Over at Reddit we came across the following discussion: Help me understand Tax Deductions and how i can take advantage of them! (self.personalfinance)
submitted 21 hours ago by Lastb0isct
I work in the entertainment industry in California and have heard a lot of talk from my friends/co-workers regarding tax deductions. I'm not sure how to take advantage of these. Can anyone explain how i would take advantage of these? Is there any good documentation on entertainment industry deductions? Are there any other tax deductions that everyone is eligible for?
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The first thing you need to do is determine if all your deductions will be more than the standard deduction of $6100 for single filers and $12200 for married filing jointly. This is called itemizing and it takes a lot of work so unless you are sure that by itemizing you will get more deductions that the standard deduction I wouldn't bother with it. Here is a link to possible deductions. Remember you will need proof (receipts etc..)
How do i file for the standard deduction? Or is that what is automatically taken out?
This year will be hard to itemize purchases, but maybe i can for my 2014 if it's worth it.
It's automatic and already on the form. If you wanted to itemize you would have to submit form 1040 with schedule A (listing all your deductions) attached to it. See this video for more info.
I highly recommend buying TurboTax and going through all of the deduction steps. It's cheap and worth it for someone in your situation.
Just a heads up though, it's not likely that you're going to be able to deduct much of anything. The taxman always wants his due. If you know lots of people talking about deductions beyond the usual ones (like paid mortgage interest), they're probably not filing their taxes correctly, and every so often one of them is going to be picked off in an audit to face the piper.
Working in the entertainment industry are you hired as an employee or as an independent contractor? If you work as an independent contractor some work related expenses may be deductible without itemizing.
I'm a full-time employee, not a contractor anymore. Guess itemizing is the only way for me. Though it seems to be more hassle than its worth. How much extra could I see in return I'd I generally get ~$2000 for my returns?
You'll typically see the largest benefit from itemizing deductions if you:
- are paying a mortgage on a home
- have high state and local income taxes
- have extraordinarily high medical bills
- donate a large amount to charity
If any of those apply to you, it might be worthwhile to do the math. It might end up saving you a couple-hundred dollars, or it might be better to take the standard deduction.
Turbo tax is like 30 bucks, buy it.
Just met a low level TV producer from CA. He writes off EVERYTHING including Hulu/Netflix, popcorn & snacks when he goes to see a movie, etc. He claims they're all dues & subscriptions or business entertainment expenses.
Pretty deplorable if you ask me and in a way I hope he gets audited. I didn't realize how widespread this tax-dodging was in the entertainment industry until that experience. Your best bet is probably to go see an experienced accountant who can tell you what is and isn't deductible. Also, you'll obviously need documentation which you should've been saving all year.
As someone who works in the entertainment industry, I sought out the help of an accountant. They told me to deduct ANYTHING related to Hollywood, including Netflix, movie tickets, cable tv, internet. They are all included as reference/research items to my profession. I never deducted them until meeting with an accountant.
Sounds like legitimate deductions to me. It's the equivalent of buying a programming book for a software engineer. Seeing what your competition is doing is a business expense.
I don't necessarily disagree and I'm not accusing him of breaking the law. Something just doesn't seem right to me about writing off Netflix, Hulu, and popcorn. Is it "research?" Maybe partially. But I guarantee the majority of use is for personal entertainment rather than a strict schedule of watching movies and TV for work-related purposes.
It's the beauty of overly complex tax code. Until it's simplified, the grey areas will allow for things like this.
Is he watching so many movies that he's beating the standard deduction? Seems like a lot of work to save a very small amount of money. Think about the opportunity cost of the time he's spending just to beat the standard deduction here...
The standard deduction is only $6,100, though. While one might not exceed that simply with Hulu, when you add up everything that might be characterized as entertainment, like partying with busines associates, having lunch, etc., together with everything else you do that might have a business connection, it is not too hard to conceive. I'm not necessarily advocating it as an audit may very well end up disallowing a ton of deductions and then you'd owe interest and penalties on top of more tax. But if you wanted to play that game, the numbers will almost certainly greatly exceed the standard deduction.
This is exactly what I was curious about. A lot of my peers are doing this and it seems to be a shady practice. Can deducting that type of stuff actually be legal/acceptable? I wasn't sure about this as the majority of people I know in the entertainment industry do this...
Thanks for the insight
Well, you can claim anything you want the problem arises when you get audited and suddenly you are having to justify each and every deduction you claimed. Personally I wouldn't recommend it. The last thing you need is the IRS looking into all your financial affairs and their power is pretty broad including putting you in jail for tax fraud. Just because your friends do it doesn't mean you should.
I am in the entertainment industry as well. You can listen to two voices:
- Other entertainment industry people: they tell you you can write off everything. Their source is "everyone I know does it".
- The IRS: Unless you can prove that you spent more than the standard deduction in dues, expenses to get work, and stuff you need for work, (and work only!), you are better off taking the standard deduction.
I take the standard deduction (married, so $12,200), because in all honesty, there's no way I can legally come up with more. And, if I get audited, the other entertainment industry people are not the one doing the audit. And telling the IRS, "but I was told everyone does it" won't get you anywhere.
Now, if you really really want to go the all-expenses way. Document everything so it shows it was for work. Meaning:
. You want to deduct cable bills? Keep a written log of every show/movie you watch, why you watched it, and what you learned.
. You want to deduct theater tickets? Keep a log of movies you watched, why, and how it related to your line of work, and how it helped you in your line of work.
. You want to deduct lunches? Have them with industry people, and keep a log of what you discussed, and how it helped you get more work, and how it was related to future business.
Edit: double line breaks
This is about 1% of the tip of the iceberg. If you want to consider somebody deplorable, consider it of the people who wrote the tax code which allow business owners and businesses to write off cars, home improvements, machinery, even private aircraft. Legitimately,I might add.
Two types of deductions for adjusted gross income(AGI) and from adjusted gross income. Look into these as tax law changes all the time. For Agi deductions include things like losses from a trade or business, alimony payments, losses from rental property... things like that. Your from agi deductions is where you can itemize or take a standard deductions, whichever is higher amount. Itemized deductions include things like medical expenses (up to a certain percentage of your agi).
The standard deduction is what you will automatically qualify for. That being said, if you add up all of your qualified business expenses (that you were not refunded through work), plus if you own a home you can deduct the interest expenses. I'm on my phone so I can't really send you any links, but check out the IRS's website concerning Itemized Deductions.
Edit. The guy above have you a perfect link.
Most people ignorantly commit tax fraud with their "deductions". Don't listen to people.
If the IRS didn't want you to take those deductions, they wouldn't have put them there in the first place. While I am totally for paying the government for the services they render, I also feel it is my duty to pay them as little as I can legally and morally get away with.
That's fine. It's just there is a lot of unintentional tax fraud because audit rates re ridiculously low. People at work etc will take chances.w hat you need to do is find out exactly what you are legally able to deduct. I guarantee you will find that your buds are committing fraud in one way or another
to be fair, the line between "fraud" and a legitimate deduction is pretty blurry.
Actually it's pretty well defined
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This is an extremely useful video guide. Never thought of khan to look for that kind of stuff. Thanks!
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