The American tax system makes my blood boil when I think of it too much. Not only the fairly insane tax laws, with ridiculous loopholes for the wealthy, but the sheer complication of filing it.

As someone who has toured for years, I particularly enjoy the times I’ve had to file with 20-30 states of tax returns, especially since almost all tax programs are setup to charge you per state you file in (with the notable exception of TruPoint Tax app).

Below are some mistakes I’ve personally made, some reported by friends, and some I hunted down with some research.

1. Not filing quarterly taxes.

If you’ve generally worked for a large company that withheld your taxes for you, you’re probably used to filing your taxes once a year before April 15^th. There are plenty of folks in the arts who work for these companies full time and never have to worry about the freelance struggle. However, if you are a 1099 contractor, you actually are supposed to pay estimated taxes 4 times a year.

The IRS gives you a little leeway to get this right your first year as a contractor, but generally you will have to pay a penalty if you don’t file quarterly. If you are an individual or sole proprietor, then you need to file quarterly if you expect to have to pay more than $1,000 in taxes.

This also means that if you work a combination of W-2 (where the company takes the taxes out for you) and 1099 jobs, if you owe more than $1,000 in taxes on those 1099 jobs, you still need to file that quarterly tax. You can skip this headache if you choose to withhold more from your W-2 job to cover what you would also owe from the 1099 jobs, but that can difficult to do as an arts freelancer going from contract to contract.

For more info, you can check out the IRS website’s discussion of quarterly taxes here.

2. Not planning for all the taxes.

Fun story, if you are self-employed, you pay an additional 15.3% tax on your earnings into social security and Medicare (otherwise known as self-employment tax, check out the IRS info about it here). For those employed in W-2 positions, that tax is usually split 50/50 between the employee and the employer. Since you are both if you are self-employed, you get to pay that extra tax.

So let’s say you make $10,000 (and our example here will ignore the power of deductions). Because tax laws are as confusing as possible, 92.35% of what you make is subject to self-employment tax, so you will be taxed on $9,235. 15.3% of $9,235 is $1,413. A nice(?) thing about this is you can deduct half of this amount, which is $706, so since you’re now any additional taxes are being taxed at $9,294, you drop to a lower tax bracket in 2020 and owe 10% or $929. Your taxes are $2,342 so far.

Then don’t forget your state. Maybe you are lucky enough to live in a no income tax state (which is an excellent tax hack) or maybe, like me, you live in New Jersey. In New Jersey, that would be in the lowest tax bracket of 3.5%. 3.5% of $9,235 is $323.

So the total taxes I would send in on that $10,000 is $2,665.

Getting hit with a number like that quarterly without having set aside enough to pay it can be really rough, so don’t get caught out.

3. Not saving your receipts.

However, it’s pretty easy to knock down the amount you owe as a self-employed contractor through deductions.

You need to be prepared to prove every deduction. Also, the more organized you are with this step, the cheaper filing your taxes can be.

Many accountants charge based on how long it takes them to do your taxes. If you throw a shoebox of unorganized receipts at them, it will take them hours. I keep mine organized in a spreadsheet with date, place, amount, and notes and each type of deduction has its own spreadsheet page.

Accountants always ask me, “you have the receipts, right?” and I do, but it’s super easy for them to see the totals and even look at that notes section to explain any receipts that are legit because I work in the arts but might look sketchy to an auditor.

You’ll need to keep those receipts for at least three years.

4. Not taking advantage of all your deductions.

Speaking of legit deductions, here’s a list from Freelance Taxation and Stride Health:

• Agent Commissions
• Art supplies
• Books, magazines, reference material
• Business gifts
• Business insurance
• Business meals (50% deduction)
• Cabs, subways, buses
• Classes and Workshops
• Copying, printing
• Cultural events/ museum entrance fees/ theatre tickets
• Dues
• Entry fees
• Equipment and software
• Film & processing
• Gas and electric
• Headshots
• Health Insurance
• Home Office Expenses
• Instruments
• Internet
• Legal fees
• Memberships (professional organizations)
• Messengers, private mail carriers, postage
• Office supplies
• Promotion
• Rehearsal and studio fees
• Studio or home office rent
• Tax preparation
• Telephone
• Theatrical Clothing
• Travel
• Vehicle Expenses (57.5 cents per mile driven for work)

Essentially, if you use it for work, and it’s “ordinary and necessary,” you can deduct it. When you cross into lavish or extravagant, that’s when you’re going to find yourself faced with an audit.

There are a few to watch out for (but of course use them, if they’re legitimate), because they are notorious for being carefully scrutinized by auditors.

Home office claims top the list there. You can either multiply the square footage of your office by the standard rate of $5 and deduct that amount or you can track the actual expenses. Direct expenses would be the furniture specifically for the office, supplies like pens, pencils, printer ink, etc. Indirect expenses would be your mortgage and insurance, which you would divide the total cost by the percentage of your home that is used for business.

Another thing that is often flagged for us in the arts is that cultural events are deductible. If you attend 20 Broadway plays and try to deduct them and you don’t work on Broadway, that can look pretty sketchy to an auditor. If you’ve never worked for a circus, they might wonder why you have a ton of circus tickets.

They are supposed to be legit research for you. On the spreadsheet I mentioned above, in the notes column, I write down specifically how any tickets I claim relate to my career path. If I were ever audited, I could point out that column to the auditor, pull up my resume and show them the connections.

Meals are similar, track who you were with and what business you talked about in your spreadsheet or on the receipt. It doesn’t have to be a full transcript of your discussion, you can just put key phrases like “job opportunities,” “schedules,” “preproduction meeting,” “working dinner for Show X.”

Watch out for clothes you deduct. Those of us backstage can claim things like black clothing and work boots. For those of you on the stage, an example of something you shouldn’t claim is the gym clothes you wear to rehearsal. An example of a legit claim would be your dance shoes.

The fact is that there are a lot of deductions you can claim completely above board when you work in the arts, the real key is just to track them well.

5. Credit card statements are as good as a receipt.

That’s a big nope. The credit card statement proves you paid a vendor, but it doesn’t say for what. You need to hold on to itemized receipts for your records.

6. Not withholding tax from your unemployment claims.

For a lot of us, there comes a time when we have to file some unemployment. Most state’s unemployment lets you select whether you want taxes withheld or not.

If it’s at all doable, withhold your taxes from your payouts instead of getting surprised at tax time with the fact that all those payments are taxable.

Also take into account what you’ve already earned for the year. You may want to have the Social Security office up the amount that is being withheld to match the tax bracket you know you’re likely to wind up in.

7. Mixing Business and Personal Expenses.

A common mistake freelancers make is putting personal expenses on their business credit card and business expenses on their personal credit cards. While this won’t result in total failure, it makes tracking your expenses more difficult – and tracking your expenses clearly is really the name of the freelance game.

8. Ignoring Retirement Accounts

While it’s always a good idea to be contributing to your retirement accounts, they can actually be used very strategically when doing your taxes. You can deduct contributions to qualified retirement accounts like self-employed 401ks and IRAs. If you’re on the cusp of a lower tax bracket, you can save money on your taxes by putting enough into one of these accounts (or an HSA if you have a qualifying health insurance plan) to lower your income into the next tax bracket.

Please be aware all the above information is based on the United States, I barely understand our convoluted tax laws, much less the laws in other countries.