[originally published 1 April 2011 at johnmatthew.com/blog]
[Obligatory Disclaimer: I am not an accountant. The information in this article is general and based on my experience. Please seek the advice of a qualified accountant when making important decisions about your taxes.]
You had great year. A few of those bookings really paid off – residuals, holding fees, plus more session pay for rewrites, demos and new spots. You locked in your union health benefits for next year, and you finally bought that big screen TV you’ve had your eye on. Best of all, all the money came through a payroll service, so your taxes are already paid, no need to send in any quarterly estimated payments. In fact, you’re expecting a big refund…
So, you go to your tax appointment in high spirits, thinking about that Caribbean vacation you’re going to take with your refund check.
Not gonna happen.
Your accountant runs the numbers. You owe BIG TIME. What happened?!?
According to my accountant Joe Howard at Chuck Sloan & Associates, this is a fairly common scenario. And the simple reason is that a number of the talent payment services (Talent Partners, for one) don’t make adequate deductions when processing payments. Of course, what is adequate depends on your individual situation, but I’ve found that most payroll services typically only withhold about 10-15% for federal income tax, which is pretty low if you have any kind of substantial income.
So be aware of this potential problem. Check your paystubs and look at how much money is being withheld. Talk to your accountant about what your potential tax liability may be, and plan ahead. You can contact the payroll services and ask about submitting a W4 that stipulates additional withholding (preferably as a percentage of gross wages, rather than a fixed amount). You’ll have to keep an eye on subsequent payments, however, to make sure that your request is being implemented. Also, subsequent W4 submissions by you, your agent or a producer may supersede any on file.
You can also simply send in both federal and state quarterly estimated payments to help make up the difference, or just put extra money aside in a bank account (but be careful, the government may require certain minimum quarterly payments depending on your income). I find it useful to set up a separate account and call it “Tax Fund”; it’s easier to see how much you have and you’re less likely to dip into that account ahead of time.
Be aware, plan ahead, and consult with a qualified tax professional to be safe. And don’t worry – the Caribbean isn’t going anywhere.
See also my previous article Taxes For Voice Actors
Tax resources online:
2011 Federal 1040 ES Forms
2011 California 540 ES Forms
IRS Withholding Calculator
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