By Mellini Kantayya
Alfred, Lord Tennyson wrote, “In the Spring a young man’s fancy lightly turns to thoughts of love.” However, in the Spring this freelance woman’s fancy lightly turns to thoughts of taxes…well, not “lightly”…and not “fancy” as much as dread.
Lucky for me, in January, NYWIFT presented “Can I Deduct it on my Taxes” with CPA Nancy L. Adams. Nancy, a principal at Adelman, Katz & Mond LLP with 30 years of public accounting experience, has a significant number of clients across the film and television industry spectrum.
The program was both thorough and engaging, dispersing my tax-time anxieties. I followed up with Nancy for a Q & A.
Nancy L. Adams
When filing taxes, what is different or special for those of us that work in television and film?
Expenses must be “ordinary and necessary” to your profession to be deductible. Some expenses that make sense for you would not make sense for those in other professions. For example, an accountant could never get away with deducting a portion of their home cable or most movie and theater tickets. Television and film personnel are also likely to want to work on their own projects (in addition to their day jobs) and are often subjected to the “hobby loss” rules by taxing authorities. Proper planning can minimize the risk of negative outcomes.
What records should I keep?
Individuals must adequately substantiate business expenses to deduct them. Generally, that requires an invoice or receipt and proof of payment (check, credit card receipt, etc.). More specific substantiation requirements apply with respect to the following, which are deemed more susceptible to “abuse:” travel expenses, entertainment expenses, gifts, and expenses incurred in connection with “listed property” (listed properties are autos, computers and peripherals, and other properties specified).
The expenses must be substantiated as to amount, time and place, and business purpose. Contemporaneous documentation (like a diary) is generally persuasive. Typically, little or no weight is given to a diary that is a product of recollection. For entertainment and gift expenses, the business relationship of the person entertained or receiving the gift must also be substantiated.
How long should I keep my records?
There are several rules that apply. Note there is no statute of limitations if fraud was committed but generally, the statute of limitations for a return is three years from either the due date of the return, or the date the return was actually filed, whichever was later. So, your 2013 return was due April 15, 2014, therefore the normal statute of limitations runs on April 15, 2017.
The second statute that applies is the Substantial Omission statute. If something big was left out of a return (greater than 25% of the income reported), the IRS can go back six years. The 2010 return was due April 15, 2011, so the substantial omission statute runs on April 15, 2017.
So most accountants tell you to keep seven years to be safe.
What should I do if I am audited?
There are different types of audits. For self-employed individuals, the IRS sometimes looks at both expenses paid and income received. You may have to identify every deposit that goes through your account, and if you can’t identify it, they consider it income. If you claim a home office deduction, the IRS may want to come to your home.
When they look at expenses, they’ll want to see two things: 1) an invoice detailing the amount (and hopefully business purpose) and, 2) proof of payment. Having a credit card statement without the underlying receipt is not adequate.
Again, develop a good system of record keeping. If you receive an audit notice, consult a professional to see what your potential exposure might be. Consider having a professional represent you.
What should we know and ask when choosing a CPA?
Obviously, you want to know a person’s background. For example, how long have they been doing taxes? Do they work with others in your field? Have they handled audits for clients? Those are important. I think that working with any professional is a lot like dating – you need to feel a rapport with them in order for your relationship to work well. You need to feel comfortable calling them to ask questions. Pricing is important, but you also need to believe the professional is the best fit for you.
“Can I Deduct It on My Taxes” is one example of the over 50 programs produced by NYWIFT each year. See what’s next on our programing calendar.