Wishing You Many Happy Returns
March 17, 2016
Albert Einstein once said, “The hardest thing in the world to understand is the income tax.”
This from the man who discovered the theory of relativity when he was just 26. Yes, THAT Albert-freakin’-Einstein! Remember E=MC²? And he didn’t stop there. Ensuing scientific accomplishments included the photoelectric effect, Brownian motion, and the equivalence of mass and energy. I have no idea what in the hell all those things are, but they sound uber-complicated, highly mathematical, and clearly are the work of a genius.
If one of the smartest-ever dudes on planet earth considered income taxes “The hardest thing in the world,” what chance do some of us mere, right-brained mortals who work in front of a microphone have when it comes to sorting it all out? Ask a radio pro to cram 90 seconds of copy in a 60 second spot and he won’t blink. But … Brownian motion? I pose this rhetorical question because Friday, April 15th is looming. Of course I’m talking about tax day, or as someone once called it, “The one day of the year I disappoint the government as much as it disappoints me.”
Acting on a column suggestion from my longtime radio friend and programming savant, John St. John, I consulted a tax preparation expert whose clientele is 90 percent radio, television, and music industry-related for some help. And now, say hello to Kenneth M. Davis, CPA, also affectionately known as “The Tax Dog.” If you’ve attended Don Anthony’s “Morning Show Bootcamp” during the last 10 years, you’ve seen Ken conducting a seminar that helps radio industry types with tips for prepping their return each year.
A lot of people in radio also dabble in – or sometimes, more than dabble in – the voice over world, and it’s that area we focused on during our chat, although much of it overlaps with on-air radio talent, as well. As Davis put it, “In more situations than not, a voiceover talent business starts with an individual that has an air shift, or is a production director at a radio station or a cluster. So it’s like step one to step two.”
When it comes to the delicate and convoluted process of tax returns, many creative folks simply don’t know what they don’t know. Davis shared a great approach to all of this, however, and one radio people can totally relate to. “At the first seminar I did for Boot Camp, I called it ‘Why Your Tax Return Should Be Like An Air Check.’ That’s because you are explaining to someone on forms and with numbers what a year of your financial life is all about, just like you would show somebody your various ranges and voice work in broadcasting – but on a tax return. To me, it’s parallel. I think creative people should be creative with their taxes,” Davis believes.
Not to paint a broad brush, but in my experience, the truly creative people I’ve met aren’t really, shall we say, the analytical sort; the kind that are apt to maintain pristine records. In fact – and I’ll just put it out there – many amazingly talented, right-brainers are a complete mess when it comes to detail. “That’s an interesting point,” said Davis. “My response to that is, ‘you have no idea what you have.’ Do you write checks, do you use credit cards, do you keep a diary at your radio station, do you have a concert calendar, and do you have a promotion calendar? There are so many things with which you can reconstruct tax deductible activities.”
As for specific areas that are important to know about, Davis started with those who have a voiceover studio at their home. “Everybody gets scared shitless from the home office deduction,” said Davis. “I’ve had a lot of clients that say, ‘you know the lady at H&R Block said, don’t take that deduction – it will cause more problems than it’s worth.’” Not true, argues Davis. “The reality is that someone who sets up a studio, buys equipment, lays out money for pro tools, computer equipment, and sound proofing the closet has a legitimate home office. There’s one thing very important about a home office though: you cannot deduct that expense against an entity that doesn’t have a profit, but you don’t lose it. For instance, if you don’t generate that much income in the first year, and the equipment that you purchased, and the expenses that you incur outrun the income that you generate, you still have a home office studio. So you calculate that amount based on the square footage percentage of your home, and even if you can’t deduct it, it is warehoused, and carried forward.”
OK, but for how long? Says Davis, “I’ve had situations where I’ve carried forward a non-deductible home office deduction for many years. Then all of a sudden my client hits it big; gets a national spot, for instance. The first thing that happens is that all of that suspended home office deduction comes right off the top of the income, so even if you’re not generating enough income to absorb it, you keep taking the deduction because eventually – and hopefully – you’ll have enough income to absorb what you have not been able to deduct for several years.”
When it comes to the timing of achieving success, or even just traction in the voiceover world, everybody’s different – and your mileage may vary, so to speak. And hey! Speaking of mileage, Davis deftly segued, “Ah yes, vehicle usage. As the great American philosopher James Buffett said, ‘there’s a thin line between Saturday night and Sunday morning.’” And, as the Tax Dog went on to say, “There’s also a thin line between what’s business and personal, and what’s professional and social. The tax laws do not penalize us for having our business and professional lines be very murky, and our business and professional activity be developed along personal and social lines. So there are a lot of instances where bar tabs are picked up or mileage is used; vehicle usage which in some cases can appear to be social occasions but also can be construed to be networking and business prospecting. It’s really all about good record keeping,” continued Davis. “I like to call it leaving footprints.”
Every radio person I know has tons of electronic media in the house; surely Davis recommends taking advantage of that as a deduction, right? “I am aggressive with that,” explains Davis. “My question is always ‘does this include a home phone? Is this a triple play, so to speak?’ And if it does, I wind up only taking two thirds. Now, an IRS agent may come in and say ‘oh, no, this is personal use, also,’ and I would say well, he can’t do his job without it, and we might wind up compromising. My job is to do as good a job for my client as I can, and as far as media in the home, almost any goddamned thing you can plug in, maybe except your toaster.”
Time, space, and my limited intellectual capacity to fully comprehend the many options available to radio and V/O specialists when it comes to tax benefits prohibit me from listing everything here. So, check out the Taxdog’s website; specifically the deduction worksheet. “It is prepared for intergalactic use,” says Davis. He’s right; it’s comprehensive, and not all items may apply to you as an individual in your profession. But it does pretty much list virtually everything that you could consider a deduction. I hope some of this has been helpful, and in signing off here, let me urge you to file early – while wishing you many happy returns.