Independent Contractor Taxes For Entertainment Workers

If you are one of many stagehands or entertainment technicians that considers themselves to be independent contractors, or you are an independent contractor in general, you may have a lot of questions about what it means to be self-employed. Being self-employed is more than being your own boss, dictating when, where, and how you will work, and taking advantage of tax benefits and deductions. It means knowing and understanding the tax implications of being self-employed.

This guide will provide you with basic information covering the business side of being a self-employed stagehand whether you are a sole proprietorship/independent contractor or a single-member LLC.

Are You an Independent Contractor?

Per the IRS you are if you meet the following requirements:

• You have control of when you work
• How your work is done
• You provide your own equipment, tools, and supplies to do your work
• You incur a profit or loss from your work

Working as a stagehand or entertainment event technician often blurs the line between employee and Independent contractor. Legally, if the hiring entity tells you what to do, where to do it, when to do it, how to do it, etc. then the IRS considers you an employee. Many production companies push to hire you as independent contractors as it relieves them from some liability for your actions and is much easier for bookkeeping and tax purposes. Another train of thought towards hiring you as an independent contractor is that it’s likely there hiring you on a per project basis during a very limited time frame and without knowing when the next job will be.

What Does it Mean to be Self-Employed?

Many of us are working for several clients and/or production companies as an individual and we may not consider ourselves small business owners. One of the reasons to establish a corporate type entity is to protect yourselves should someone bring a lawsuit. Having an LLC (limited liability corporation/company) allows you to work under that entity name instead of as solely yourself. If it is just you as a single-member LLC, the IRS may consider you that a “disregarded entity” for tax purposes. You are responsible for self-employment taxes. Self-employed individuals as defined by the IRS are individuals that are in business for themselves or operate and conduct a trade or business as such.

Understanding Self-Employment Tax

Self-employment tax is the Social Security and Medicare taxes paid on the net earnings of self-employed income for independent contractors and sole proprietors. The rate is 15.3%, a combination of 12.4% for social security taxes and 2.9% for Medicare taxes. It is similar to what is deducted from your earnings as an employee except the 15.3% is divided evenly between you and your employer.

If you file form 1040 or 1040SR Schedule C, the amount that you pay for the employer portion can be deducted when calculating your AGI (adjusted gross income).

Filing the Proper Tax Forms and Schedules

As a self-employed individual, you are responsible for filing several tax forms and schedules. This includes, but may not be limited to, the following:

• 1040 or 1040SR (Income tax forms) with Schedule C (Profit or Loss from the business)
• Schedule SE- This is what is used to report self-employment tax from form 1040 or 1040SR
• 1040-ES- This is filed quarterly if you are required to make estimated tax payments.
• 941 or 944-These are returns for social security and Medicare taxes and income tax withholding. 941 is an Employer’s Quarterly Federal Tax return. 944 is the annual return.
• 940- This is the Employer’s Annual Federal Unemployment Tax Return
• W-2’s and W-3’s – W-2’s are issued to employees that you paid that provide social security, Medicare, and income tax withholding information. W-3 forms provides the same information and are filed with the Social Security Administration.

Independent Contractor Taxes Filing Deductions Bookkeeping Records Home Office Tools

There are several overlooked tax deductions that self-employed individuals are eligible for and fail to take advantage of.

The following deductions and expenses can be claimed on Form 1040 or 1040SR Schedule C:

Home office deduction

If you have a separate area in your home that is used exclusively for operating a trade or business, then you may qualify for a home office deduction or business use of the home. A lot of self-employed individuals have an extra room in their home that is used as their home office. You do not have to own a home to qualify for this deduction if you meet the other qualifications.

The main requirements to claim this deduction include it is the principal location for your business, and the home office location space is exclusively and regularly used for the purpose of your trade or business. Principal location for your business means that you exclusively and regularly maintain bookkeeping records, bill customers, set appointments, or meet with customers and clients in this location.

Deductions associated with the home office deduction, include the business percentage of the following:

• Mortgage interest
• Home repairs
• Homeowners insurance
• Utilities
• Home depreciation

Home Office Equipment

You can take a deduction for some of your home office tools that you use for your business. Tools or equipment that last longer than a year and add value to the services you provide are taxed under the Capital Equipment clause. Meaning you can deduct a portion of the costs each year until it is fully depreciated.

Professional and Legal Expenses

If you use professional services such as a lawyer, accountant, or other types of professionals the payments made can be deducted from your self-employment tax return. The services would need to be directly related to your trade or business.

Phone, Fax, Internet

You can deduct the business portion of your phone, fax, or internet bills. If you have a dedicated second phone line in the home for your business, it is fully deductible.

Health Insurance Premiums

One of the downfalls of being self-employed is that you are responsible for your own health insurance. However, these premiums are only deductible if your business claims a profit and you are not eligible to enroll in an employer-sponsored health plan.

The deductions mentioned do not include all expenses that you are able to write off. Check with your accountant or tax professional for any other deductions that may apply to you.

EIN vs SSN

You might be wondering if you need an employer identification number to be able to claim these deductions or expenses, or if you need one to file taxes as a self-employed individual or independent contractor. The answer is no. There are certain situations or scenarios when it is required that you have an EIN which include the following:

• You pay employees
• You operate your business as a corporation or partnership
• You have a Keogh retirement plan
• You are involved with certain organizations
• You file certain types of tax returns

If you are unsure if you need an EIN, you should speak with a tax professional to assist you with making that determination.

Disclaimer: The information that has been provided to you is for informational use only. It is not authoritative or professional advice and should not be construed as such. For your individual needs do not rely on the information provided in the guide. You should seek the advice and services of a professional.