Tax Tips for Hollywood Freelancers: An Introduction

Numbers and Finance

Two days before the deadline to file my taxes, and I’m squirming in my Ikea chair at H&R Block. 

“Did you have any business expenses?” the accountant said. “Did you buy any business cards? Any office supplies? Do any printing?”

She was trying to help. She was trying to find enough deductions to get me over the standard deduction…

Except I couldn’t conjure up more than $5,500 worth of deductions in 10 minutes.

So I had no choice but to pay taxes owed in one lump sum: around $10,000.

It had been a rough year. I’d been freelancing, picking up a number of side gigs to keep myself afloat: I worked as a casting assistant, a production coordinator, and a script reader. I had been so focused on first finding work, then actually doing the work, I didn’t study the business of freelancing.

This accountant tried giving me a crash course, except it was too little, too late.

I remember stepping out of the dumpy H&R Block building on Sepulveda, and kicking stones on the pothole-ridden parking lot. I was frustrated with the accountant, and frustrated with the whole H&R Block experience.

Mostly though, I remember how shitty it felt, barely scraping by in Los Angeles, uneducated and misinformed about protecting the business of me.

Crossing the lot, I promised if I freelanced again, I’d be prepared.

So when I learned I’d be freelancing again, I started doing my research. I scheduled an appointment to sit down with my (new, non-H&R Block) accountant, and got all my questions answered.

This series details what I’ve learned about self-employment, taxes, and deductions…

Note: I’ve admitted I’m a tax idiot. Consult your tax professional throughout the process of filing your taxes.

I’m offering what I learned on the matter. We’ll cover Best Practices to File Taxes, A List of Deductions, Mistakes to Avoid, and Beyond Taxes.

But! I don’t play accountant on the Internet. Talk to your tax professional. 

Let’s talk about Deadlines

Your 2013 taxes must be filed by April 15, 2014, or you’ll incur a late penalty.

Which means if you freelanced in 2013, and didn’t realize you could take deductions, you still have time.

Start calculating your deductions and gathering receipts now. Take it from me, it’s tough putting an itemized list of your spending together at the last minute.

If you’re reading this series early in the year — great, you have plenty of time to get everything in order for when you file.

Who Would Benefit from This Tax Series? 

Like it suggests in the title: if you freelance and work in the entertainment business, this post can help you save money.

If you don’t work in entertainment, you might find nuggets, too. But I’m specifically targeting people in the entertainment business because if you Google around, it’s tough to find information created for our niche.

I was at the Blind Barber last week in Culver City (cool spot, great Happy Hour, but the grilled cheeses are overhyped) and I was talking to a new assistant.

She said it took her one year to land her first assisting job. She admitted she thought this was a long time.

“Listen, it took me twice as long to get my first desk job. You’re doing fine,” I told her.

Which was true. Before that, I freelanced every chance I got, and waited tables on the side.

So whether you’re freelancing by choice, or because you’re still waiting for that permanent gig, this post can help.

Let’s define “freelance” more thoroughly…

What Do You Mean By “Freelance?”

By freelance (which can be used interchangeably with “outside consultant”), I mean a company pays you, but you’re not an employee. You don’t receive benefits like health insurance or a 401K. The company doesn’t deduct or (pay half your taxes) for you, and holds you responsible for paying your own taxes (called a self-employment tax).

Technically, you are your own company, and your own employee. 

Instead of receiving a w2 at the end of the year from the company, you’ll receive a 1099.

Instead of paying taxes every paycheck, you’ll pay everything in one lump sum after you file — until you start doing Estimated Taxes (more on that later).

That’s an important distinction, so I’ll repeat it:

If you’re an employee, you’ll either owe some money to the government, or get a refund.

If you freelance or consult, you will pay taxes in a lump sum at the end of the year (unless you pay Estimated Taxes). Because you did not pay any taxes throughout the year, you will not get a refund.

However, the net amount of taxes you pay may be less — because a freelancer can take more deductions than the average employee. Since you are your own business, and these are business expenses. 

(Side note: you can take deductions if you’re employed and receive a W2, but it gets more complicated: 

First, expenses are subject to a floor of 2% of your Adjusted Gross Income (AGI).

Meaning, if your salary is $40K and you have expenses of $1,000, the floor is set at $800 ($40,000 X 2%) so you can only deduct $200. 

On top of that, you have to exceed the standard deduction ($6,100 in 2013) to make it worthwhile. 

This means the more money you make, the higher that ceiling… so the fewer deductions you’ll be able to take.) 

This Is Starting To Sound a Bit Complicated…

Sure, I understand that.

But if you’re new to Hollywood, or new to working in entertainment, it’s worth learning.

I don’t expect you to start brushing up for your CPA exams…

However, you should possess the basic knowledge to ask your CPA the right questions.

How many of your friends are in the freelancing boat?

How many of us out there freelance and work temp gigs to put something together for the landlord, while taking improv classes at night, acting on weekends, or writing in the mornings?

Do you see every dollar saved a dollar invested back into your career?

Is this sounds like you, I hope you stick around.

Next up, we’ll talk about best practices to claim deductions in Hollywood.

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Photo Credit: Ken Teegardin

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