Whether you’re a fledgling entertainer or a social media influencer with thousands of fans and a high income, you still owe taxes to the IRS just like you would with a standard W-2 job. The IRS considers many entertainers to be self-employed, though, which means you could be eligible to take deductions for your business expenses.
However, those cost savings can come with a big drawback: a possible IRS audit. That’s because the IRS tends to scrutinize self-employed tax returns a bit more than others. Here’s what entertainers audited by the IRS need to know.
What To Do if the IRS Audits Your Entertainment Business
It can be scary if the IRS announces that it’s going to audit you. Try not to panic. Chances are you’ll be fine if you kept accurate records of your expenses.
First, it’s smart to know exactly why you’re facing an audit. It could be something simple, like accidentally underreporting income. Or maybe you took deductions you don’t qualify for on your tax return without meaning to.
No matter what the reason is, it’s a good idea to hire a tax consultant. They’ll have your back when an IRS auditor comes knocking.
The auditor will probably have lots of questions for you about your business and the money you spent on it. Your tax consultant can help you put together the facts to prove that your tax return is legit.
Once the auditor’s done, they’ll either close the audit or tell you how much you owe. If you disagree with the IRS, you can file an appeal.
How To Avoid an IRS Audit
It’s easier to avoid an IRS audit in the first place than it is to go through one. To limit your audit risk, report every penny you earn. That means money from paid sponsorships, ad earnings, and even the value of free stuff companies gave you.
Of course, don’t forget to pay federal income taxes on time. Missing the filing deadline could cause the IRS to take a closer look at your return.
Keeping your records well-organized is a must. Yes, it can be tedious, but you never know when you might need them.
Deductions the IRS Allows You To Take
Deductions can save you money and reduce your tax burden, but taking certain ones can send up red flags with the IRS. That doesn’t mean you need to be shy about taking deductions you qualify for, though.
Things you can deduct without a problem include part or all of your internet bill, web hosting, and the cost of office supplies. If you traveled for your business, you could write off those expenses, too.
You can’t deduct anything that’s not business-related. For instance, you’re not allowed to deduct makeup and clothes unless you use them only for work.
Certain deductions might be more likely to trigger an audit. The home office deduction is a sneaky one to watch out for.
To claim it, you’ll need to use that space exclusively for your business. Don’t fudge the numbers when calculating the square footage, either. If the IRS learns that you inflated the size of your office, you could end up owing penalties.
Reach Out to Us if You’re Facing an IRS Audit
Entertainers audited by the IRS may feel like it’s the end of the world. But with Levy & Associates Tax Consultants, you don’t have to face an audit by yourself. We can talk to the IRS for you, help you gather proof of your expenses for tax compliance, and represent you in a tax court hearing.
To contact our Delray Beach, FL, office, call (561) 933-6705. If you’re in the Lathrup Village, MI, area, you can reach us at (313) 367-0985.