Remember those rebate checks the IRS sent out last summer and fall as part of an attempt to boost the economy? They were part of an important development in the tax law as a result of the 2001 Tax Act. That act created a new, lowest bracket of 10% (it used to be 15%) that will be included in the tax tables for 2002 and later years. For the year we are filing now, 2001, the benefit of the new 10% bracket was achieved through those checks. The amount of that check realized up to a 5% tax savings from the creation of this new 10% bracket. Those checks, intended as an advance payment of the 5% credit for 2001, were based on the filing status, taxable income, and tax liability reported for 2000.
You may qualify for a rate reduction tax credit on your 2001 tax return if you did not receive an advance payment check, or if you received a check for less than $300 (for single persons), $500 (head of household filing status), or $600 (married filing a joint return.). Make sure you check out this credit, as it could save you quite a bit of money.
Loose Change
A steady expense that is typically overlooked is the constant stream of quarters that actors drop into pay phones in order to call agents, answering machines, and answering services. We've spoken to quite a few actors, and they told us they average at least five calls a day from the phone booths. Five calls at 25 cents each comes to $1.25 a day, or $6.25 a week.
Now, you can't keep a record of every call you make on the street; you can imagine how much time that would take. We do suggest, however, that you make some informal marking in your date book that indicates each time you drop a quarter—nothing big, just a small notation. When preparing your return, attach a schedule explaining these phone calls.
A schedule is just a piece of paper—lined or unlined—and that's all. Don't be intimidated by that word. The schedule may look like this: "Outside Telephone Calls—five calls a day at 25 cents each, $6.25 per week, times 52 weeks equals $325." If you just write $325 for outside phone calls, and if it is read quickly by an examiner—or, for that matter, anyone—it may seem like a lot. So take a few extra minutes and lay it out as we mention, and it will be accepted.
Let us now mention that the use of a cellular phone is deductible for business purposes. So if you use your cell phone, keep track of the calls you make for business and deduct them as a business expense in lieu of the pay phones. Remember, only the business portion of your cell phone usage is deductible.
Working Abroad
We have had some inquiries from actors who worked in Canada and Europe and had hundreds of dollars withheld from their earnings. That should not pose a problem at all. When preparing your return, you can get a credit for most of the taxes paid to the other country from the taxes due to the U.S, government. It is called a "Foreign Tax Credit." You should get a slip from the government of the country where you worked, attach it to your W-2s, and fill in IRS Form 1116 when sending in your tax return here. Tell your tax preparer to watch the conversion rates. The whole thing is no big deal.
While we're on the subject, there is another way to avoid double taxation when you work in a foreign country. We are always asked the question, "Is the money I earn abroad taxable here in the U.S.?" The answer is, usually, "yes." Any income earned abroad is taxable income on your tax return. The only exception is if you worked in the foreign country for 11 out of 12 months, or established your residence in that foreign country. If this is the case, you may be eligible for the "Foreign Earned Income Exclusion." The amount that can possibly be excluded from income if you qualify has been raised again, this year to $78,000. If you think you might qualify for this, consult your tax preparer. The criteria for this exclusion are very strict.
How Many Exemptions Should I Claim?
Did you ever get anxious about how many exemptions to write in when filling in your W-4 for a new job? The instructions for this form are lengthy and just a bit convoluted. We provide a year-round service to our clients that has proven to be of tremendous assistance and has avoided headaches. Our clients are told to call us any time they are required to fill out a W-4 for a new job and they are unsure of how many exemption allowances to put down.
When you are given a W-4 to sign, think carefully before you write in how many exemption allowances you are claiming. A lot of people claimed too many last year, and they are in a grand mess now.
Imagine: An actor gets into a first-rate road company with a salary of $1,500 plus $650 per diem, and he claims 9 or 14 dependents. In this day and age, even with that kind of income, many people can't save a dime on the road. When their taxes are prepared, they are told they owe a bundle and they are at a total loss. Always the weak excuse, "But they told me it would be okay."
Who told them? Someone who knows nothing about everything, of course. If you are one of the lucky ones who has a year-round theatrical tax preparer you can talk to for the proper information, then you are in good shape. But don't ask around. If you are in doubt, always claim "one" (if you are single, of course, and have no other dependents).
Claiming too many has been a cause of so much pain to so many at tax time. We tell our clients the proper number of exemption allowances to claim so they get the most money from each paycheck and have a modest refund at tax time.
In our profession, an actor could be idle for months; when he does "connect," he must have someone to guide him. And nobody but your TC—who has your records in front of him when you call—has the right to give you the proper guidance.
Direct Refund Deposit
Did you know that it is possible to have your refund deposited directly into your account at a bank or other financial institution? The possible advantages: You could get your refund quicker, payment is more secure (there is not a check to get lost), and it is more convenient (no trip to the bank to deposit your check). To instruct the IRS to direct deposit into your account, you must fill in the required information on the refund lines of your tax return (lines 68 b, c, and d on Form 1040; lines 43 b, c, and d on Form 1040A). Just follow the instructions for these lines on your tax return to see if you qualify for this method of payment. (Don't forget to attach a voided check to the return.) This method of receiving your refund is also available on the New York State tax return.
It Works Both Ways
Last week we discussed the difficulties some actors have in securing W-2s from producers who are no longer in business and are hard to locate. Recently, a producer contacted our office to remind us that sometimes it is the actor who is hard to locate because of a change of address or relocation. This is a valid point. Don't forget to notify all past employers of any address change to insure receiving your W-2s and 1099s at tax-filing time.