Wednesday, Feb. 22, 2012

Brilliant deductions

Tax tips for artists, musicians, freelancers and moonlighters

Wendy Cassera, a local accountant, tax preparer and tax blogger. 

 

• Paper or e-file, watch out for I.D. swipers

Tim Bowers is a 39-year-old Grand Strand father who works multiple jobs to provide income for his family. Bowers has worked seasonally at Jimmy Buffett’s Margaritaville several nights a week, works for his father-in-law's pool maintenance company in the mornings, and has his own photography business, Tim Bowers Photography, in the afternoons.

Many along the Grand Strand find themselves in similar situations, working multiple jobs, freelancing and using every available resource to get the most out of their tax returns.

In this world, nothing is certain but death and taxes... unless you're Keith Richards. Then, it's just taxes. In tough economic times, plenty of folks are working multiple jobs to make ends meet. This is especially poignant in a city like Myrtle Beach and the surrounding areas where jobs wax and wane with the tide of tourism for those in the service industry. Our fair city also boasts a large population of independent contractors, musicians, writers, entertainers and artists, an observation backed up by the latest available U.S. Dept. of Labor statistics. When work in one field begins to fall short, many residents have no choice but to look for additional employment to take up the slack, resulting in lots of flavors of tax forms coming their way when it's time to file.

Come tax time, that pile of tax forms can look more like a Rubik's Cube. So we’ve rustled the bushes for some tips provided by some local and regional experts to help guide you hard working self-employed and multiple-hat-wearing stiffs through getting the most out of those returns. So, grab that multicolored monstrosity and let's get to twistin'. No peeling the stickers off and moving them around. That's cheating. In this particular metaphor, it's also probably tax fraud.

Getting started

Knowing where to start is always difficult. We've got some good news there. Jackson Hewitt Tax Services offers a free program online called Deductions@work that will help you get started (www.jacksonhewitt.com). The page consists of a drop down menu with more than 50 of the most common occupations. Pick out an occupation and you'll be presented with a list of possible deductions for the profession. It even covers advice for the unemployed.

Lee Driggers, a Jackson Hewitt tax preparer from Fayetteville, N.C., offered a few tips by e-mail that those working multiple jobs might be overlooking. The mileage between your multiple jobs can be deducted if you're itemizing. There is a catch though. You need to be traveling from one job to the other in the same day and the incurred expense of the mileage is equal to or greater than two percent of your Adjusted Gross Income. Meals between the jobs when working both jobs in the same day can also be deducted. Child care, or other dependent care, is deductible. The caveat on that one is the care must be for a time while you are either working or looking for work. Don't go deducting what you paid the babysitter while you went out to see the new “Twilight” movie.

“It may not jump out at you right away, but perhaps the most important tax tip for people with multiple jobs has to do with setting up your withholdings. The withholding for each job needs to be determined separately, and it is often best to withhold at the higher rate of ‘Single’ with no dependents on the lower earnings job to ensure the correct withholding occurs. Otherwise, many taxpayers are surprised when tax time rolls around. This is the most important item and the one causing taxpayers the most difficulty at tax return time. Because those second-job paycheck amounts are usually lower and don't often trigger tax withholding table to kick in, many taxpayers unknowingly under-withhold,” says Driggers.

Getting money back is all about deductions, deductions, deductions. “Look for valid but creative ways to get deductions. That will help increase your bottom line,” says David Shucavage, President of Carolina Estate Planners, located in Wilmington, N.C. He suggests to “relentlessly seek out other things you can validly deduct.” An example of an acceptable, but overlooked deduction would be the following: If you are self-employed and often meet clients at home, certain things such as coffee, tea and toilet paper could be deducted. Shucavage does caution that one should consult an accountant before finalizing deductions, but the aforementioned example is a legitimate one.

Poets, Artists and Taxmen

Local accountant and tax preparer Wendy Cassera also has some sage advice. Cassera has been working independently for eight years, but has been in the field for more than 25 years. She writes the tax advice blog taxpectations.com. Started at the suggestion of colleague Dorien Morin of More In Media (who was recently featured in Surge’s Working 4 a Living), Cassera uses taxpectations.com to dispense free words of wisdom to those looking for taxation enlightenment.

She has also conducted seminars at Myrtle Beach's Fresh Brewed Coffee House focusing on assisting artists, musicians, small business owners, and other freelance workers with questions and concerns they may have about their taxes. “Taxpectations caters to everyone. It offers tax tips for both personal and business situations. I started because I like to help people and not everyone can afford accountants,” says Cassera. She encourages those looking for a little help at tax time to read and reach out to her on the blog for tips and advice. She shared a small portion of her vast knowledge in a recent interview.

“The biggest deduction you can take as any small business is mileage,” stated Cassera, seconding Driggers’ sentiment that it can often be overlooked. Another oft-passed up deductible is the luggage fee most airlines assess to checked baggage when traveling. No one likes getting stuck with that $25 fee for your luggage check on a businesses trip, but keep the receipt. When tax time rolls around, it's fair game. She also reminds that in general most out-of-pocket expenses are tax deductible. This includes advertising costs, businesses cards, networking fees, and Web hosting fees.

