Tax Tip For Actors & Artists

Set up your accounts properly! Most people are co-mingled financially, meaning that they run their entire lives out of a personal checking account. That is fine, except that many actors and artists are taking tax deductions on what they legitimately spend to pursue their craft - they are taking "business" deductions. Again, great... except that their acting career looks nothing like a business to the IRS!

Think about it. Real business' have separate bank accounts, paperwork, income statements... the list goes on. Whereas, having everything piled into one account makes your acting career look more like a hobby... and hobby expenses are not tax deductible! 

So the IRS looks at your accounts, determine that what you are spending on your art is not tax deductible, and presents you with a bill. Then, for good measure, they go back and look at the SEVEN PREVIOUS YEARS as well... and, oh look, you've taken the same deductions... that are now re-classified as hobby deductions... so now you owe back taxes and interest. 

Ouch.

To avoid this, set up a business checking account by forming a DBA (Doing Business As) for your acting or artistic career. LegalZoom makes this very easy, and quite cheap. Then you pay all your acting bills out of your business account, any money you earn as an artist goes into that account, and you top it up from your other earnings, if you need to, by loaning your DBA money.

Yes, it is an extra step, but do you really want to risk paying seven years of back taxes for an extra few minutes a week? We actually had this happen to a student (before we started working with him), and he ended up owing several thousand dollars... not a happy day!

So get it done, and take the time to do it properly. If you have any questions, comments or concerns, please post here - I will be happy to address them. We also have a bunch of other resources, including free CD downloads etc, on our website www.abundancebound.com.