and deductions that everyone, regardless of occupation, may take advantage of. In our experience, most actors have refunds coming to them. This is because work in this profession is so sporadic.
Learn These Hints
In addition to informing you of all your professional deductions, we will tell you how to write up proper schedules to attach to your return, how to get your W-2s quickly, what to do if a producer "disappears" after making deductions from your pay and you cannot locate him to obtain your W-2, and how many exemption allowances you can claim on a short job with big pay or a long job with small pay.
Knowing how to conduct yourself in your profession is a business in itself. For those of you who are "on the way" and earning say less than $20,000 a year, you shouldn't dare feel, "I don't need any help because I'm not making much money anyway." You, more than anyone, need proper guidance—because at this point every dollar counts.
Organization Is Key
It is definitely not too early to start thinking about and organizing your things for your 2000 tax return. The more you organize, the easier the task of filing becomes. And organization, by the way, is key to a successful audit. And that is probably the only time you will ever see the "A" word printed in this column this season. If proper care is given to detail and organization, and just a little luck comes your way, your concern about such matters should be minimal.
We just alluded to the filing of 2000's tax return, but did you know that many actors have not yet filed their returns for 1999? Everyone, of course has his own reason, and to each individual it is a good one. Some have been on tour; others could not prepare their own returns or could not get to the tax preparer they had confidence in; and some just plain procrastinated. Many have put their W-2s and other papers in a drawer just to get them out of sight or out of mind.
Some performers deliberately put off filing because they know they have a refund coming. "So I'll file for two years at one time—it's okay as long as they owe me the money," these performers say. All this is really too bad. Many actors usually do have refunds coming, and had they filed months ago, they would have had that much-needed cash. But remember, if you hide it and cannot see it, it will come back to haunt you. It won't go away, we promise.
To those who owe taxes for the previous years, we suggest you run, do not walk, and get this matter attended to immediately. Why? The interest and penalties are staggering! Here again are some of the cases brought to our attention just this past year: An actor owed $317 in taxes. Interest and penalties (for late filing and paying late) came to $112, making a total of $429. A lighting designer owed $2,213. Interest was $89.14; penalty was $271. And so on and so on. Those of you who have not filed are due for some intense pain. Just get it done and over with—it's not that bad and it does not go away.
According to law, you must file every year in which you had a taxable income. Even if you have a refund coming and don't file in the appropriate year, you are making it rough on yourself moneywise, and you will come out a loser. Imagine going to a harried and hassled tax consultant during the tax season and having him or her doing two years or more at one sitting. Naturally, you are not going to get the time and attention a well-prepared return requires. Needless to say, you are going to come out on the short end, to the tune of hundreds of dollars.
We have known some actors who have sent in returns for two years, at the same time, with a refund due on each. They received their refunds for the current year, but their refunds for the prior year dragged on for months.
There are many changes to the tax law this filing season and we will not dwell on all of them. However, several of those changes will affect the people in our business directly. These we will begin to mention now and elaborate on more in the weeks to come.
For those of you who use your automobile for business purposes and take a deduction using the "standard mileage allowance," you should be aware that the rate has been changed. The rate for all of 2000 was 32.5 cents per mile.
More next week.