Sunday, February 20, 2011

Making the Best of a Taxing Situation

by Linda Goodman

In less than two months, federal tax returns for 2010 are due. As some of you know, in addition to being a storyteller, I am an accountant. This tax season I am helping out at a small CPA firm. Some issues you should be aware of:

1. According to a letter to the editor titled No Coercion? Tell That to the IRS in the February 20 issue of The Richmond Times Dispatch, the federal government is hiring 16,500 more IRS agents and purchasing Remington riot shotguns for that agency. I personally know that 112 extra agents were hired in Richmond alone (don’t know about any shotguns here, though). I know a few of them very well. They are good people, but they have been hired to do a job and they have to do it.

2. An article titled Tax Collection Conundrum on the front page of the Moneywise section of the same issue states that the IRS is steadily increasing the number of tax liens and levies it files against taxpayers, “despite the high number of Americans who are unable to pay their taxes.”

3. This same article states that the IRS is “going after anyone who owes money, not just the wealthy who may have found loopholes or people who hide money in offshore accounts, and the practice is inflicting unnecessary harm, according to National Taxpayer Advocate Nina E. Olson.” Tax liens damage a taxpayer’s credit and stay on a taxpayer’s credit report for 7 years, once resolved. Tax liens can put a small business out of business, as they render inaccessible the credit necessary to do business.

4. The IRS is claiming that it is taking steps to help taxpayers who are victims of our recession ridden economy. From what I am hearing, that is not true.

Some Advice:
Word has it that the IRS is scrutinizing schedule C’s. If you are a self-employed storyteller, you must file a schedule C. Make sure you keep all documentation for any income you have received and all expenses you have recorded.

The IRS is in some cases disallowing mileage logs. Make sure you mileage log is written and that it contains all the necessary requirements, which you can find on the IRS website:

The IRS is also scrutinizing non-cash donations. If you make non-cash donations, keep a detailed list of what you have donated. The list should include:

1. Date the item was acquired
2. Original cost
3. Name and address of agency accepting the donation
4. Date of donation
5. Fair Market Value at the time of donation
6. Method used to determine the fair market value

Storytellers cannot deduct the price of the clothing in which they perform unless it is exclusively for particular shows and cannot be worn elsewhere. For instance, someone who does historical storytelling in period costumes can deduct the cost of costumes; If you tell stories wearing a colorful cloak because you want to wear something eye-catching, however, you cannot deduct the cost of the cloak. Rule of thumb: When you are dressed in your storytelling garb, if someone doesn’t look at you and think, hey! That’s a performer! – don’t deduct the price of your outfit.

You can deduct miles traveled to a free performance for a 501(c)(3), but your time cannot be deducted. You get no deduction for the travel time or the show.

Be sure to include all your income on your tax return. A hiring agency must send you a 1099 MISC if it paid you $600 or more. You, however, must declare the income, regardless of the amount.

If you should get audited, and taxes and penalties are unjustly assessed, it can take a year or longer to get the problem resolved. Take deductions to which you are entitled, but don’t take chances.

A few years ago, when I was teaching my workshop Making the Best of a Taxing Situation at a storytelling conference, I was asked if I actually knew any storytellers who had been audited. I replied that I knew two. By the end of the conference, I knew six. Six out of the 200 people at the conference had been audited. None of them had pretty stories to tell.

At that time, only .58% of this country’s population was audited, on average. Today that percentage is 1.01%, almost double. If you have a red flag (a schedule C, non-cash donations), your odds of being audited are greater. This country has a huge deficit. Collecting taxes through whatever means is possible is being seen as a way to reduce that deficit. Beware.

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