As someone in the entertainment industry, you’re well aware of the value you bring to the world. Thanks to the creative minds that produce engaging material for different audiences to consume, people have discovered books, music, movies, and TV shows that have given them comfort. They’ve resonated with characters, escaped the hustle and bustle of their hectic lives through escapist media, and felt understood by the depicted experiences that mirror their own.
While bringing your art to your audiences is a challenge itself, sustaining yourself and dealing with the finances is a different animal. There are many complexities in managing your taxes, especially as someone with numerous income sources. Luckily, working with accounting services that specialize in handling entertainers’ taxes will help you stay on track. Here’s what you need to know:
1. Plan Early
If you’re just starting in your acting, music, or writing career, now is the best time to speak with an accountant to handle your finances. You’ve probably heard of the many celebrities charged with tax evasion on the news, which usually happens because they failed to plan early and adequately. Before receiving your paycheck, look into accounting for entertainers and familiarize yourself with tax planning in your field. Filing taxes for writers is a different process from filing taxes for actors, so this is an important distinction you’ll need to make.
Luckily, you don’t have to do this alone. Working with an accounting professional will help you iron out everything money-related to help you stay compliant. It will also encourage you to have tighter control over your finances to make sure you don’t overspend.
2. Keep Track of Your Payments
Most entertainers, whether you’re a musician, actor, or dancer, have various income streams. If you starred in a film, your payment depends on how much money the film makes, known as participation, and payments for future broadcasting of the show, known as residuals. You might also receive endorsements of products depending on your fame, and you may receive invitations to film commercials or appear at events.
Given the many different ways you can earn money, it is essential to keep track of them right from the get-go. That way, you can monitor when you’ve received payment for work that you did and when one is well past its due date. Working with a boutique accounting firm will alert you to any money you should have received ages ago, ensuring you get the money that is rightfully yours.
3. Figure Out Deductions
Tax deductions are incredibly tricky and confusing to figure out by yourself, so it’s best to work with an accountant in this regard. As an entertainer, you’ve probably had to make a few expenses as part of your job, like attending regular hair styling or facial appointments. These are usually not deductible unless associated with a specific job, but you’ll need to document such connections.
Meanwhile, other expenses like buying clothes or going to a gym can be deductible, but only if they’re directly related to your work. Many entertainers try to skirt these rules, but claiming large amounts of deductions often prompts an audit. Having an accountant by your side will ensure that you have all the right documentation to avoid triggering an audit. Any changes in tax law can also affect audits, so careful preparation with a professional is key to maximize allowable deductions.
Tax planning is generally a complicated process for most professionals, but it’s a different ballgame with entertainers. Since you’ll earn income according to the projects you sign up for, you’ll be subject to other tax laws that can quickly land you in hot water if you aren’t careful. With these tips and an accountant’s help, you can stay compliant while securing your financial position.
Aaron Parthemer is the President and CEO of PMG Private CFO Services, a boutique accounting firm that provides financial and accounting services to professional athletes, entertainers, and executives. Contact me today to find out advanced tax strategies that can help you manage your finances better!