March 4, 2009
Tax Preparation for Film Crew
by Anne K. Johnson
As tax season approaches, many of us start to think about
getting our records in order to prepare our taxes. Unfortunately it may be too
late to take some allowable deductions this year because adequate records were
not kept during the year. A discussion of how to keep records and what can be
deducted should help for next year. Hopefully it will help some for this year
too. My immediate advice is to throw away nothing. Also, it is a good idea to
prepare one's taxes as if he/she were going to be audited, even though chances
are he/she won't be.
There are several ways of keeping track of expenses:
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Pay cash and keep the receipts.
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Pay by check and keep the back up. For instance, the IRS won't
accept just a check for proof of anything. They want to see the bills.
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Pay by credit card and keep the receipts. Make sure you write
down on the receipt what the business related item is while it is fresh in
your memory.
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Pay on line and print out a receipt. Make sure it is itemized.
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Keep a diary. The IRS accepts diary entries for proof of
expenditure for certain items for which one would not normally get a receipt.
These are, local transportation (although now cabs give receipts as do
machines where metro cards are purchased), publications (business related)
purchased from a newsstand, tips when traveling, parking meters when parking
for business, cash paid tolls for business trips, business entertainment—when
you take someone out for a meal, discuss business, and pick up the check.
Note, here you must write down with whom you ate and what you discussed—how it
was business related. Only items under $75.00 can be put in a diary. Any items
$75.00 or more require receipts. If you are traveling out of town for
business, your own road meals can be put in a diary as well. Almost everything
else requires receipts.
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Another item to keep in a diary is the miles you drive for
business related trips. The IRS requires this anyway.
How and what to take for deductions:
Deductions of expenses can be taken several different ways.
There are basically three forms on which one can take deductions and it depends
on how one is paid and what one does for work.
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Schedule A: If work is performed for an employer,
wages are paid and taxes withheld, deductions are taken on a Schedule A.
Schedule A is used when the standard deduction allowed each taxpayer is
exceeded. In addition to unreimbursed or unreimbursable medical expenses
that exceed 7 ½ % of one's adjusted income, state and local taxes withheld
and paid, real estate taxes, church and charitable contributions and
expenses for volunteer work done for a church or charity, and mortgage
interest, one can deduct ordinary and necessary business expenses that
exceed 2% of one's adjusted gross income. If all of the above expensed do
not exceed the standard deduction, one does not need to itemize. Also
note, written proof of charitable contributions must be kept. Write checks
to churches, etc.
Ordinary and necessary business expenses are those that
are required by an employer, would not be reimbursed by that employer, and
expenses incurred to maintain and improve skills in one's current job.
Expenses incurred to learn a new job are not deductible. Also, if an
employer would reimburse the expense whether or not one asked for the
reimbursement, the expense is not deductible. This goes for medical
expenses too.
For instance, if a taxpayer is expected to keep up with
what is going on in his or her field, read publications, see films, do
research on the internet, watch cable, etc. and the employer will not
reimburse those expenses, then those expenses are legitimate deductions.
Some IRS auditors disallow watching films except for Directors. However,
many members of a crew must be able to relate to how other films looked,
etc. It is my opinion that a taxpayer has a much better idea of what
he/she needs to maintain and improve skills. Some auditors allow 80% of
cable, for instance, 50% of internet access, etc. However, if one could
argue that one would not have cable or internet if one were not in the
film business (highly unlikely in this day and age) one might be able to
take a higher percentage of the expense as a legitimate deduction.
Business use of cell phones is another issue. Expenses of
a home phone used for business are only deductible if the expense exceeds
the cost of having the phone in the house. Only long distance calls and
extra message units for business related calls are deductible. An
additional line for a fax might be deductible as well. If one has a home
phone and also has a cell phone, a larger amount of the cell phone expense
can be deducted. It is up to the taxpayer to determine how much the cell
phone is used for business. However, if the taxpayer only has a cell phone
and no home phone, the IRS could argue that the basic cost of the cell
phone is not deductible. Only additional charges for more minutes, long
distance calls, etc. would be deductible.
Other expenses one might deduct, as long as they are
ordinary and necessary and would not be reimbursed could be purchase of
supplies, use of a computer and other equipment, cameras, tools, etc.,
reading of business publications, watching films and performances and
going to museums for research, continuing education to improve skills in
the field for which one is currently being paid.
Note, supplies that are used up, such as batteries, small
tools, film, sound stock, etc. can be deducted in full in the year they
are purchased. Equipment purchases can also be deducted in full as long as
the total of all deducted equipment purchases does not exceed $250,000.
Remember, if one writes off all of his/her equipment purchases instead of
depreciating them over several years, the deduction is used up in the year
taken. So if you think that you may have a higher income in future years,
it might be better to depreciate the equipment so that the deduction can
be spread out over more years when one might earn higher income. Equipment
purchases, regardless of how they are deducted, must be listed
individually with the date of purchase, the cost, and the description of
the equipment included.
