The dancer’s guide to tax preparation for a year like no other
One of the perks of having a tough year, from a career standpoint? There’s a good chance you’ll get some cash when you file your 2020 taxes. But as you organize your financial information ahead of tax season, you likely have COVID-19 related questions looming. Will you be taxed on your stimulus check? Your unemployment? And can you cancel that Zoom subscription you bought in April? Dance magazine spoke with two accountants who specialize in tax preparation for freelance artists to get the lean on tax preparation this year.
How to deal with COVID-related aid
Stimulus verification: Although you don’t owe any money on your stimulus payment, you will need to tell your tax preparer how much you received, says accountant Jessica Scheitler, owner of the Las Vegas-based tax preparation company Financial Groove. Listing your stimulus check as part of your 2020 financial situation lets the IRS know that you received it – and if you didn’t receive it, or if you only received the last. half, you’ll get it as part of your refund.
Unemployment: The newly enacted US bailout allows those earning less than $ 150,000 in modified adjusted gross income to exclude unemployment up to $ 20,400 if they are married and file jointly or up to 10 $ 200 for all other eligible taxpayers. Beyond that, you will have to pay taxes. Unemployment insurance is generally also subject to state taxes, and while some states have adopted the federal changes, others have not. “If you haven’t levied taxes up front, you probably owe money – at the bottom of the scale you’re looking at 15%,” says Scheitler. If you’re worried about being able to make this payment, be aware that the IRS offers payment plans (but you will be charged interest).
PPP loans: If you received a paycheck protection program loan for your business, you’ll need to be able to prove that you spent that money on certain expenses to have the loan canceled, says Scheitler. You won’t have to pay federal taxes on it (although there may be state taxes, depending on where you live) and you can write off those same expenses.
EIDL scholarship: If you’ve taken advantage of the Small Business Administration’s Economic Disaster Loan – or, more likely, the $ 1,000 EIDL Advance – you won’t have to pay federal taxes on it, although you may owe state taxes. You will be able to write off all the expenses for which the advance went.
Student loans: “Normally you would have to write off the interest on your student loan,” says Scheitler, “but student loans have been largely suspended as part of pandemic relief. So if your numbers are totally different from previous years, that might be why. “
Retirement: If you have withdrawn money from your retirement fund, you will not have to pay tax on early withdrawal penalties at this time. Thanks to the CARES law, you can pay this tax over the next three years. However, this advantage is not automatic. When filing your income tax return, you must certify that you have had financial difficulties as a result of the pandemic.
Dos and Don’ts in 2020
– Do not forget from January to March. You might be tempted to think of the whole of 2020 as a wash, but for the first three months of the year things have (probably) worked out as normal. “You still have to make receipts for this period,” says Scheitler.
+ Include cash and mobile payments in your income. If you have earned money through Venmo or PayPal, for example giving dance or fitness classes on Zoom, this still counts as income and should be shown on your return accordingly. (You can deduct teaching expenses to reduce this amount, as you would with any other 1099 job.)
+ include your charitable contributions. In recent years, if you opted for the standard deduction ($ 12,400 for 2020), the charitable donations you made would not count towards reducing your taxable income. But this year, thanks to the CARES Act, you can deduct charitable contributions (up to a total of $ 300 in cash) “above the line”, that is, outside the standard deduction. .
+ MAKE a tax payment before May 17 or your state’s deadline, it doesn’t matter which one comes first. In general, Rus Garofalo, who heads the accounting firm Taxes on brass, advocates filing your taxes sooner rather than later. “If someone gets a refund, it would help to get it as soon as possible,” he says. “And if someone owes $ 5,000, I’d rather tell them in February than in April, so we can figure out the next steps.” Even if you choose to request an extension, this only applies to the tax documents themselves, not the money you owe, which will immediately begin to earn interest.
– Don’t forget to write off expenses linked to the pivoting induced by COVID, like the equipment you bought (ring lights, cameras) or subscriptions, like Zoom. For cell phone / internet use and business use in your home, calculate it as a percentage of the overall context. “We know you installed marley in your living room and made it a dance space, so you need to calculate that space as your business use of the home, but also take into account the time it was used that way. “Scheitler explains. . She also encourages dancers to take a photo of their reconfigured dance space and save it in their tax records. “Explain that in three years, in the event of an audit, it will be difficult otherwise,” she said.
The dreaded audit
Many people equate claiming deductions or not making a profit for several consecutive years with a greater chance of being audited, but Garofalo says both correlations are flawed. “An audit is just a scary word for the government that says, ‘Show me how you got those numbers,’” he said. When it comes to whether you have actually made a profit with your dancing career, the government, Garofalo says, is “agnostic – they care if you were. trying to make a profit, not if you made a profit. In addition, he adds, the audit rate is less than 1%.
Even Scheitler, who is generally cautious about the income-to-depreciation ratio, is putting aside his caveats. “It’s not going to weaken in 2020 in any way, because that’s just the state of the world,” she said.