Actor’s Guide to Getting Ready for Tax Season

Money

Feb 18

Tax season is fast approaching, and while many actors feel overwhelmed and intimidated by it, it doesn’t have to be as scary as you may think it is. For those who don’t have a reliable system, the prospect of filling out various forms and gathering every receipt stuffed in the backs of drawers or in wallets is daunting. It causes a lot of anxiety for the unprepared. However, it’s easy to set up a simple system you can maintain throughout the year. Filing your self-employment income can be painless! No more digging for receipts! No more tearing your hair out, hoping you won’t get audited!

This post will teach you what constitutes an actor’s business expense (in Canada, if you’re based in another country you should research your country’s guidelines for legitimate business expenses). We’ll also cover how to set up an organization system for your receipts and bookkeeping, and strategies you can use to maintain it.

First, what constitutes a business expense? The Canada Revenue Agency defines them as “...expenses you might incur to earn income from your activities. Incur means you paid or will pay the expense.” (source)

This is frustratingly vague, which is by design. Each business is different, so you have to provide proof that any expense you incur is something that directly contributes to earning income. If an expense’s primary purpose is for personal use, but you can make the argument that it helps your business (such as wardrobe items you plan to use in auditions), it’s unlikely the CRA will accept it as a business expense.

A good rule of thumb is to ask yourself, “Would I have purchased this for myself if I was not an actor?” If the answer is yes, it’s probably not an acceptable business expense.

Here are some concrete examples of acceptable business expenses for actors:

Classes/coaching
Parking fees for auditions/jobs
Website fees
Headshots
Professional equipment (microphones, computers, etc)
Business use of home expenses (more on this later)

Some examples of things you may have thought you could claim, but are likely not acceptable:

Movie theatre tickets
Streaming service subscriptions
Haircuts
Wardrobe pieces (unless they are specific and non-reusable pieces like period clothes)

Remember to ask yourself, “Would I have purchased this if I was not an actor?” If the answer is yes, you probably shouldn’t claim it.

What about business-use-of-home expenses? If you earn income from home (for example, voice actors with home studios or actors who earn revenue from blog/vlog content), you can claim a portion of your rent/mortgage interest, electricity, insurance, and internet costs as part of your acting business. To calculate the portion you can claim, the CRA recommends dividing the area of your workspace by the total area of your home (source).

For example:
A voice actor lives in an 800sqft apartment. Their home studio is approximately 150sqft.
150 / 800 = 0.19
This actor can claim 19% of their home expenses as a business expense.

Note that some tax form softwares such as TurboTax calculate this portion on your behalf. Read the instructions of your software carefully so you don’t accidentally claim less than you could.

Now that you know the kinds of expenses you should be tracking, you need a system to track them. Most personal bookkeeping solutions are enough for an actor’s business, and there’s a lot of great options available. Software like Quicken or Freshbooks are great choices if you’re willing to pay the subscription fee (a business expense, by the way), but you can work with Excel or Google Sheets too.

All you need is something to serve as your “General Journal” - a record of every transaction your business makes, which includes how you paid for it, what expense category it belongs to, the amounts, the date, and any reference notes you might like (such as invoice numbers).

Optionally, you can also use something that makes a “Profit & Loss Statement”, also known as an “Income Statement”. This is a report that summarizes all the annual revenues and expenses of a business. Quicken and Freshbooks can generate this report for you, or you can find a spreadsheet P&L template with a quick Google search. This report is all you need to fill out your tax form (T2125).

As you’re setting up your bookkeeping solution, create a work instruction document to stay consistent throughout the year. In a word processor, outline the steps you’ll need to follow to easily replicate your work in the future. Do you have a specific method for creating a transaction’s reference number (such as a vendor code or a date code)? Do you have a checklist to go through at the end of each month, or all the websites you need to check for transaction data? How do you plan to record expenses that have monthly instalments but only one invoice or receipt?

If you’re afraid of missing important steps, it may be a good idea to consult with an accountant or bookkeeper to help you set up your bookkeeping system.

I do my bookkeeping every Friday afternoon. I record every business transaction I made during the week in an Excel spreadsheet. I save digital copies of my receipts on my computer, which is automatically backed up to my Google Drive. It takes me less than an hour per week. I know that when it comes time for me to fill out my self-employed tax form (T2125), I will already have a full list of all the income and expenses I need to report.

Recording these transactions isn’t enough by itself, though. You need to keep all your receipts for at least 6 years (source). In case the Canada Revenue Agency audits you, you must be able to provide readable proof of the validity of your expenses and revenues. I highly recommend storing your receipts digitally in at least two places, so either scan or take pictures of your physical receipts as part of your weekly or monthly bookkeeping. This way, a fire or data loss won’t make a bad situation worse.

There are several ways to label and sort your receipts to easily find the important ones when you need them. Use folders! Having organized folders cuts down on the wasted time you spend searching for that specific receipt.

Here are some ways to sort your receipts:

By date
By vendor
By expense category

You can use one or a combination of these. My system is set up like this:

Each year has its own folder, since I don’t need to think about my 2019 receipts when filing my 2020 taxes.

Within my 2020 folder, I have labelled my digital receipts by date (using yyyy mm dd format), then vendor name, then a brief description, then whether the amount is in CAD or USD. By putting the date first, it automatically sorts by date.

However, you could label your receipts as ‘Vendor - Description - Date’ or ‘Expense Category - Date - Vendor’, or any other combination. Put what you consider to be the most important information first, so your list of receipts is sorted by that. Here’s the most crucial thing to remember though: be consistent. Don’t change your labelling system partway through a year unless you plan to re-label everything you’ve already done.

You can have a slightly different labelling system between years (for example, 2021 can be different from 2020), but be consistent within a year. It’ll make your life so much easier come tax time.

For actors who deal in multiple currencies, it’s really important to capture the currency exchange. PayPal, credit cards, and other money transfer systems provide an exchange rate when converting currencies, so it should be easy for you to save this rate for reference later. When converting USD to CAD, for example, I have two different receipts with identical names, but one is labelled ‘USD’ for the original amount and ‘CAD’ for the converted amount.

[screenshot of example USD/CAD receipts]

So, to summarize:

Business expenses are anything you spend money on that directly helps you earn income. Expenses that are primarily for personal use but have a business purpose are not business expenses. Ask yourself, “Would I have purchased this if I was not an actor?” If the answer is yes, chances are it’s not a business expense.
If you earn income from home, you can claim a portion of your home’s expenses. Calculate how much you can claim by dividing your workspace’s area by the total area in your home.
Use bookkeeping software or a spreadsheet to record your transactions in a ‘General Journal’. Use a Profit & Loss Statement (also known as an Income Statement) to fill out your tax forms.
Create a work instruction document for your bookkeeping, explaining the steps you follow to stay consistent.
Pick a regular time to do your bookkeeping. Either weekly or monthly is sufficient, but make sure you actually do it regularly!
Store your receipts digitally and make sure they are backed up to a cloud service like Google Drive or Dropbox.
Create a labelling system for your receipts that’s easy to remember and keep consistent. Pick 3-4 important bits of information you want to have in the file name (date, vendor, description, currency, invoice #, etc) and put your preferred sorting category at the start of the file name.
If you work with multiple currencies, make sure you are recording the currency conversion rates for future reference.

How do you keep track of your acting expenses? Let me know in the comments!

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About Me

Larissa is a professional audiobook narrator, voice over artist, and actor. With her home recording studio in Vancouver, B.C., she is able to spend her time doing what she loves most - becoming a conduit for stories that resonate with us.