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Elizel Long & me rehearsing Amy Seiwert's Monuments (Photo: Gutierrez Photography) |
I was having a conversation last night over food and drink about freelancing with a dancer who has essentially been my main partner since I began this season with
Alaska Dance Theatre. As
Elizel Long (pictured above) and I were eating dinner, a live band sang "Ring of Fire" by Johnny Cash, which we performed a duet to in ADT's last program. After a few memories and laughs, we got back down to business and continued to discuss what it was like to work as a freelancer in the US. Elizel only moved to the US a year ago. Since she was born in South Africa and spent much of her still young career with the
Rambert Dance Company in London, she must quickly figure out the contemporary dance scene in the US to find work and keep her career moving forward. As we approached the end of our meal, I mentioned that she should save her receipt. Her eyes flashed back at me with an inquisitive look. I explained to her that a lot of our conversation was spent explaining how to go about freelancing, who to contact, and how her new website I helped set her up with can be used to promote herself. Now that she is gearing up to work as a freelance dancer, this dinner was clearly a business dinner and can be written off for tax purposes.
There have been many lessons I have had to learn over the past year as a freelancer. One of the bigger items on that list would be saving, documenting, and preparing for my taxes. Freelancers most frequently work as
independent contractors. Essentially, I think of myself as my own business. Being an independent contractor means you are not hired by a company as an employee. They are not responsible for you even though they are handing you a paycheck. Essentially, it would be the equivalent to hiring a professional to remodel your kitchen. You pay them directly for their services, but you are not responsible for their health insurance, worker's compensation, unemployment, and you don't have to take taxes out of their pay.
How do you know if you are an independent contractor? First, take a look at your contract (which you should always read extensively prior to signing). There should be a clause in the agreement that clearly states, "Contractor is not an employee," or something along the lines of,"Barry Kerollis is not an employee of (organization)." A requirement of companies who hire independent contractors is that they provide a
"1099" tax form prior to the first pay period, which only needs to be reported (and paid taxes towards) if you make more than $600. This form tells the government that you are not an employee and that taxes will not be taken out of your paycheck. In other words, it will be your responsibility to save a portion of your salary and pay these taxes yourself.
One important piece of information that I had not been aware of was that an independent contractor is expected to pay
estimated quarterly taxes every 3 months. The IRS expects you to estimate how much you will work based off of the previous year and pay that amount in taxes by the 15th every third month. For me, I had only worked in freelancing for a short period of time prior to the 2012 tax year. I had no idea what I should pay. Much of my work pops up last minute, so I don't have a good gauge of what my take-home pay is going to be more than a few weeks to months in advance. If you don't pay enough into your quarterly taxes prior to January 15th of the following year, you can be penalized a certain percentage on top of what you owe when you pay your yearly taxes in April. In the end, you won't know if you hit the mark until you file your taxes.
More information that I have only recently learned is that outside of your federal (national) taxes, you have to pay taxes in each state where you worked and earned more than $600. For instance, I live in Philadelphia, PA and outside of my home-state taxes, I worked as an independent contractor in Rhode Island, Delaware, New York, Virginia, and South Carolina. This means that I must file taxes in each of these states. That adds up to about $30-$60 per state just to file, not including the actual taxes that I owe. It is also important to note that the government enforces a
self-employment tax for independent contractors. The purpose of this tax is to take care of social security and medicare that would typically be taken out of your paycheck by an employer. If you signed a
W-2 form when you were hired, you are considered an employee of that company. Even if you have a short term contract, often deemed seasonal, you can be considered an employee. In this instance, taxes will be taken out of your paycheck and you don't have to worry about the self-employment tax. Be sure that you are aware which status your employer has hired you as.
Since you are likely hired as an independent contractor, and not an employee, as a freelancer, it is more important than ever to keep very detailed and deliberate track of all of your spending. To offset the costs of filing in different states and the self-employment tax, it will be necessary for you to save all of your receipts and to keep track of all of your spending. I like to use two
Excel spreadsheets that I have created. One is set up to document the employers I work for, the dates that they pay me, how much they pay me, and whether taxes have been taken out or not. The other one includes detailed information about deductions, which I can back up with receipts that I have saved and filed.
There are a handful of items that you can write off as business expenses. Always keep an eye out for items/services that can be used to offset how much you owe, but be sure to make sure that they are for legitimate expenses. I write off any costs that I incur for taking class or working out to stay in tip-top shape. These expenses include open dance classes, yoga, gym memberships, pilates, and any other equipment I purchase to stay in shape for my work as a freelancer. Another cost that is important to document is physical maintenance. Physical maintenance is any service or item purchased to keep your body in top performing order. You can write-off medical and chiropractic care, massage, acupuncture, epsom salts, muscle care (arnica gel, tiger balm, icy hot, etc), or anything else, within reason, pertaining to the care of your instrument. You can deduct the cost of apparel for your work as well. If you purchase tights, leotards, warm-ups, dance shoes, or sneakers to cross-train in, be sure to keep track of these expenses. I also keep track of my spending when it comes to dance enrichment. Keeping up-to-date, researching companies for possible future work, and inspiring choreography are all a part of my business. If I see a performance or purchase a dance publication, I consider these important parts of cultivating my business and finding work. If you teach or choreograph, you can write off any music that you purchase and use in class or performance. If you attend auditions, travel and meals can be included on your expense list. Also be sure to keep track of your travel, parking, and gas expenses while freelancing. I often have to pay for my own parking if a car is provided for me during performance weeks, as city parking is almost never free. If you purchase thank you or merde gifts, you can only write-off each purchase up to $25. One of the clearest write-offs would include direct business expenses. For instance, I can write off my personal website, business cards, and other related expenses. If you are working from your home or conducting business on your cell phone/email accounts, you can write off a portion of your rent, phone, and internet bills. I also keep track of any major losses. For instance, I was hired by a competition to teach at their convention. Thirty six hours prior to the convention, they emailed me without apology and told me that they lost their space for my workshop and wouldn't need my service. Since I had already booked this time, and given the short notice, there was no way that I could make up the lost income that this company caused. Lastly, as I stated at the beginning of this post, dinners where work is discussed with the intention of action taking place can be written-off. I always write directly on the receipt what was discussed for my records. You can't just sit at dinner and gossip about happenings at work for it to be considered a business dinner. In last night's case,
I helped Elizel obtain a website and gave her direct contacts to research, emails, and advice to look for work. There was a clear and concise passing of information. Make sure that you keep clear records of the location that each of these expenses took place. You will need to write off these expenses in the state that they occurred.
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Mom, myself, and her friend in the lobby of the Joyce Theater in NYC after I performed there in 2010 |
I have been lucky that my lovely mother has done my taxes for me every year aside from this current one. After doing my taxes since I was 18 and having done them last year with returns in 4 states, she realized that the extent of my return this year would be too overwhelming. I was strongly considering doing my own taxes this year, but the prospect of working as an employee with 2 companies and freelancing/teaching with at least 10 others was daunting. I am lucky enough that a member of my extended family is an accountant and willing to help me out. Otherwise, I would probably spend days working with
TurboTax to figure out whether I owe money or will be receiving that giant return that we all dream of. I know that the deadline to finish our taxes is near, but I hope this posting helps to clear up any confusion you may have while filing. And if it is too late, it is always helpful to have a better understanding of how the tax system works and how to minimize the amount of money you have to pay in taxes through deductions of your business expenses.