An oft discussed deduction is the so-called “home office.” But, is it worth it? Shucavage says, in his opinion, the negative outweighs the positive on that one. The biggest drawback is that it actually depreciates the value of that part of the house. “You save a little on taxes, but when you sell the house they recapture the taxes as capital gains,” he says. He also warns that a home office deduction could lead to an increased likelihood of the much-feared IRS audit.

“Be careful of business use of your home. Only take it if you do not have anywhere else to conduct your business,” is Cassera's advice. “It has to be a dedicated space,” she continues, “although some of the regulations have relaxed a bit.” That means the kitchen table is not your home office. If you had a ham sandwich on it that wasn't work-related, count it out.

One home-related deduction that is suggested is inventory space. If you store inventory, such as Mary Kay or any product that you are selling from your home, that space can be deducted. Again, however, it must be a dedicated space.

Cell phones, cash and practical advice

Other deductions the self-employed might consider would be items such as a cell phone, cable service, or a computer. If it's used for business, it's fair game for deductions. As always, some restrictions apply. “You cannot deduct the cell phone if it is your only phone,” warns Cassera, “You have to have a dedicated phone for business.” In other words, if you have a home phone and a cell phone you use for business, the cell can be deducted. If you also call Aunt Viv on the same phone you use to set up client meetings, no go. She, Cassera, not your Aunt Viv, suggests that if you are filing with only W2 forms, take advantage of the free electronic filing offered directly by the IRS. In order to use this service, you have to be filing with W2 forms only, nothing else.

Additionally, all our experts stressed the importance of checking the IRS Web site, www.irs.gov, to see what deductions are new and which ones have been phased out. In a recent press release, South Carolina Association of Community Action Partnerships highly suggests that anyone filing tax returns look into the Earned Income Credit (EIC) and the Child Tax Credit (CTC). The federal tax credits are intended for low-and moderate-income workers. In the case of the EIC that can mean up to $5,751. If you raised children in 2011 and earned less than roughly $46,000 in you could be eligible for the EIC. No kids? No problem. There is also a credit those not raising children who earned less than about $13,600.

With pay quite often coming in the form of cash, artists, musicians, and other independent workers can easily take their money under the table without claiming it. That is certainly their decision to make, no one is trying to play moral compass on this one. However, here's a little risk/reward information for those getting paid in cash. “You are ultimately responsible,” says Cassera, “So, keep a spreadsheet of what you took in. If an audit takes place, you have a better chance of getting away cleaner.” She emphasizes “cleaner,” not “clean.” Generally speaking, if you got more than $600 from an employer you should get a 1099 form. A 1099 is a form typically given to an independent contractor as a record of the income that was received from a particular business. If you didn't, ask for it. If the employer files the form and you didn't claim it, you'll find yourself pretty deep in the doo. Artists who sell their work outside of the country should also talk to a tax professional about foreign income. Foreign income is a big red flag that could lead to an audit. “There's no such thing as debtor's prison,” laughs Cassera. “Don't be like Wesley Snipes who went to jail for tax fraud. Claim all your income now and save yourself. The IRS is awesome about working with people if you communicate. File a tax return even if you can't pay it. Other wise there's fraud.”

Our local restaurant worker-pool guy-photographer also has learned a few tax tricks. “When you have a combination working for yourself, as a contractor, and for a company it can get pretty hectic,” says Bowers. For seasonal workers, Bowers suggests, “From March to September, make sure you pay yourself first. Take 10-20 percent off the top and do not touch it until October. Don't look at it, don't think about it being there.” He says this tactic is vital to his financial survival, also noting that he is lucky to have year-round contracts with the pool service to pick up some of the slack as well. When doing taxes, he suggests, “Try running your taxes a couple different ways. Try standard versus itemized. See which makes you the most money. That's why I started doing my taxes myself. I could try it a few ways and see what is going to be the best return for me.”

Robin Roberts, of Palmetto Architecture and Palmetto Development, is a local business owner who also heads up the non-profit Palmetto Studios Arts Alliance and the local annual comic book, science fiction, and media convention, Xcon World. Roberts, who uses a certified public accountant, has this to say, “Make sure you do as much research as you can yourself into your particular field and all the available tax deductions and credits. The CPA doesn't know your field. You have to challenge them to do better." He also suggests, “ If you spend money to improve your business and you can document how the particular expense has increased your business and revenue, then it is probably a deduction. The trick is documenting it clearly from initial expense to eventual impact and use.”

There you have it. If you want money back, deductions are the ticket. Tracking every work-related expense may seem like a pain, but, if you want to maximize your return, it's the way to go. If you're getting paid in cash, make sure to keep a good record of your payments, just in case the IRS comes knocking. Lastly, always check the official IRS Web site to see what new deductions you can take and to ensure you aren't trying to take any that no longer exist. Hopefully, all of this information will making your filing this year a little less...taxing.