Most people know me as a writer / actor / man about town, but every Spring I moonlight as a tax preparer for the self-employed. A lifelong relationship with the tax collector is an occupational hazard for artists and it would be a great benefit if schools were bestowing upon their students a rudimentary understanding of how it all works; since they’re not, allow me to briefly fill in the gaps.
Most artists end up owing money and the reason is simple: those with regular employment are taxed at source, meaning that things like income tax and pension plan contributions are taken off their paycheques. Artists, though, are considered contractual employees and are often paid in lump sums. They must pay their income tax and pension plan contributions at the end of the year.
There are three suggestions I always make to artists looking to save themselves headaches during tax time.
Given that the federal tax rate is 15% (for those making less then $40,970) and the pension plan contributions are 9.9% (of all income above $3500), this means that 24.9% of your income is going to the government. It’s a little higher in Quebec, where the tax rate is 20% and Quebecers contribute to QPIP, the insurance plan that funds all parental and maternity benefits.
All grants from government agencies are taxable income too. And if an artist has produced a show and their production company is not registered as a Not-for-Profit Organization, then they must claim the company’s revenue, including box office.
There are three suggestions I always make to artists looking to save themselves headaches during tax time. The first is to keep track of your expenses. Artists can deduct a wide variety of employment expenses, from advertising costs to supplies to acting classes. If an artist self-produces and has paid her actors, she can deduct their salaries. And artists can also deduct a portion of their living expenses, since they work out of the home.
The second suggestion is making contributions to an RRSP, as these contributions are deducted from your income. I also suggest opening a tax-free savings account (TFSA). If you deposit a percentage of your artistic paycheque into the account, you’ll have the money when the government comes knocking. Meanwhile, it will accrue tax-free interest. Best of all, you can withdraw from it anytime without any penalties (unlike an RRSP, where you are fined for early withdrawal).
By not filing, artists risk owing more then they have to, since the government charges interest on any debt starting from the year it was incurred – in other words, if you haven’t filed since 2005, you could potentially owe 68 months worth of penalties and fees. You may also want to consider your spouse: even if you have little income, you may have credits which you can transfer to them to offset their tax liability.
Panicked yet? Don’t be. Follow this link, exclusive to readers of the Charlebois Post, and you can read my handy tips for the desperate taxpayer. Feel free to post your tax questions below - I’ll respond to them as soon as I can.
And remember - if all your income for 2011 comes from being self-employed, you don’t have to file until June 15!