If one is teaching, $250 of one's teaching expenses are
deductible regardless if one itemizes or not, as are all medical insurance
premiums for a self employed person. |
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Schedule C: If one receives 1099's for payment, where no
taxes are withheld, expenses against that income can be deducted on a Schedule C
and are not limited to exceeding 2% of adjusted gross income. It is assumed that
one is self employed in his/her own business if one receives 1099's. If the work
is performed in one's home, part of the home expenses are deductible if two
requirements are met. First, the part of the home must be used exclusively for
business, not part of a bedroom or living room, but a separate part. Secondly,
the cost of a home office cannot be used unless there is a net profit on the
business. A portion of the rent, utilities, insurance, cleaning, etc. can be
deducted based on the percentage of the home that is used.
Other expenses a self employed person might deduct would be
business use of a vehicle, insurance, business interest, business entertainment,
travel, etc.
Of course, in addition to paying federal and state and local
taxes on the net profit of the self employment income, one must pay his/her own
social security self employment tax. The amount due is 15.3% of the net profit.
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Schedule E:
The third way of taking deductions is on a
Schedule E. If a film crew member rents his/her equipment to a film company, and
if the crew member is being paid wages (where taxes are withheld) separately
from the rental fee, the rents can be reported on a Schedule E. The net profit
on a Schedule E is not subject to self employment tax, just income tax. |
What Else is Deductible?
Purchase and repairs and maintenance of the equipment are
deductible. Purchases may be depreciated over several years or expensed in the
year of purchase as stated above. Only expenses incurred renting or purchasing
the equipment one rents out are deductible on the Schedule E. That might include
insuring the equipment, transporting the equipment, etc. Other business expenses
must be taken on the Schedule C if applicable or as itemized deductions on a
Schedule A.
Costs of transportation are limited. Commuting from home to
office and back are generally not deductible. There are a few exceptions. If one
is using his/her car for the benefit of the employer, the costs associated with
driving that car to and from the place of employment would be deductible. Again,
it is important to keep a mileage log. Also, if the expenses for running the car
for the employer such as gas, parking and tolls are reimbursed or would be
reimbursed whether one asks for the reimbursement or not, those expenses cannot
be deducted on taxes. If the employer pays a rental fee for the car, that fee
should be reported on the W2 as part of wages and would not be reported on a
Schedule E. If the rental is reported separately on a 1099, one could probably
take the expenses on a Schedule E. If one is hauling heavy tools to the place of
work, the use of one's car or the transportation expenses (in cabs) would be
deductible. Transportation between jobs, from home to do research, purchase
equipment, go on job interviews, or any other business related trip would
deductible. Again it is important to keep a diary, and list the expenses for
which one would not ordinarily get receipts.
If one works out of town and is not reimbursed for meals, all
meals in the travel locality are deductible. If the film company is only paying
crews as locals, then the cost of lodging and transportation from the lodging to
the job and travel to the locality are deductible. Again, this is only if these
expenses would not be reimbursed or reimbursable.
Other Tips
The best way to prepare for tax preparation is to sort receipts
by category, go through one's bank statements, credit card statements and diary.
Receipts should be sorted in date order and added. Needless to say, if sorting,
adding, and record keeping are done throughout the year, tax preparation time is
much easier. A computer program such as Quick Books is a valuable tool for
record keeping. However, back up receipts need to be kept.
If one is self employed, back up receipts should be kept for at
least seven years. Copies of tax returns should never be thrown out. Receipts
for major purchases should be kept for as long as the item is being depreciated
and then for three to seven years after that. If one owns a home, all records
related to purchasing and improving that home should be kept for as long as the
home is owned and then for three years after it is sold.
One more important issue to consider is how much one is allowed
to owe the IRS at the end of the year. If one owes $1000 or more, one is subject
to penalties and interest. Usually if one is paid wages and has enough taxes
withheld, one won't owe taxes, and will probably get a refund. If one has a net
profit from a business, rentals, stock sales, dividends, and interest, etc. and
will owe money, it is a good idea to pay quarterly estimated taxes during the
year. States require estimated taxes to be paid as well if there will be a
balance due.
It is important to note that there are unscrupulous employers
who pay people fees instead of wages when they should be paying wages. If an
employer provides you with a place to work and directs what you do, that
employer should be paying you wages, withholding taxes, paying half of your
social security tax, workers compensation, unemployment and part of disability.
An employer can withhold about .60 (that is 60 cents) a week for disability. The
employer must pay the balance. Employers save themselves at least 20% additional
expense by not paying wages. Not paying wages when it is required is illegal.
Know your rights.
Tax season can be less stressful if one keeps adequate records,
plans for tax preparation all year, and has enough withheld or pays enough
estimated taxes.
Anne K. Johnson is a professional tax & production accountant.
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