Musicians, artists, athletes and influencers fall into a niche group of taxpayers: Traveling Professionals. Also included in this group are entertainers, writers, other performing artists and keynote speakers. What these individuals have in common, from a tax perspective, is that they travel to many different places to perform work. In turn, people that fall into this group are prone to common financial oversights. Following are three costly mistakes often made by traveling professionals.
1. Not recognizing multiple state tax liabilities
This is the most common oversight, not recognizing the connection that is created when payments are received for work performed outside of the home taxing jurisdiction. In most cases, the home taxing jurisdiction is the state you live in. Every state has its own rules about how it taxes. Income sourced from another state may result in the obligation to file a tax return in that state. State obligations may include income taxes, sales taxes, franchise taxes, unincorporated business taxes and various other types of taxes and fees. Planning ahead with a competent professional is a great way to manage and minimize tax liabilities.
2. Not setting up a separate entity
Understanding which entity type is appropriate for your activity and circumstances is critical to protecting yourself from liability and minimizing your taxes. There are many options for setting up a new entity, including Single Member LLC, Multi-Member LLC, Partnership, Corporation and S-Corporation. Each type has its own distinct advantages and disadvantages. Consulting with a professional accountant to discover which type is right for you can help you achieve peace of mind in your decision.
3. Missing out on tax deductions
Keeping good records will help you take advantage of all of the tax benefits, including deductions and credits, that may be available to you. Keeping good records as you go, instead of scrambling to pull them together at tax time, will result in more complete and accurate tax returns. Keeping good records as you go can also help to avoid any disallowance of your tax deductions under IRS examination. Some commonly missed deductions are expenses relating to vehicles, travel, computers, equipment, repairs, home studios, home offices, supplies and event settlements. Understanding which expenses are deductible and which are not will help you keep better records.
Want to learn more? Our Certified Public Accountants can help. 732-739-2632. We offer Concierge Accounting Services for traveling professionals.
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