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Grammys, Healthcare, and Taxes01.24.14

We are very excited about the Grammy Award Ceremony this Sunday! But the winding road toward the Gramophone trophy is not always an easy or exciting one for many would-be artists.  Not least of these are the worries about money and the insecurity of going without health insurance at times, especially while working a stressful schedule and long hours. Many, if not most, freelance artists struggle to scrape by while working toward their dreams.

As huge music and arts fans ourselves, we put together a list of tax and healthcare tips for creative types. If you need help or have questions about any of these, of course, your local Jackson Hewitt Tax Pro would be happy to assist.

Healthcare harmony: You can deduct your health insurance premiums as a self-employed individual on your 2013 return. Just like the deduction for half of your self-employment taxes, you generally can deduct these premiums directly on your Form 1040.  Other deductions you pay as a self-employed individual can be deducted directly from you self-employment income including: travel expenses either by personal vehicle or public transportation like planes, trains and buses; hotel rooms; half of your meal expenses while you are on the road; legal expenses; recording studio expenses; advertising expenses; even costumes and stage make-up.  All these expenses and any others that are ordinary and necessary costs of being a self-employed entertainer may be deducted. 

Living gig to gig: If you have an irregular income, here’s some guidance on how to estimate your total income for the purposes of qualifying for one of the ACA programs. The Affordable Care Act programs look at your income in different ways.  First, the Marketplace estimates your income for the past 30 days to see if you may qualify for Medicaid or CHIP.  If not, the Marketplace projects your income for the full tax year to see if you may qualify for a tax credit.  The system asks questions about your income now – and how you expect that it might change.  Based on your responses, it estimates the amount of a credit that you might get.  The federal government then pays a monthly amount directly to the insurance plan that you pick – and you just have to pay whatever is left of the monthly premium.

If the federal government makes these advance payments of the credit to your insurance company, you must file a tax return and “settle up” your credit account.  At that point, you must calculate the credit amount based on your actual income and subtract any advanced credit paid to the insurance company during the year. You might get a larger refund if you overestimated your income when you applied for the credit.  Of course, you might also have to pay back part of the advance payment of the credit if you underestimated your income when you applied.

To prevent this from happening, make sure to report any changes in your circumstances to the Marketplace when they occur. An increase in income can result in a possible balance due at the end of the year, and a decrease can result in a higher credit or even “free” coverage through Medicaid.

As a self-employed taxpayer with fluctuating income, you should be estimating your annual income each quarter to help you determine estimated tax payments that will more closely match your income and self-employment taxes at the end of the year.  To help keep your advanced credit payments in line with your actual income, report these changes to the Marketplace each quarter.

A short call between sets can make all the difference to your taxes when you file in 2015.

Tuning up your coverage: If you already have insurance, you may be able to switch to less expensive coverage on the Marketplace. But make sure to choose carefully.  Even plans offered by the same insurance company may have different networks of doctors or may cover different benefits, so make sure you understand the plan you are buying.

You need a ticket to get in: You must enroll in a qualified health plan sold on the new Marketplaces to claim the tax credit. Not all insurance plans qualify for the new tax credit. Be sure to purchase insurance from the Marketplace. Don’t leave that credit on the table; it could save you hundreds, if not thousands, of dollars.

Going on tour: If you travel a lot, you may have questions about which state Marketplace to work with. The residency issues can get complicated for health insurance and for state income taxes.  When buying health insurance, you should generally apply in the state where you are now staying and plan to remain for a measure or two.  When things change, you just need to let the Marketplace know.  For income tax purposes, you will file in each state where you earn money and in your home state.  Fortunately, the home state generally allows a credit for taxes paid to another state, so your overall tax bill is reduced, even if the number of state returns you file isn’t.  And you definitely want to talk with a licensed insurance agent about picking a plan with an out-of-network benefit so that you can get care while you are traveling. 

Help with your tax issues, including state taxes, is always as close as your local Jackson Hewitt office, no matter where your tour takes you. We look forward to saying we knew you back when…