I miss the good ole’ days when all I had to do was tap info into Turbo Tax then wait in anticipatory delight to find out how many thou$ands Uncle Sam would return to me. Back then, I was still working in the world of corporate radio where CBS, Cox, or whomever, deducted taxes on my behalf. Now, as a home-based business owner, I am on my own.
Many tax professionals claim millions of Americans overpay their taxes every year, and I used to be one of them. For years, I kept horrible records and never really tracked anything. All my receipts (the ones I could find, anyway) were stuffed in a few different places: a photo box on the shelf, a kitchen drawer, the backseat of my car, in a few different handbags… I clearly did not take my deductions very seriously.
So when April 15th rolled around, I cringed. Watching tens of thousands of hard-earned dollars vanish from a bank account is not an easy thing to do, and it was especially brutal when voice-over became my full-time career. I needed to keep as much of that money as I could.
First things first, I switched to quarterly tax payments instead of annual, which was so much easier on my nerves.
Second, I started tracking everything. Everything. I created a spreadsheet to keep clean records, and I designated a medium-sized photo box to store all my receipts throughout the year. I eventually scan those receipts into my laptop (the NEAT scanner is a lifesaver, by the way), and when tax time comes around, I email everything to my CPA, all neat and tidy.
There are so many more deductions you can take than the ones listed here, but I’m starting with these specific deductions to help those who are just starting out. Just remember to only include legitimate expenses. Ask yourself if the expense is ordinary and necessary for your line of work. If the answer is no, don’t include it.
When you work from home, you can deduct the percentage of your home you use for that business. For me, that is my voice-over studio, which occupies about 10% of our home. That means 10% of our annual electric bill becomes tax deductible. Same for our mortgage interest, rent, home depreciation, property taxes, additional utilities, home insurance, and home maintenance.
INTERNET & PHONE:
If you have a business phone, you can deduct 100% of your phone bill. But if you’re like me, and only have the one phone line for friends, family, and clients to reach you, then you’ll limit your deduction to the percentage you use for business. The same is true for internet.
Heading to an audition today? Recording off-site this week? If so, track it. Your expenses for those trips can be deducted. Make your calculations using either the standard mileage rate determined by the IRS or your actual expenses.
To do this, calculate the percentage of driving you did for business all year, plus the total cost of operating your car – gas, oil changes, registration fees, repairs and car insurance. If you spent $1,000 on car operating expenses and used your car for business 10% of the time, your deduction would be $100.
HEALTH INSURANCE PREMIUMS
I qualify for insurance through my husband’s employer, so I am ineligible to deduct insurance premiums. But according to Investopedia‘s Amy Fontinelle, “if you are self-employed, pay for your own health insurance premiums, and were not eligible to participate in a plan through your spouse’s employer, you can deduct all of your health, dental and qualified long-term care insurance premiums. You can also deduct premiums that you paid to provide coverage for your spouse, your dependents and your children who were younger than 27 at year-end, even if they aren’t dependents. Calculate the deduction using the Self-Employed Health Insurance Deduction Worksheet in IRS publication 535.”
Heading to the NAB Convention this year, or to one of the many exciting voice-over conferences popping up? You can deduct your travel expenses, including the cost to and from your destination (airfare) and travel costs once you get there (Uber, anyone?). Don’t forget about subway tickets, hotel stay, and meals. Just remember – travel expenses are 100% deductible while food and fun are only 50%.
To qualify as business travel, your trip must use longer than a workday, require sleep, and take place outside of your home city. So Napa only counts if you can provide detailed records and receipts proving you engaged in legitimate business, and not just the business of tasting wine (unless you’re a sommelier – then that counts!). Oh, keep good records of the entire stay. Business trips attract the IRS like bees to honey.
If you used a business loan to remodel your studio space, or to build a new one, then make sure you deduct the interest on that business loan. If you purchased new gear on a credit card, then you can deduct that interest, as well.
To deduct education as a business expense, the classes must further your skills in your current business. For instance, you might be a voice talent interested in expanding into production. These classes are tax deductible. Taking a writing course to be the next JK Rowling, however, is not.
PUBLICATIONS & SUBSCRIPTIONS
Depending on your focused industry, subscriptions to specialized magazines, websites, and journals would be tax-deductible. So I can expense Radio Ink, Backstage.com, Allaccess.com, and more.
When traveling for business or when entertaining a client, you may expense 50% of your total dining bill, if you keep your receipts. If you trash your receipts, then make sure to document the time, place, and business purpose to deduct 50% of the standard meal allowance, which can be found here.
Entertainment business deductions are another bees-to-honey type scenario, so keep excellent records, and make sure it passes either of the IRS’s tests. And make sure you conduct business immediately before, during, or immediately after the fun. Just remember to keep your business fun affordable because you can only deduct 50%.
Investments read like gobbledygook to me. I have retirement investments, but a team manages it for me. Perhaps it’s time I start to understand. Investopedia‘s Amy Fontinelle highlighted a particularly lucrative-looking deduction that I, myself, will be including in this year’s filing:
“Contributions to SEP-IRAs, SIMPLE IRAs and solo 401(k)s reduce your tax bill now and help you rack up tax-deferred investment gains for later. For the 2014 tax year, you could feasibly contribute as much as $17,500 in deferred salary ($23,000 if you’re 50 or older) plus another 25% of your net self-employment earnings after deducting one-half of self-employment tax and contributions for yourself, up to a maximum of $52,000 total for both contribution categories, with a self-employed 401(k), for example. Contribution limits vary by plan type and the IRS adjusts the maximums annually. In 2015, for example, the solo 401(k) contribution limit increases to $53,000.”
Whew! The above is a lot to absorb and the tax discussion is not an easy one. I am not a CPA, but I do hope you benefit from my early mistakes, even if only a little. I highly recommend you discuss this and more with a CPA who can make better sense of all tax-related muck.
Oh, and you’ll be happy to know that Tax Day has been postponed until April 18th this year. Yippee!
Happy filing, everyone.
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