There are innumerable ways a voice over artist can conduct his or her business. From an accounting and tax standpoint, different approaches offer different levels of personal protection and introduce various tax considerations..
This article will help you learn what is right for you and your voice over business.
The details of running a business aren’t as much fun as working in the booth, but face it, you're in business. And like any other business, maintaining records is essential. The IRS and state unemployment department agency could randomly audit you, and without proof of records, you could be at a disadvantage. So::
- Store all records systematically, either sequentially or alphabetically
- Keep your records up-to-date as you go. It’s a lot easier than rounding up and organizing it all at once under pressure. Unfortunately, faithfully keeping records as you go is also difficult for some people. But it’s a LOT EASIER once it has become a habit.
- Pay voice over business expenses with a check or credit card (not cash) so that records of the transaction are generated
IMPORTANT 1099 INFORMATION:
- If you are not incorporated (that is, if you are a Sole Proprietor or are an LLC), and earned $600 or more from a payor, that payor is required to send you a 1099misc form by January 31, 2013.
If you do not receive it by end of February, ask that they re-send it (or remind them).
- Note that payors should also send a copy of 1099 form to the IRS.
- If your entity is incorporated, a payor is not required to issue you a form 1099.
Note that each state's tax laws vary, and tax laws change regularly. The above may not hold true in all circumstances. Contact your local tax office for exact rulings.
- IRS tax help-line: 800-829-1040
- IRS tax forms and distribution center: 800-829-3676
- IRS on-line tax order form: www.irs.gov
WHAT KIND OF BUSINESS SHOULD YOU BE?
Here are the most common business types for voice over artists, the protection each provides, and the tax considerations for each:
- a Sole Proprietorship
- a Limited Liability Company (LLC)
- an S Corporation
- Other possibilities include, and are not limited to, partnerships and c corporations. Note that each different business type brings different tax deductions to the table.
The Sole Proprietorship is simple to form, and has a benefit in that taxable income is taxed only once, at the owner's individual tax rate. Gross Income, less costs of generating the income and operating expenses for the year, is reported on Schedule C of your Form 1040 (or schedule C-EZ if certain tests are met). The resulting net income or loss becomes part of your adjusted gross income.
A word about ordinary and necessary expenses - at the start of your voice over career, the largest expenses you probably will incur is the production of your demo (including voice over training, workshops, demo production, etc.) and the marketing of your voice over demo (demo copies, mailers, postage, phone bills, etc). These should be deductible on Schedule C as promotional or marketing/advertising expense. If such costs are incurred before you actually start your trade of business, Section 195 of the Internal Revenue Code would permit an immediate deduction of the lesser of the start-up costs or $5000, assuming the start-up costs don't exceed $50,000. Any start-up costs that are not initially deductible are eligible to be amortized over a period no less than 180 months.
Keep records on all expenditures which are directly related to your voice over business; including, but not limited to, training costs, travel costs, marketing costs, telephone charges, etc.
Regarding Home Studio / Office deductions: On March 5, 2013, the IRS released Rev. Proc. 2013-13, which gives taxpayers an optional safe-harbor method to calculate the amount of the deduction for expenses for business use of a residence during the tax year under Sec. 280A, beginning with the current tax year. Individual taxpayers who elect this method can deduct an amount determined by multiplying the allowable square footage by $5. The allowable square footage is the portion of the house used in a qualified business use, but not to exceed 300 square feet. The maximum a taxpayer can deduct annually under the safe harbor is $1,500. The IRS may update the $5 allowance from time to time.
Similarly, you can deduct your entire telephone bill if that telephone line is ONLY used for your business. Note that if items such as home/office and telephone lines are hybrid (they are used personally and for business), they may not be deducted.
Some items are not deductible, such as clothing purchased for voice over recording sessions. Even buying a nice suit to meet new clients is not deductible, because clothing is adaptable to general wear.
You will, in addition to owing income tax, usually be liable for self-employment tax and will generally have to make quarterly estimated tax payments as well. The Sole Proprietorship as a legal or taxable entity is not separate from its owner, does not require a separate transfer of assets, and does not limit your personal liability for the debts of the business. Your individual assets remain at risk.
A LIMITED LIABILITY COMPANY (LLC)
An LLC is formed under the applicable state's Limited Liability Company statute. A one-owner LLC is generally taxed as a Sole Proprietorship. Although the tax consequences of a single-member LLC and Sole Proprietorship are the same, an LLC provides its owner liability protection not available to a Sole Proprietorship -- your assets are not at risk.
AN S CORPORATION
An S Corporation is a business entity which has the same limited liability advantage as a shareholder in a regular or C Corporation. Unlike an LLC, there are restrictions on an S Corporation's capital structure and on who may be a member. An S Corporation's income, gain, loss and deductions pass through to its shareholders and are reported on individual tax returns. Income is generally taxed at the individual level, but in certain states S Corporations are subject to state and/or local jurisdiction taxes as well.
This article is intended to provide general guidelines on matters of interest to voice over artists. It is not intended to be all-inclusive. The application and impact of tax laws can be very complex and vary widely from case to case. Readers are encouraged to seek professional advice concerning specific matters before making any decisions. The author and publisher disclaim any responsibility for positions taken by taxpayers in their individual situations. This article was updated March 8, 2013.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another party any investment plan, transaction or matter.