6. Document expenses or deductions which may seem odd to an auditor. If you perform with items which could have been purchased for personal use (Keith now juggles toilet paper in his show, for instance) take a photo of the prop in action. This proves that you aren't trying to write off personal expenses. If you're taking a big write off for something - you recently hired a consultant to develop a new show, for example - you might want to add a note explaining this when you file your 1040. Explaining a greatly increased deduction in advance may stave off an audit altogether.

 

7. Keep those logs! The IRS recognizes that most computers, video cameras and cars are not used just for business and they are on the lookout for people who bury personal expenses in their businesses. If you enter an audit unable to justify the percentage of business use you've written off, the deduction may be denied. Keep a log recording all business use of equipment including computers, cellular phones, video cameras and cars.

 

8. Meal, entertainment, and travel deductions should be clearly identified. According to current tax law, you can deduct 50% of the cost of meals eaten while away from home overnight on business. One way to avoid the extra paperwork (and save money!) is to ask your clients to reimburse you directly for your expenses on the road. Another is to take advantage of the IRS's standard meal allowance. Instead of keeping actual receipts for business meals eaten on the road, you are allowed to claim from $26 to $38 a day, depending on where you traveled. IRS publication 463 lists the per diem amount allowed for most major cities. It is perfectly legal to claim $38 a day for food in New York City, even if you only ate two bagels. (You will, however, only be able to deduct $19 a day - the 50% limitation applies.) A 50% deduction for business meals is allowed, too, as long as you document who attended and the purpose of the meeting.

 

You are still allowed to deduct 100% of your accommodation expenses, even if your spouse or companion travels with you. Just be prepared to prove that you were actually working in Aruba or Honolulu!

 

9. Do you hire other entertainers to perform at events with or for you? The government is keen on finding employers who call their employees subcontractors to avoid paying taxes and benefits. Ask each of your performers to sign a letter outlining the terms of your relationship to document the fact that everyone knew what was going on. It helps to work only with subs who either book shows on their own or who rely on someone other than you for work. Keep records which show that your subcontractors, are, in fact, self-employed people who are actively pursuing their own business interests. For more information on the differences between employees and subcontractors, read The IRS, Independent Contractors, and You by James Urquhart (Fidelity Publishing Co.).

 

10. Taking a writeoff for a portion of your rent or mortgage through the home office deduction remains a sticky issue. Recent court rulings have taken a limited view of who qualifies. If you store inventory in your home, you can take a deduction for that space; otherwise, be prepared to prove that you meet these three requirements:

A. that the space is used regularly and exclusively for business,

B. that it is the principle place in which you do business, and

C. that it be a separately identifiable space in your home.

 

Keep in mind, though, that your business expenses are deductible no matter where they occurred, and whether or not you take the home office deduction.

 

In conclusion, keeping accurate records does require some time, but it need not take over your life. Think through a system which makes sense to you, then spend a little time each day updating your records and receipts. At tax time (and at audit time) you'll be able to breathe easy with the knowledge that you can back up your return.

 

Overlooked Business Expenses

According to Fred Daily, author of Tax Savvy for Small Businesses (Nolo Press), these are some of the most frequently overlooked business expenses: Promotional expenses, bank service charges, business gifts, business related books and magazines, casualty and theft losses, charitable contributions, commissions, consultant fees, credit bureau fees, interest on credit cards for business purchases, interest on personal loans used for business purposes, office supplies, on-line computer services related to business, parking, meters, tolls, petty cash funds, postage, seminars and conventions, taxi or bus fare, telephone calls when you're away from home on business.

 

IRS Suggested Categories for Entertainers

Agents' Commissions - invoices from agents who book you.

Advertising - invoices for ads placed in telephone directories, newspapers, magazines, etc.

Continuing Education - receipts for IJA conventions, workshops, and lessons. (Note, the classes must be directly related to your current career or one to which you aspire. A Learning Annex course on meeting your soul mate wouldn't be deductible)

Cosmetics - theatrical makeup

Costumes - store receipts for special clothes which are worn exclusively at performances. Also includes dry cleaning receipts.

Entertainment - receipts for dinners at which you entertained subcontractors, clients and other jugglers. Each receipt should detail who was present, and the purpose of the meeting.

Fees/Dues/Subscriptions - receipts for juggling organization dues, and juggling related magazines.

Health Care - if your doctor bills, prescriptions, or doctor-mandated special equipment exceeds a certain percentage of your income, it is deductible. Don't forget to record the mileage of driving to and from the doctor's office or hospital. It counts toward your total, too.