The Complete Guide to Taxes for Actors

 If you’re a working actor, your taxes are a lot more complicated than those of the 9-to-5er. You’re generally in charge of estimating and setting aside your own taxes, and you don’t have a traditional employer to share the burden of expenses like social security and healthcare. Because taxes for actors can be so complex, we recommend working with an entertainment accounting firm staffed by knowledgeable and experienced CPAs. 

Are Actors Self-Employed? 

Almost all actors are self-employed in the eyes of the Internal Revenue Service (IRS), at least as far as their acting work is concerned. If you work as a sole proprietor, or if you establish an LLC, S corp, or C corp to manage your financial affairs, you’re self-employed. This means that you’re solely in charge of managing your taxes. 

The only exception is when you work for a company that pays you a salary for steady acting work. While this business model was popular during the age of the Hollywood studio system in the 1920s to ‘60s, it’s extremely rare in today’s economy. 

If you’re not sure whether you’re self-employed, just look at the tax documents you receive. If you receive a W2, you’re an employee. If you receive 1099s, you’re self-employed. 

How Do You File Taxes as an Actor? 

If you’re a working actor, at least some of your income is most likely contractor income. As a result, you should receive 1099-MISC forms that outline your earnings from various acting jobs. These forms are in addition to any W2s you receive for your regular day job (if you still work a 9-to-5 to support yourself). 

When filing your taxes, you have to report all income earned during the year. Your total gross income may be the combined income outlined on all of your W2 and 1099 documents. However, if you do not receive a 1099-MISC for your entertainment work, you’re still required to report that income on your tax return. Be sure to maintain careful documentation of all income earned throughout the year. 

The good news is that, as an independent contractor, you have the right to deduct the cost of certain related expenses from your total freelance earnings. 

List of Tax Deductions for Actors 

Tax deductions are write-offs that reduce your taxable income. As a working actor, you can take the standard IRS tax deduction ($12,550 for a single tax filer in 2021), or you can itemize your deduction. 

Itemizing is generally recommended for independent working actors because you can deduct a variety of everyday expenses related to your work. The IRS allows actors to deduct expenses that meet the following criteria: 

• The cost must be directly related to your acting work.

• The cost must be ordinary and necessary.

• The cost must not be needlessly lavish or extravagant.

Here are some basic examples of costs that you might deduct as an actor: 

It’s very important that you save your receipts for all expenses you plan to deduct. In the event of an audit, you’ll need to present official documentation. Also, note that the total sum of your deductions cannot be higher than the amount of income you earned from your acting work. 

Paying Quarterly Taxes for Actors 

The most difficult thing about paying taxes as a self-employed actor is setting aside your own tax money. You don’t have an employer deducting wages on your behalf, so the burden falls upon you. It’s extremely difficult to save tax money for a full year, especially if you’re living paycheck to paycheck. For this reason, the IRS requires most independently employed actors to submit an estimated tax payment every quarter. 

According to the Internal Revenue Service, “Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.” 

It doesn’t matter if the majority of your income is W2 employee income. If you expect to owe more than $1,000 at the end of the year, you must make quarterly tax payments. If you’ve set up a corporation for your acting income, the minimum quarterly tax threshold is only $500 rather than $1,000. 

To do this, you’ll use IRS Form 1040-ES (Estimated Tax for Individuals) or IRS Form 1120-W (Estimated Tax for Corporations). Most actors will use 1040-ES. 

In order to calculate your estimated taxes, you’ll need to estimate your tax burden for the year: your gross adjusted income, taxable income, taxes, deductions, and credits. When you calculate your total estimated tax burden, divide that number by 4. Quarterly tax payments are due on April 15th, June 15th, September 15th, and January 15th. 

The tax form will guide you through the process of estimating your taxes, but if you’re having trouble, you can use your previous year’s income as a guide. 

How to Avoid a Tax Audit as an Actor 

When it comes to filing taxes for actors, the biggest concern is the dreaded IRS audit. But an audit doesn’t automatically mean you’re in trouble. In many cases, taxpayers are selected at random. An audit simply means that the IRS wants to review your tax records and financial information and ensure that your reporting is accurate. 

The IRS may issue an audit for several reasons: 

• You’ve been selected at random

• Your tax return contains one or more math errors

• Your return doesn’t match the record the IRS has on file

• You claimed a suspicious number of charitable donations

• You were aggressive with deducting business expenses

The last example is the most common reason why actors and other independent contractors are audited. When deducting your expenses, make sure that every deduction is ordinary, necessary, and relevant to your work. Don’t deduct personal expenses (like the Nike shoes you once wore on set but mostly reserve for personal use), and don’t get carried away. In addition: 

• Double- and triple-check every line on your tax return before submitting it to the IRS. Even innocent errors can trigger a red flag.

• Report all of your income, even if you didn’t receive a 1099-MISC for it.

• Do not claim the standard deduction if you’re also itemizing your deductions (you have to choose one or the other).

• Keep receipts for every item you plan to deduct as an expense. You must keep your receipts for at least 3 years.

The best thing you can do is hire an entertainment accounting firm to handle your taxes for you. If you work with an experienced CPA, they can help you to achieve the maximum tax benefit. They’ll handle the quarterly taxes, help you to understand your deductions, and ensure that you remain in good standing with the IRS. And if you do get audited for any reason, a CPA is legally permitted to resolve the matter on your behalf—a standard accountant cannot do this. 

Whether you decide to file your own taxes or work with a pro, the important thing is to stay on top of those documents and payments. You may have the good looks of Denzel Washington and the awe-inspiring talent of Meryl Streep, but the IRS won’t care about any of that if your 1040 comes up short.