How your taxes are like a movie star’s – and how they aren’t02.26.14
Like many of you, we’ll be watching the stars on the red carpet this weekend. But when you live and breathe taxes like we do, you start looking at celebrities a little differently. Which led us to ponder: How much does an average person’s tax return compare with that of the Best Actor and Actress of 2013?
How they’re the same
For starters, you both have to file a tax return in the U.S. If you are a U.S. citizen or resident, you must include your worldwide income on your U.S. Form 1040. If you are a citizen or resident of another country and only worked in the U.S., you still must file a nonresident return and pay taxes on your U.S. source income. There’s no avoiding the taxman.
And just like a professional entertainer, you can claim your expenses of your profession on your tax return. If you work for someone else, these expenses will be deducted as part of your total itemized deductions. Allowable business expenses are any expenses that are ordinary and necessary for your work.
Expenses such as union dues, courses to maintain or improve job skills, annual continuing education, renewing licenses and professional certificates are deductions common to many professions including acting.
Actors also have medical expenses and health insurance concerns and like you can deduct these expenses as part of their itemized deductions. If you are self-employed, you can deduct the full cost of your health insurance as an adjustment to income directly on your Form 1040.
How they’re different
Now, while the principle of business-related deductions is the same for you and a movie star, the things you can deduct will likely be different. For example, many actors have a motorhome they move from venue to venue so they have a home from which to operate while they are working. This would be considered an allowed deduction. You, on the other hand, can’t deduct your camper or RV unless it’s a necessary tool for doing your job.
Other expenses such as costumes and stage makeup are common deductible expenses for actors and entertainers but not generally a deduction for the average taxpayer. In order to be deductible, clothing and personal items such as makeup must be a specific requirement of the job. Your job may have a dress code, but that won’t make your suit deductible – sorry!
Some additional things this year’s top entertainers likely won’t have in common with average taxpayer:
• Additional 3.8 percent Medicare Surtax on Investment Income greater than $200,000 income.
• Additional .9 percent Medicare tax on earned income greater than $200,000.
• Phased out exemptions and itemized deductions because income is greater than $250,000.
• 20 percent capital gains tax rate.
• 39.6 percent income tax rate.
• Subject to the Alternative Minimum Tax (AMT)
• Not eligible for most tax credits due to high income
So you see, you and a movie star have many things in common when it comes to taxes, and those that are different can be costly! But we still promise to give your taxes the full white-glove treatment, so stop by your local Jackson Hewitt Tax Pro if you have any questions about your taxes.