Tuesday Tax Tip #2

So...you received a 1099-MISC (or four) from working as an independent contractor?  Generally, this will end up being reported on a Schedule C - Profit or Loss from Business (or as Other Income on Line 21 of the 1040, depending how the income was earned).

From the IRS Schedule C Instructions:  Use Schedule C to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity.

The Schedule C is a calculation of [non W-2] income, less expenses, for determining how much that income should be taxed.  This is the total of your 1099s and other income earned in that profession or business, less expenses required to earn that income.  Expenses can include actual amounts paid, including things like supplies, advertising, taxes & licenses, travel, utilities, and legal & professional services (like hiring a tax accountant), and more.

For example, I am an actor in addition to being an accountant.  I received two W-2s and two 1099s for performing in shows during the year.  The IRS requires 1099s to be sent to independent contractors if they earned over $600, though I received income less than $600 during the year from five other companies.  Technically, all income earned should be reported on my Schedule C.

I am also able to deduct expenses related to earning that income - props & costumes I purchased, headshot printing, memberships, website domain & hosting, etc.

You might be thinking "but I didn't keep any receipts for the year!"  Fear not!  In addition to "actual" expenses, one of the easiest deductions to claim is auto expense, specifically using the standard mileage rate.  For mileage driven to earn that 1099 income (outside of commuting to your regular office of business), the IRS allows you to deduct 54 cents per mile for 2016.  This is meant to cover things like gas, repairs, and maintenance of your vehicle.  Did you keep a daily calendar?  Do you have a written schedule of when you worked that gig?  Then you should be able to reasonably figure out your mileage.  (I should note that you can deduct actual expenses of your vehicle, but it needs to be prorated between personal and business and you'd have to figure out that percentage and also keep more detailed receipts for gas, repairs, and maintenance.  I think mileage is much easier.)

I received a 1099-MISC from a theatre for shows I do at various schools in the state.  I keep the monthly emailed schedule with the school addresses in it to calculate this mileage at the end of the year.  I'll end up with a smaller net profit because of this deduction, $735 in income less $324 in mileage.

I also earned $250 for doing a show in the fall.  The IRS wouldn't know that because no 1099 was filed on my behalf, but if I claim that income on my Schedule C, it means I also get to claim mileage to and from rehearsals and performances, about $813 in mileage if I use the standard mileage rate.  This reduces my net profit, which was rough for my bank account and poor car, but helpful in reducing my tax liability.

Some other expenses that I don't often see deducted for artists include the business portion of utilities, like cell phone and internet, home office/studio space, mileage to and from auditions, and class and workshop expenses.

Are you looking for an easier way to track your business income and expenses?  I have spreadsheets and app recommendations!

Do you have questions about your tax situation?  Nervous about filing a return with a Schedule C?  Feel free to reach out!

Cheers and Happy Filing :-)

Jaclynn, jc@jcherrycpa.com