The Warrior and Taxes
Neil H. Fishman, CPA
With the signing of the Taxpayer Relief Act of 1997(TRA), significant changes involve the U.S. taxpayer. However, it would not hurt to check the tax laws of many countries. A warrior and others need to take the offensive position. Some of the changes are as follows.
Individual Retirement Accounts
When is a good time for the warrior to start saving for retirement? Right now. The self-employed, or employed having no retirement plan, can set up an Individual Retirement Account (IRA). The individual can put away up to $2,000 a year into this account against earned income, and this is an adjustment to your gross income. Furthermore, the income earned on this account is not subject to tax until the funds are withdrawn, which in most cases is not allowed until the age of 59 1/2. Early withdrawal suffers a penalty of 10 percent of the funds withdrawn, as well as, added income to the regular income tax.
Health Insurance for Self-Employed Individuals
A major concern these days is health insurance. As the cost of health care rises, people are joining some form of Health Maintenance Organization (HMO) whether on their own, or through their place of work. For the employed, health insurance is paid through the company, but a self-employed person is responsible for his own health insurance. Several years ago, a law was enacted to allow the self-employed person to take a credit for a portion of their medical insurance premiums. It has not changed, except that in future years, the amount allowed as an adjustment to income will increase. In 1997, an individual is allowed to take 40 percent of his premiums for medical insurance as an above-the-line adjustment to income. This amount will increase to 45 percent for 1998 and 1999, 50 percent for 2000 & 2001, and will gradually increase to 100 percent in 2007.
Other Changes Under the Taxpayer Relief Act '97
Things to Do for the Future
Keep accurate records. It is the responsibility of a taxpayer to have accurate and adequate records in the event of an audit by the IRS or a state/city taxing authority. Should this ever happen, it is extremely important to have supporting documentation for everything on a tax return.
For income on a tax return, you must have a W2 or 1099 form to support that which is reported. For the deductions, an individual should have a record of every penny spent. If classes are taken in stage combat, voice, etc., the taxpayer pays by check. The canceled check is your receipt. When an individual pays by cash, it is the responsibility of the individual to ask for a receipt. If one is teaching independently, one should issue receipt for payments received as well as, keeping track of all expenses. An excellent way to keep track of expenses is to buy a calendar and keep a daily record of what, where, and how money was spent.
Have more taken out now. When a person works on film or television projects, he is most likely asked to fill out a pay voucher each day. Many performers will put down the maximum number of dependents allowed. In doing this, they insure the most return on a day's wages. However, the clever warrior will put down the minimum number of dependents. When he receives his check, he will not have as much money as the other group; however he will faire a lot better at tax time. It is better to get by on less now, and perhaps end up with new-found money than to lose one's head trying to scrape around to pay a tax liability.
If you have any questions, you should consult with your tax preparer, or you can contact me at:
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Last updated February 2, 1998. For questions on this site contact Cecily M. McMahan, Media & Marketing Director for Skirmishers.